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US Economy

Creating a permanent underclass will have all kinds of negative social, economic and political fallout for decades to come:

http://pajamasmedia.com/blog/why-its-bad-business-to-hire-the-long-term-unemployed/?singlepage=true

Why It’s Bad Business to Hire the Long-Term Unemployed

The Obama administration has overseen the utterly preventable destruction of human capital that is arguably unprecedented in human history — and it's their fault.
March 15, 2011 - by Tom Blumer
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Those greedy employers are up to their nefarious tricks again. They’re even being overt about it.

If you’re unemployed, many of them won’t hire you. They won’t even talk to you. They don’t want you to waste your time, or theirs, filling out a job application, or submitting your resume. How absolutely awful of them.

Wrong. The “unemployed need not apply” phenomenon is an all too predictable and awful result of over two years of horribly misguided economic policy.

First, let’s acknowledge that employers are mostly acting rationally.

Especially in this economy, perhaps until recently — and that’s a big maybe — the main focus of many, if not most businesses, has been to figure out how to stay in business. In an environment where a serious hiring mistake may mean the difference between keeping the doors open or closing them, employers looking for help cannot afford to take unwarranted risks. Before they go into the hiring market, they ask themselves if the old reliables in their current crew can handle the increased workload caused by staff departures. They may also consider whether some or all of the tasks involved can be outsourced, automated, or even eliminated.

If they reluctantly conclude that they must hire someone new, company managers will go through their own internal networks of relatives, friends, and acquaintances to see if they can find someone — employed or unemployed, but largely prescreened — who is up to doing the work. They may also look at the possibility of proactively recruiting people who have impressed them in their business interactions while currently working at customers, suppliers, or competitors.

When the avenues just described come up empty, employers will let the general job market know that they are looking. It is there where the bias in favor of people who are currently employed comes out, and for several valid reasons.

If a person is already working somewhere else, they’re demonstrating that on a daily basis, not in the recent or sometimes distant past, their work habits and output are more than likely satisfactory to someone else. There’s at least a decent chance that this person has kept his or her skills sharp, and has kept up with technological and market developments in the industry. The effort involved in training such a person in their new job will often be fairly minimal. There will also be a lower likelihood that the person will flunk a background check, credit check, or their drug test.

With the unemployed, especially the long-term unemployed, the situation completely flips. Work habits and attitudes, even if once great, become suspect. Skills may have eroded. On the job training efforts are more likely to be substantial, take longer to stick, and are more likely to fail. The chances that the new person will steal because of financial hardship, has gotten into legal trouble while unemployed, or has fallen into substance abuse are all greater.

Employers who are avoiding the unemployed are merely saying, “We only have so much time and energy to put into a job search, and we can’t afford to make a business mistake. So we’re going to avoid considering the unemployed to reduce the chances of making such a mistake.” Contrary to the belief of those who apparently feel that it’s somehow an employer’s duty to hire the unemployed, and despite the fact that bad decisions to overwork current staff or to abandon necessary tasks are often made, there is nothing wrong with this. It’s about survival.

That this is not at all comforting to the unemployed who are aggressively looking for work is undeniable. Those who are in that position through no real fault of their own have every reason to be angry that they and millions of other Americans are in the same position. But they should not be mad at employers. They should be mad as hell at their government. It is their government, under the failed leadership of those who created what I have been calling the POR (Pelosi-Obama-Reid) economy for 2-1/2 years, which deliberately chose to create a high-unemployment economy.

In the 1980s, in the wake of a recession and economic conditions that were in many ways more severe than the 2008-2009 “Great Recession,” President Ronald Reagan chose the path of tax cuts and regulatory restraint. As a result, seasonally adjusted unemployment, which peaked at 10.8% in November 1982, the last month of that recession, fell almost continually during the following two years to 7.2%, and kept falling. Meanwhile, economic growth exploded. Employers, even those who would have preferred not to, hired the unemployed because there was no other way to meet the burgeoning demand for their companies’ goods and services.

By contrast, during the first 20 months after June 2009, the end of the most recent recession, unemployment rose from 9.5% to 10.1% several months later, and stayed virtually stuck at that level for a full year. In recent months, the unemployment rate has finally come down to 8.9%. But that’s largely because there are hordes of potential workers who are so discouraged that they’ve stopped even looking; thus, they aren’t included in the official unemployment statistics. As for economic growth, it’s been anemic compared to other post-recessionary periods, and through six quarters is less than half of that seen under Reagan.

I assert that the administration deliberately chose the high-unemployment option because its economists knew what happened the last time a president tried to bring about an economic recovery using “stimulus.” During the 1930s under Franklin Delano Roosevelt, unemployment never went below 12%. In spite of the known history, Democrats in Washington still chose Obamanomics.

The long-term consequences of that choice will likely be harder on the long-term unemployed than they were under FDR. Employers today are looking for specific, specialized skills. If you don’t have them, you won’t get hired. If you become unemployed and don’t use them, you can and often do lose them. Getting them back, or building new ones, can be arduously difficult, and prohibitively costly.

Sadly, there are early signs that the government is trying to figure out how to pin the blame for the “unemployed need not apply” phenomenon on employers instead of themselves. Sorry guys. You have overseen the utterly preventable destruction of human capital that is arguably unprecedented in human history — and it’s your fault.

Tom Blumer owns a training and development company based in Mason, Ohio, outside of Cincinnati. He presents personal finance-related workshops and speeches at companies, and runs BizzyBlog.com.

Article printed from Pajamas Media: http://pajamasmedia.com

URL to article: http://pajamasmedia.com/blog/why-its-bad-business-to-hire-the-long-term-unemployed/

URLs in this post:

[1] won’t hire you: http://seattletimes.nwsource.com/html/nationworld/2014248693_jobless17.html

[2] the POR (Pelosi-Obama-Reid) economy: http://www.bizzyblog.com/2008/07/03/the-pelosi-obama-reid-recession-porr-may-have-begun/

[3] less than half: http://i739.photobucket.com/albums/xx40/mmatters/ReaganomicsVobama022511.jpg

[4] never went below 12%: http://www.bizzyblog.com/2010/05/13/were-not-europe-but-were-getting-closer-and-fdr-took-us-here-before/
 
Someone is going to have to try harder:

http://finance.yahoo.com/news/CBO-Obama-understates-apf-1323525507.html?x=0

CBO: Obama understates deficits by $2.3 trillion
CBO: Obama budget underestimates deficits by $2.3 trillion over upcoming decade

Friday March 18, 2011, 9:22 pm EDT

WASHINGTON (AP) -- A new assessment of President Barack Obama's budget released Friday says the White House underestimates future budget deficits by more than $2 trillion over the upcoming decade.

The estimate from the nonpartisan Congressional Budget Office says that if Obama's February budget submission is enacted into law it would produce deficits totaling $9.5 trillion over 10 years -- an average of almost $1 trillion a year.

Obama's budget saw deficits totaling $7.2 trillion over the same period.

The difference is chiefly because CBO has a less optimistic estimate of how much the government will collect in tax revenues, partly because the administration has rosier economic projections.

But the agency also rejects the administration's claims of more than $300 billion of that savings -- to pay for preventing a cut in Medicare payments to doctors -- because it doesn't specify where it would come from. Likewise, CBO fails to credit the White House with an additional $328 billion that would come from unspecified "bipartisan financing" to pay for transportation infrastructure projects such as high speed rail lines and road and bridge construction.

Friday's report actually predicts the deficit for the current budget year, which ends Sept. 30, won't be as bad as the $1.6 trillion predicted by the administration and will instead register $200 billion less. But 10 years from now, CBO sees a $1.2 trillion deficit that's almost $400 billion above White House projections.

The estimated cost of the new health care law increased by about $90 billion, to $1.13 trillion, from 2012-2021. But the budget office didn't issue a new estimate of the taxes and savings in the legislation that pay for Obama's expansion of health insurance.

CBO had earlier projected the total of those offsets at $1.25 trillion. So the margin by which the new health care law reduces federal deficits appeared to be shrinking.

The White House's goal is to reach a point where the budget is balanced except for interest payments on the $14 trillion national debt. Such "primary balance" occurs when the deficit is about 3 percent of the size of the economy, and economists say deficits of that magnitude are generally sustainable.

But CBO predicts that the deficit never gets below 4 percent of gross domestic product. That means that by the time 2021 arrives, the portion of the debt held by investors and foreign countries will reach a dangerously high 87 percent. And, as a result, interest costs for the government would explode from $214 billion this year to almost $1 trillion by decade's end.

"The President's budget never reaches 'primary balance,' meaning that it fails to clear even the low bar the administration set for itself in justifying its claims of sustainability," said House Budget Committee Chairman Paul Ryan, R-Wis.

White House budget director Jacob Lew said in a blog post that "CBO confirms what we already know: current deficits are unacceptably high and if we stay on our current course and do nothing, the fiscal situation will hurt our recovery and hamstring future growth."

The estimate adds urgency to calls on Capitol Hill for action on runaway deficits that many economists fear -- if left unchecked -- could trigger a European-style debt crisis that could force draconian measures such as cutting federal benefits for seniors or forcing broad-based tax increases.

Just on Friday, 64 senators -- 32 in each party -- signed a letter to Obama calling on him to take the lead in coming up with a comprehensive deficit reduction plan along the lines of a plan issued last year by his own deficit commission. That plan called for a comprehensive overhaul of the tax code that would trade dozens of expensive tax breaks for lower individual and corporate rates, curb Social Security benefits and clamp down on spending across the budget.

"While we may not agree with every aspect of the commission's recommendations, we believe that its work represents an important foundation to achieve meaningful progress on our debt," the senators wrote. They said that "with a strong signal of support from you, we believe that we can achieve consensus on these important fiscal issues."

Conversely, the report is a sobering blow to House Republicans charged with developing a budget blueprint that could satisfy its core supporters in the tea party. Republican lawmakers had already acknowledged that they won't be able to generate a budget that comes to balance by the end of the decade.
(Interpolation: BS!)

Friday's news makes that task even more difficult.

edit to add: Here is one someone:

http://www.nationalreview.com/corner/262478/rand-takes-reins-robert-costa

Rand Takes the Reins
March 18, 2011 10:23 A.M.
By Robert Costa     

Washington — Sen. Rand Paul (R., Ky.) unveiled his five-year budget plan on Thursday. Sen. Mike Lee (R., Utah) and Sen. Jim DeMint (R., S.C.) joined Paul at the press conference. Paul’s package axes four federal departments: Commerce, Education, Housing and Urban Development, and Energy. It also repeals Obamacare and requires entitlement form to be implemented by 2016. If enacted, according to Paul’s office, it will reduce federal spending by nearly $4 trillion relative to President Obama’s budget.

“We think that there needs to be an alternative,” Paul said. “While official Washington is sitting on their hands and ignoring the ever-expanding deficit, I am offering a real plan to rein in spending and address the looming debt crisis.” DeMint added: “We can’t balance the budget just by cutting things at the federal level. We have to balance the budget by letting things go. You’ll see that in his budget as you get into the details. There are functions and departments, here at the federal level, that need to be devolved to the states.”

The freshman Republican is quickly establishing himself as a leading fiscal hawk. Paul’s latest proposal comes weeks after he outlined $500 billion in spending cuts. Earlier this week, Paul sought $200 billion in cuts via an amendment to a Senate small-business bill. A Paul aide told The Hill that the senator is “not abandoning” the $500 billion plan. Instead, the aide said, Paul wants to bring various cuts to the floor to “engage interest” and “see how much people are willing to cut.”
 
Structural problems. You can see the incentive at work, and with the incentive being that great, it is hard to imagine that this can be fixed quickly or effectively:

http://blog.heritage.org/2011/03/25/general-electrics-jeffrey-immelt-looter-or-producer/

General Electric’s Jeffrey Immelt: Looter or Producer?
Posted March 25th, 2011 at 11:00am in Ongoing Priorities with 0 comments Print This Post

Ayn Rand did not sell almost 7 million copies of Atlas Shrugged by creating ambiguous characters. Rand’s world is neatly divided between the heroic “producers” (like steel magnate Henry Rearden) and the dastardly “looters” (like lobbyist Wesley Mouch). Further simplifying things, the good guys are all stunningly gorgeous captains of industry (Grant Bowler as Rearden pictured) while the conniving politicians are all … a bit frumpier (Michael Lerner as Mouch pictured).

Unfortunately, the real world is a bit more complicated. The line between productive capitalist and looting collectivist is a lot less stark. And often the sleaziest public servants are quite handsome (John Edwards not pictured). Which brings us to today’s New York Times story on General Electric’s tax strategy and GE CEO Jeffrey Immelt. The NYT reports:

General Electric, the nation’s largest corporation, had a very good year in 2010. The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States. Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.

And 2010 was no anomaly. The Times goes on to report that over the past five years, GE has accumulated $26 billion in American profits while receiving a net benefit of $4.1 billion from the IRS. This is no accident. As The Washington Examiner’s Tim Carney has reported, days after President Barack Obama’s inauguration, Immelt wrote to GE shareholders:

[W]e are going through more than a cycle. The global economy, and capitalism, will be ‘reset’ in several important ways. The interaction between government and business will change forever. In a reset economy, the government will be a regulator; and also an industry policy champion, a financier, and a key partner.

President Obama solidified this partnership in January when he named Immelt chairman of the President’s Council on Jobs and Competitiveness. But this placement did not come cheap. The Times notes that GE has spent more than $200 million on lobbying over the last decade. And that is just the political spending that GE is willing to label as lobbying. There are plenty of other unaccounted-for kickbacks to politicians as well. Consider this nugget also from NYT:

The shelters are so crucial to G.E.’s bottom line that when Congress threatened to let the most lucrative one expire in 2008, the company came out in full force. G.E. officials worked with dozens of financial companies to send letters to Congress and hired a bevy of outside lobbyists.

The head of its tax team, Mr. Samuels, met with Representative Charles B. Rangel, then chairman of the Ways and Means Committee, which would decide the fate of the tax break. As he sat with the committee’s staff members outside Mr. Rangel’s office, Mr. Samuels dropped to his knee and pretended to beg for the provision to be extended — a flourish made in jest, he said through a spokeswoman.

That day, Mr. Rangel reversed his opposition to the tax break, according to other Democrats on the committee.

The following month, Mr. Rangel and Mr. Immelt stood together at St. Nicholas Park in Harlem as G.E. announced that its foundation had awarded $30 million to New York City schools, including $11 million to benefit various schools in Mr. Rangel’s district.

We’re sure there was no quid pro quo between Rangel and Immelt. That would be bribery, which is illegal. And there is nothing illegal about lobbying or giving to charity. In fact, in our current system, it is hard for a capitalist to compete without “investing” in politics. The U.S. corporate tax rate is the highest in the world at 35 percent. If GE did not have a Washington office dedicated to lobbying for benefits from the government, over the last five years it would have had to pay somewhere around $9.1 billion in taxes on its $26 billion in American profits alone. Instead it got a $4.1 billion benefit. That is a $13.2 billion payoff on a $200 million lobbying investment. What kind of capitalist could say no to that kind of return on investment?

When once-great exemplars of capitalism like GE are profiting more by investing in lawyers and lobbyists in Washington instead of engineers and innovators, our system is clearly broken. We can start to fix these incentives by reducing the corporate tax rate. But much broader reform of our tax and regulatory system is needed.
 
Even if the entire $500 billion in cuts from the "Roadmap" plan were to be enacted, the day of reckoning will still arrive without entitlement reform, specifically Medicare, Medicaid and Social Security:

http://pajamasmedia.com/blog/social-security-obama-and-the-democrats-dodge-their-debris/?singlepage=true

Social Security: Obama and the Democrats Dodge Their Debris

Posted By Tom Blumer On March 29, 2011 @ 12:00 am In Money,Politics,US News,economy | 65 Comments

Annually for well over a decade, the Social Security system’s trustees have been telling the public in polite words that a) its “trust funds” (old age and disability) represent an accounting fiction, and b) that the time when yearly benefits paid would exceed tax collections is not all that far away.

In a report (large PDF [1]) originating from its Office of Management and Budget (OMB) in 2000, at Page 338, the Clinton White House also acknowledged those verities. Specifically, as the Washington Post’s Charles Krauthammer noted a few weeks ago [2], OMB analysts wrote:

    These balances are available to finance future benefit payments and other trust fund expenditures — but only in a bookkeeping sense. These funds are not set up to be pension funds, like the funds of private pension plans. They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large trust fund balances, therefore, does not, by itself, have any impact on the Government’s ability to pay benefits.

Jacob (“Jack”) Lew was Bill Clinton’s OMB director [3] at the time of that 2000 report. He has held the same job under President Obama since late last year [4].

For most of the decade which followed, the trustees told us that the Social Security system would begin running cash deficits in the mid- to late-2010s. Then, in the late spring of 2008, along came what I have since been calling the POR [5](Pelosi-Obama-Reid) economy. The four-quarter recession as normal people define it [6] which Nancy Pelosi, Barack Obama, Harry Reid, and their party caused [7], followed by the awful policy choices they made once they gained full control over the executive and legislative branches of government, have led to a “recovery” so anemic that, in the words of Mort Zuckerman [6], the economy “is neither certifiably dead nor robustly alive.”

That pathetic “recovery,” accompanied by heavy doses of administration-induced economic uncertainty [8], has caused unemployment to remain historically high. The 21-month string [9] of seasonally adjusted unemployment rates of 9.0% or higher which finally ended in February is the longest such streak in the 62 years such records have been kept. The government’s Household Survey used to determine the unemployment rate tells us that only 875,000 more Americans [10] were working in February 2011 compared to a year earlier. The Establishment Survey used to report jobs added or lost shows about 1.25 million jobs [11] added; but its figures have been retroactively adjusted downward by hundreds of thousands of jobs in each of the past two years (378,000 in February 2011 [12]; 902,000 a year earlier [13]).

The payroll tax receipts on which Social Security depends have plummeted, and remain depressed. Such collections, which amounted to $193.9 billion during the fourth quarter of 2008 [14], came in 6.9% short of that mark at only $180.5 billion [15] in the fourth quarter of 2010, six quarters after the recession ended.

The most recent Social Security Trustees report [16], issued last year based on the situation at the end of 2009, told us the following:

    Social Security expenditures are expected to exceed tax receipts this year for the first time since 1983. … This deficit is expected to shrink substantially for 2011 and to return to small surpluses for years 2012-2014 due to the improving economy.

As already seen, the economy in 2010 did not improve in a way that would have helped the Social Security system retain its last shreds of solvency. As a result, the Congressional Budget Office now projects [17] Social Security cash deficits as far as the eye can see, rising from over $40 billion in 2011 to over $100 billion by 2021. Until recently, today’s workers were funding the retirements of today’s retirees. Now generations yet unborn have also been conscripted for that same purpose.

Yet the Obama administration, including the aforementioned, and now about-facing Jack Lew, insists that Social Security must be off-limits in any deficit discussions because, as Lew wrote in response [18] to a USA Today editorial, “Social Security benefits are entirely self-financing.” Suddenly, the “trust fund” which Lew’s 2000 OMB correctly asserted “do(es) not consist of economic assets” is what will in 2011 and beyond enable the system to “have adequate resources to pay full benefits for the next 26 years.”

The 2000 version of Jack Lew was right. Politicians raided Social Security for decades by “borrowing” its surpluses and squandering over $2 trillion [19]. But that wasn’t enough. Except for a brief, primarily Republican-inspired period [20] around the turn of the century, Democratic and Republican administrations have continually added to the nation’s debt load. The Obama administration has taken it to a horrifying new level. By September 2011, it will have rung up over $4 trillion [21] in additional deficits in three fiscal years (it gets responsibility for fiscal 2009 because, as noted earlier, Democrats created the POR economy before that fiscal year began). It has also increased the national debt by roughly $5 trillion.

So, if we’re to believe Team Obama, the 2011 version of Jack Lew, and Harry Reid — who doesn’t see a need to deal with Social Security for 20 years [22] — a government whose nonpublic debt is projected to be within a whisker [23] of what many experts believe is the code-red level of 90% of GDP in 10 years is automatically going to be able to continue to fund Social Security’s cash deficits for the next 26 years. Horse manure.

These people know the truth, and they’re deliberately dodging it. They’re cynically hoping to ride a wave of ginned-up opposition to any and all entitlement reform in hopes of getting across the finish line in the 2012 elections. I don’t believe I’ve ever seen a more cynical strategy on a problem so important in my lifetime.

I hope they fail.

Article printed from Pajamas Media: http://pajamasmedia.com

URL to article: http://pajamasmedia.com/blog/social-security-obama-and-the-democrats-dodge-their-debris/

URLs in this post:

[1] large PDF: http://www.gpoaccess.gov/usbudget/fy00/pdf/spec.pdf

[2] noted a few weeks ago: http://www.washingtonpost.com/wp-dyn/content/article/2011/03/10/AR2011031005932.html

[3] OMB director: http://www.topfamousbiography.com/biography/20006/jacob_j_lew_biography.html

[4] since late last year: http://www.whorunsgov.com/Profiles/Jacob_Lew

[5] the POR : http://www.bizzyblog.com/2008/07/03/the-pelosi-obama-reid-recession-porr-may-have-begun/

[6] as normal people define it: http://www.investorwords.com/4086/recession.html

[7] caused: http://pajamasmedia.com../../../../../blog/our-recession-began-in-earnest-after-obamas-election/

[8] economic uncertainty: http://pajamasmedia.com../../../../../blog/it%E2%80%99s-the-uncertainty-stupid/

[9] The 21-month string: http://i739.photobucket.com/albums/xx40/mmatters/SeasAdjUnemp1977toFeb2011.png

[10] only 875,000 more Americans: http://www.bls.gov/news.release/empsit.a.htm

[11] about 1.25 million jobs: http://i739.photobucket.com/albums/xx40/mmatters/EsablishmentSurveyBLS2001toFeb2011.png

[12] in February 2011: http://www.bls.gov/ces/cesbmk10.htm

[13] a year earlier: http://www.bls.gov/news.release/archives/empsit_02052010.htm

[14] the fourth quarter of 2008: http://fms.treas.gov/mts/mts1208.txt

[15] only $180.5 billion: http://fms.treas.gov/mts/mts1210.txt

[16] Trustees report: http://www.ssa.gov/oact/TRSUM/tr10summary.pdf

[17] now projects: http://i739.photobucket.com/albums/xx40/mmatters/SocSecProjectedDeficits2011to2021.png

[18] wrote in response: http://www.usatoday.com/news/opinion/editorials/2011-02-22-editorial22_ST1_N.htm

[19] over $2 trillion: http://pajamasmedia.com../../../../../blog/social-security-anything-but-secure/

[20] primarily Republican-inspired period: http://www.bizzyblog.com/2009/05/04/ap-ohio-writer-pulls-a-calvin-woodward-explains-fundamental-truth-about-john-kasich/

[21] over $4 trillion: http://pajamasmedia.com../../../../../blog/obamas-unsustainable-and-gutless-budget-proposals/

[22] for 20 years: http://www.lvrj.com/blogs/politics/Reid_wants_Social_Security_debate__in_20_years.html

[23] within a whisker: http://i739.photobucket.com/albums/xx40/mmatters/CBO2011to2021DebtVsGDP-1.jpg
 
Follow link for charts and graphs. Canada is also in a similar situation, and a full fledged taxpayer revolt could start at the municipal level (bottom up) rather than Federal level (top down) in either nation.:

http://www.zerohedge.com/article/guest-post-could-declining-house-values-spark-next-taxpayer-rebellion

Guest Post: Could Declining House Values Spark The Next Taxpayer Rebellion?
Tyler Durden's picture
Submitted by Tyler Durden on 03/30/2011 09:35 -0400
 
Submitted by Charles Hugh Smith from Of Two Minds

Could Declining House Values Spark the Next Taxpayer Rebellion?

You might think property taxes have declined 30%, paralleling declines in housing values. But nope--property tax revenues have shot up 27% just since 2006.

Something remarkable happened to property taxes in the U.S. while housing lost 31% of its value from 2006 to 2009: they went up by $100 billion (27%). Equally remarkably, as we can see from this U.S. Census Bureau data on state and local tax revenues, property taxes went up even when housing slumped in the early 1990s.

So though U.S. housing continues losing value--U.S. home prices declined in January, continuing a downward trend that began in August, with average U.S. home prices retreating to summer 2003 levels, according to the S&P Case-Shiller home-price indexes--property tax revenues continue their inexorable rise.

I've plotted out the total national property tax revenues on a chart of the Case-Shiller home-price index.

According to the Bureau of Labor Statistics inflation measures, if property taxes had risen along with inflation, the total property tax revenues nationally would have risen from $210 billion in 1996--more or less about the start of housing's decade-long bubble--to $296 billion in 2011.

But property taxes totaled $476 billion in 2009, a solid 60% ($180 billion) above inflation.

So even as the net worth of property has fallen by a third, the property taxes collected from the owners have risen 27%. Exhibit A in this ceaseless rise of property tax revenues is the structural shortfalls in state and local government budgets between what was promised to various fiefdoms and constituencies at the apex of various bubbles, and what is sustainable in non-bubble times. Here is a chart of California's systemic gap between revenues and expenditures. Please note that the apparent alignment of revenues and expenditures in 2010-11 is entirely illusory: the budget gap is $26 billion or perhaps more, once the fantasy accounting is removed.

And here is a chart of house prices in a classic symmetrical post-bubble deflation. I've drawn a target which is drawn from the reversion-to-the-mean model that the majority of bubbles track: prices don't just retrace to the starting lift-off point, they overshoot to a level below that initial line.

As I reported in House Values Fall 30%, But Property Taxes Keep Rising  (December 22, 2010), the nation's state and local governments will collect an estimated $476 billion in property taxes in 2010--about 90% of state income tax revenues of $250 billion and sales tax revenues of $286 billion combined.

A decade ago, property taxes were roughly equivalent to sales taxes. In 2000, property taxes totaled $247 billion and sales taxes came in at $223 billion-- a differential of roughly 10%. Sales taxes have increased by 28% since 2000-- roughly in line with the rise in consumer prices.

State income taxes have risen nationally from $217 billion in 2000 to $250 billion in 2010, after peaking at $303 billion in 2008, just as the global financial meltdown began. That's a rise of $33 billion, or 15%--actually less than inflation (27% from 2000 to 2010).

Add all this up and we can see that local governments have become far more dependent on property tax revenues than they were in 2000. Thanks to stiff increases in junk fees and taxes of all kinds, state and local government revenue has climbed back to its pre-recession height of $1.29 trillion, roughly equal to the $1.32 trillion collected in 2008. In terms of total tax revenue, the recession is over--yet the gap between expenditures and revenues continues to widen in most states and local governments.

As their properties continue sliding in value, devastating their net worth, do you reckon the average homeowner might start resenting the rapid rise of the taxes they pay for the privilege of owning real estate?

Imagine if your income taxes rose by 27% even as your income declined by 30%.

The ultimate tax hostage is the property owner. The business owner can pull up stakes and leave, the wage earner can transfer or get another job elsewhere, and the consumer can restrict his/her consumption to lower the burden of sales taxes, but the property owner is the perfect tax donkey because the transaction costs of selling are so prohibitive.

With some 11 million homeowners owing more on their mortgage than their house is worth, i.e. they are underwater, then selling is no longer an option unless the bank accepts a short-sale--something the lenders are loathe to do.

Given that there's about 48 million mortgaged homes now, then those 11 million represent about 23% of all homeowners.

How long will property owners keep swallowing significantly higher property taxes even as the value of their real estate continues declining? It's an open question. I suspect the answer won't be known until some invisible breaking point is reached, and voters simply rebel against higher taxes while their own net worth and incomes stagnate.

Just because there is little visible resistance to sharply higher property taxes (and other taxes and junk fees as well, of course) doesn't mean resistance isn't building below the surface, unreported by a financial media obsessed with the S&P 500 as the only metric of wealth and prosperity and unnoticed by state and local governments obsessed with stripmining more tax revenues by any means at hand.

The tax donkey is already weighed down with a heavy load, and it won't take much more than a double-dip recession, higher prices for essentials and declining home values to snap the pack animal's weakened back.

The rising S&P 500 looks good as propaganda, but for most Americans, that's about as edible and nourishing as an iPad.
 
Wow, even the Ryan Roadmap won't be enough to turn things around:

http://minx.cc/?post=314334

Ryan's Plan: Necessary But Not Sufficient (Bumped)

Paul Ryan released his new deficit-cutting budget plan today, saving almost $6 trillion over the next 10 years, which is very nice. Really. The National Committee on Fiscal Responsibility and Reform released a similar plan last December, saving almost $2 trillion by 2020, and it too was nice.

Really.

Despite my tone, I am a big fan of these plans, and earnestly hope that at least most of their features will be implemented. But lest we violate the guiding maxim of the estimable Winston Wolfe, let's remind ourselves of exactly how bad things are, so that we understand just what these plans can and can't do for us.

In FY 2011, we are running a $1.425 trillion deficit. This single year of spending will take our public debt from 62.1% of GDP up to 69.1% of GDP. Now, in our daily life, whenever we run up a debt the first thing we ask is: How long will it take me to pay this off?

So, how long will it take to pay off the debt we're adding just this year? Or, a slightly easier task: how long will it take to get the debt/GDP ratio back to what it was only 6 months ago?

Please understand that we're talking about money we're burning right now. We're halfway through the fiscal year, so we're right in the middle of running up this tab that we're going to have to pay off. And the Dems won't let us slow our spending to any significant degree.

So, how long? Let's point out right away that the White House budget never pays a penny of the 2011 debt back. In fact, the public debt keeps climbing and climbing, reaching 87% of GDP by 2021. So only the two budget reform plans are even trying to pay that money back. And just how fast are they hoping to do that?

Have a look:*

PublicDebtRyanvsCommissionSmall.gif

The gray line is where we were at the end of September 2010 ==> that's our target. The blue line is the Obama administration's baseline budget. As you can see, it sails off into the stratosphere. This is the budget plan the Democrats are defending.

The teal line and red line are the Deficit Commission and Ryan's plan, respectively. The teal line makes it back to the gray line by the end of 2022. Ryan's plan? Well, you'll have to wait another 10 years.**

So here's the bottom line. If you believe that the GDP will start growing at a healthy rate and continue at that rate forever, and if you manage to reform Medicare, Medicaid, and Social Security, and if you reform the budget process, and if you reform the tax code, and if you accomplish all these reforms in FY12, then you might be able to pay off this year's spending within 11 to 12 years. Or maybe the decade after.

This is what the President and his crackerjack economic team have wrought. A one-year deficit that is so large that it can only be paid back if everything goes exactly right. And if everything goes exactly right, we're still looking at decades before we can get back to the debt level we had only 6 months ago.

But, on the bright side, perhaps as early as 2023 we can start working on paying off the FY10 deficit.

So when the Dems start their caterwauling about how "extreme" the GOP's suggestions are, just remind them that these "extreme" suggestions may not succeed in paying back even 1 year of Obama's spending.

*S. Weasel worked on an earlier version of that chart, using Ryan's old numbers. It looked great, but then it became obsolete before I got around to using it. I wanted to get this up quickly, so I just plotted it up myself. My apologies to Ms. W., and my thanks for her efforts.

**One of the key reasons that Ryan's plan pays down the debt more slowly is that he caps government revenue at 19% of GDP, while the National Commission lets it keep rising towards 21%. The Commission didn't take into account the likely negative effect of increased government revenue on GDP (Ace also talks about this below), so their projections are likely to be optimistic.
 
First 4 years of Obama's presidency has seen $5 trillion in new debt with no end in sight.
 
Since energy is the foundation of modern economies, looking at the energy policy and its effects is a good way of forecasting future economic growth. At a time when massive economic growth is needed to cut unemployment and pay down the deficit and debt, the economy will be literately starved of energy and financial resources:

http://pajamasmedia.com/blog/obamas-new-energy-policy-a-lesson-in-stealth-socialism/

Obama’s New Energy Policy: A Lesson in Stealth Socialism

Posted By Mike McDaniel On April 6, 2011 @ 12:00 am In Uncategorized | No Comments

President Barack Obama, facing political heat and plummeting poll numbers inevitably generated by rapidly rising gasoline and energy prices, is calling for a one-third reduction in oil imports over the next decade. How will this potentially laudable — but likely farcical — goal be accomplished?

    By boosting domestic energy production, offering incentives to increase the use of biofuels and natural gas, and making cars and trucks more fuel-efficient.

According to the AP [1] and Fox:

    Obama long has said the U.S. needs to reduce its dependency on oil — particularly from overseas sources — for financial [1], security and environmental reasons. In his State of the Union address in January, he set a goal of having 80 percent of U.S. energy come from clean sources like wind, solar and nuclear by 2035.

But what about domestic oil production?

    The administration says it still sees vast opportunities to expand on domestic oil and gas production. An Interior Department report released ahead of Obama’s speech Wednesday said more than two-thirds of offshore leases in the Gulf of Mexico are sitting idle, neither producing oil and gas nor being actively explored by the companies [1] who hold the leases. The department said those leases could potentially hold more than 11 billion barrels of oil and 50 trillion cubic feet of natural gas.

And what about nuclear energy?

    Officials said Obama also would reaffirm his support for nuclear power, which has come under intense scrutiny in recent weeks after an earthquake and tsunami in Japan [2] severely damaged a nuclear power plant there.

One might initially be tempted to see this as an admission of past failings and the adoption of new, rational policies to lower energy prices for Americans, but it is no such thing. In Clintonian fashion, it depends on what the meaning of “boost” is, but this is primarily one of the oldest cons in the book: bait-and-switch.

Mr. Obama, as I’ve previously argued in these pages, is provably a socialist, but a particularly American kind: a stealth socialist. Stealth socialism is a matter of tactics. Stealth socialists, recognizing that an open Marxist agenda will never fly with the American people, adopt a patient, long-term strategy whereby they attain the same goals but through misrepresentation, misdirection, lies, and bait-and-switch. These are, coincidentally, the tactics of the con man. Having been a community organizer, Mr. Obama is particularly adept at these tactics and with the use of the primary vehicle for their implementation: rhetoric.

In Radical-In-Chief: Barack Obama and the Untold Story of American Socialism, Stanley Kurtz carefully and convincingly documents stealth socialism and Mr. Obama’s full immersion in it. Stealth socialists are careful never to allow themselves to be known as socialists, which is certainly Mr. Obama’s practice. Mr. Kurtz does what the media would not do in 2008, and still scrupulously avoids: he investigates and reports on Mr. Obama’s associations, motivations, and the truth of his policies.

Bait-and-switch, for those not familiar with the con man’s lexicon, is promising one thing but steering people into accepting another. A classic example is the appliance store that advertises an attractive microwave oven for $20, but when customers stream into the store, explains that the last of the $20 ovens (if such ovens ever existed) was just sold, and further explains that there are some wonderful $60 dollar ovens that are just as good. Having expended time, effort, and money, many people will be disposed to being steered to the more expensive product, which was the store’s dishonest intention all along.

The most egregious example of this execrable con is ObamaCare.

Misrepresentation? Mr. Obama promised a health care utopia that would not only insure tens of millions of the currently uninsured at no additional cost, but would improve health care in every way while costing less and simultaneously lowering the deficit. That’s right, ladies and gentlemen! Come on down to the BHO Discount Appliance Emporium for $20 health care with a $30 rebate! But act now! It’s going fast!

Misdirection? Large parts of the $20 health care oven don’t take effect until after the 2012 election cycle, and funding is frantically juggled into the future when the real economic bad news finally catches up and everyone is left with a far more expensive product, inferior to the product it replaced. The idea was that by imposing as much of ObamaCare as possible on the public for as long as possible, enough of the public would come to feel that they had too much invested to turn down the switch. This is the bait — the building of such huge bureaucracies and such addiction in huge constituencies that it would be virtually impossible to shut the bureaucrats down and to wean the addicts off the drug, thus cementing the switch. The entire system is designed to fail, and to fail obviously, because the final goal — intended all along — is a single payer system and maximum control over the health and the very lives of Americans. This is classic stealth socialism.

Fortunately, economic reality has already begun to catch up with Mr. Obama, and even he and many members of his party and his supporters have had to admit the misdirection and misrepresentation. As Nancy Pelosi forecast, the bill was passed, and people have been finding out what’s in it. But to her surprise, they’re not taking the bait. The switch has been prematurely exposed by more than a thousand waivers (and counting), bad budget news, and exploding deficits. Even Democrats who voted for ObamaCare have had no choice but to admit the truth. Democrats such as former Indiana Senator Evan Bayh admitted [3] that ObamaCare doesn’t address rising health care costs:

    The real issue that was not addressed, Laura, that you’ve raised now, and I think appropriately, is the cost, the cost to both the government and to your listeners. We need to take steps now to get the costs of health care under control. That was not dealt with really in an aggressive way in this legislation. I think it now needs to be.

Now comes Mr. Obama with his newest con, as always, using stealth socialist bait-and-switch tactics. He suggested that young people have a “responsibility” to buy fuel-efficient cars. To save the planet? Not quite. To provide a market for the manufacturers who make them, manufacturers such as GM, which makes the Chevy Volt. In a free market, if there is no demand for a product, no rational manufacturer will build it. But this is the new Obama age of green, socialist technology and government-owned auto companies, where the intentions of bureaucrats must drive demand. Mr. Obama added:

    There are no quick fixes. And we will keep on being a victim to shifts in the oil market until we finally get serious about a long-term policy for a secure, affordable energy future.

Mr. Obama denied that he had any hand in higher gas prices, and argued that any claim that his administration had shut down oil production “doesn’t track with reality.” There are a great many Gulf Coast (where production is down some 360,000 barrels of oil per day), Alaskan, and other American oil companies and workers whose reality is quite obviously on a different track — a high-speed rail to unemployment and bankruptcy.

In this case, the bait is the promise of reasonable fuel prices, more American jobs, and economic prosperity. The switch is virtually everything he has proposed. Keep in mind that Mr. Obama’s first instinct is to handle every situation by making a speech about it. He seems to believe that whatever he says in a televised teleprompter reading is reality because he said it, and the public should be thanking him — not only for making the reading, but for the policies expressed, regardless of whether they are true or ever come to fruition. In the case of energy policy and much else, all that remains for the public is eloquent-sounding but ephemeral rhetoric.

Despite what Mr. Obama says, he knows that he has many supporting, stealthy resources to work his will. He can, with no fanfare or publicity, produce executive orders at odds with his rhetoric. His ever-expanding legion of bureaucrats will do everything possible to make end-runs around Congress and to prevent the implementation of his feigned intentions, particularly in the areas of energy and the environment. And failing those options, legions of environmentalists and animal-rights groups will file lawsuits to obstruct anything they might not like, relying on willing and helpful judges in the federal judiciary. To date, they have even opposed and litigated the very foundations of Mr. Obama’s brave new world of green energy, including on- and offshore windmills and even a solar plant in the Mojave Desert.

As a public service, an exposition/translation of Mr. Obama’s obviously intended switches:

(1) Reducing oil imports by one-third within 10 years

This could be done today, but the problem remains: what replaces it? Mr. Obama claims that America has only about 2% of the world’s oil reserves, but he is lying by means of cherry-picked statistics. To date, Mr. Obama has indulged only in magical thinking about current green technologies that absolutely cannot make up the deficit, or potential future technologies that will almost certainly always be future technologies. Without a plan to replace that oil with a substitute that is, this very day, completely viable in application and cost, reducing imports will only further cripple the economy.

(2) “Clean technology” comprising 80% of U.S. energy needs by 2035

Unicorn horns and fairy dust don’t conjure nonexistent technologies into being. Wind, solar, and similar technologies will produce only a marginal percentage of American energy needs, and only if they are fully exploited. Mr. Obama has shown no sign of doing that. The experience of other nations in subsidizing “green” jobs has proved an economic disaster, as countries like Spain have lost at least two jobs — often more — in the rest of the economy for each “green” job created. Replacing any significant portion of America’s current energy sources would take unprecedented scientific breakthroughs, stratospheric governmental and individual cash outlays, and wholesale changes in every facet of American life, particularly if imposed on a timetable picked out of a hat.

(3) “Incentives” for increased biofuel production

Ethanol has been a disaster [4]. Gasoline is ubiquitous because it can be economically produced and because it contains substantial energy. Ethanol contains substantially less energy [5] than gasoline, so it produces less engine power and reduced mileage. It adds complexity to the supply chain, which will raise the cost of the fuel, and it arguably takes more energy to produce a gallon of the stuff than it actually contains. In addition, it adds alcohol to the fuel, which absorbs moisture, and because it is an effective solvent, damages plastics and fiberglass and melts various rubber and plastic gaskets and seals. It is also corrosive, long-term, to automotive engines. Ethanol production has reduced the world corn supply, contributing to food shortages around the world and increased food prices in America. Of course, “incentives” mean that dollars, which must be borrowed, are being used to provide the aforementioned dubious benefits. Other biofuels promise to be no different, and potentially, worse, and all in the name of being “not” gasoline.

(4) “Support” for nuclear energy

It is very easy to express support for nuclear energy or universal hot tubs, but any politician — and particularly Mr. Obama — must be judged on what they do. To date, Mr. Obama has done nothing to allow or even to encourage additional nuclear capacity and has entirely shut down the Nevada Yucca Mountain radioactive waste storage facility intended to provide a safe national depository, which has been under development for decades. Unless and until all of the permits and authorities necessary to build new power plants are issued and construction begins, Mr. Obama’s support amounts to nothing more than rhetoric read from a teleprompter.

(5) Increased fuel efficiency for newly manufactured vehicles

It’s easy to mandate increased efficiency, and Mr. Obama has already done that. It’s much harder, and much more expensive, to produce the engineering necessary to match fanciful numbers pulled out of a hat. With current technology and the technologies that might reasonably be developed in the foreseeable future, significant increases in fuel efficiency will require much smaller, lighter, and more aerodynamic vehicles, all of which means far less passenger capacity and a much higher highway death rate.

(6) Being “serious about a long-term policy for a secure, affordable, energy future”

Being serious would acknowledge two simple facts: (1) Absent virtually inconceivable scientific breakthroughs, the only way to provide sufficient affordable energy supplies into the foreseeable future is through oil, coal, and nuclear energy development. (2) Mr. Obama has expressed his ardent desire to make energy costs “necessarily skyrocket” by artificially driving up the cost of oil products and by destroying the domestic coal industry. Absent the realization that unless we drill for oil wherever it is cost-effective (No, Mr. Obama, oil companies aren’t sitting on productive leases), dig coal, and build new power plants, new refineries, and new nuclear plants, America will continue to be reliant on hostile nations for a significant portion of our energy supplies.

Only significantly increased American production and development can possibly reduce our reliance on foreign suppliers, yet Mr. Obama wants to give Brazil our technologies and assistance so that he can spend money we don’t have to buy the fruits of our technologies and assistance from Brazil. This makes no national security or economic sense, yet it is in line with virtually all of Mr. Obama’s other energy policies and actions. If a Manchurian Candidate bent on destroying the nation assumed the presidency, how would their energy policies differ from Mr. Obama’s?

The only reasonable explanation is that his actions directly reflect the desires and plans that he and such “lightworkers” as Secretary of Energy Chu have long made public. In May of 2009, Mr. Obama said:

    We can’t drive our SUVs and eat as much as we want and keep our homes on 72 degrees at all times … and then just expect that other countries are going to say OK.

They fully intend to reduce the supply of affordable energy so drastically that Americans will be forced to abandon their vehicles, to abandon air conditioning, to heat their homes in winter to only Scrooge-like levels, and to accept the transportation, comfort, and survival alternatives they deem fit to mandate. Mr. Obama maintains the White House thermostat [6] on “Sahara Desert,” but of course, this is not in conflict with his desires for the rest of America. This, like the eventual forced acceptance of ObamaCare, is the ultimate big switch.

That most of America does not have access to public transportation, that most of America does not and cannot live within walking distance of their employment, and that their lunatic high-speed rail proposals would serve only a tiny portion of the population at ridiculous expense and at a great and perpetual financial loss seem to concern them not at all. The horrendously destructive effect of their ruinous policies on the economy is also apparently not a concern.

The con is on and the bait has been set. America’s redemption lies in enough of the American public understanding that they are being conned, and in their willingness to reject the switch. In this case, hope exists only if sufficient Americans realize that Mr. Obama has violated the con man’s prime directive: pull off the con and flee before the marks know what hit them. Stealth socialists are unable to flee. They must stick around to force their will on the marks and to ensure that they are never able to throw off government intrusion and control. Even so, Americans will have one chance in 2012 to limit and perhaps reverse the damage, one chance to redeem American prosperity and true international leadership and prestige. Buying the cons of con men and stealth socialists leads only to ruin.

Article printed from Pajamas Media: http://pajamasmedia.com

URL to article: http://pajamasmedia.com/blog/obamas-new-energy-policy-a-lesson-in-stealth-socialism/

URLs in this post:

[1] AP: http://www.foxnews.com/politics/2011/03/30/obama-energy-security-strategy/

[2] Japan: http://www.foxnews.com/topics/natural-disasters/japan-earthquake.htm%22%20%5Cl%20%22r_src=ramp

[3] admitted: http://hotair.com/archives/2011/03/30/bayh-yeah-obamacare-doesnt-address-rising-health-care-costs/

[4] Ethanol has been a disaster: http://www.slate.com/id/2122961/

[5] Ethanol contains substantially less energy: http://www.fuel-testers.com/ethanol_fuel_disadvantages.html

[6] maintains the White House thermostat: http://www.hotair.com/archives/2009/01/29/the-age-of-heat-for-me-but-not-for-thee/

The only point which *may* be contentious is biofuel. Corn ethanol is a disaster both from a food production and energy standpoint, but other alternatives such as using algae and bacteria to produce true oil substitutes would not have the deficiencies noted here. Bio oil can steadily displace mineral oil as production rises and the technologies refined. In the short term, new oil drilling technologies like "fracking" are putting old fields back in production and unlocking huge now finds like the Bakken in North Dakota and Saskatchewan, so there may be a means to "surge" oil production post 2012.
 
Paul Ryan on the "Roadmap": http://www.youtube.com/watch?v=Xwv5EbxXSmE&feature=player_embedded#at=122

We now have three plans proposed to cut spending, reduce the deficit and turn things around; Ryan's, Rand Paul's and the Simpson- Bowles commission report (which is the least dramatic, but probably most politically doable).

One thing seems quite clear; the current path is unsustainable and will either be stopped with a controlled draw down (such as these plans), or a tipping point will be reached and the spending will stop by default as the economy crashes (depression, stagflation or hyperinflation are three possibilities; we are already into stagflation territory. Less pleasant are various forms of tax revolt and civil insurrection, or just plain breakdown of authority).

Since Canada is so dependent on the US economy, our situation will be like a lifeboat lashed to the deck of the Titanic...

update to add:

http://pajamasmedia.com/blog/paul-ryan%E2%80%99s-tea-party-budget/?print=1

Paul Ryan’s Tea Party Budget

Posted By Peter Ferrara On April 6, 2011 @ 10:09 am In Money,US News,economy | 24 Comments

With President Obama’s own budget projecting federal spending for this fiscal year of $3,819 billion ($3.8 trillion), and a federal deficit of $1,645 billion ($1.6 trillion), grassroots conservatives and Tea Party activists were rightly impatient with Republican talk of piddling budget cuts of $4 billion or $6 billion or $12 billion for one or two weeks of continued funding of the federal government, with Democrats resisting even that. But Paul Ryan’s 2012 budget released yesterday [1] has completely revolutionized the debate, with spending cuts of $6.2 trillion over the first 10 years alone.

The talk of the government shutdown this week and the negligible cuts of $30 billion to even $70 billion are a sideshow relating to fiscal year 2011, which is already more than half over. Last year’s Democratic Congress never got around to adopting a budget and providing funding for this fiscal year, and the Democratic-controlled Senate still has never provided any funding for the rest of this year. Only the Republican House has passed a Continuing Resolution (CR) funding the government for the rest of fiscal year 2011 (ending on September 30), which provides for $61 billion in cuts this year compared to the baseline of current spending, and $100 billion compared to the spending for this year in President Obama’s budget.

The main event is Ryan’s 2012 budget, which is a complete blueprint for federal budget policy for the next 10 years, changing course for decades into the future. Don’t fail to appreciate Ryan’s budget in all of its carefully crafted, beautiful complexity. For what it proposes is effectively to repeal the Obama administration and save America from a death spiral decline into bankruptcy. And now that Ryan has shone the light on the careful, politically feasible path for doing that, America has turned the corner towards that result in the 2012 elections.

Ryan’s budget roadmap begins with spending cuts that reduce the deficit every year, until the budget is permanently balanced, and then continues the spending cuts until the national debt is ultimately paid off completely. It does that with absolutely no tax increases, indeed with substantial reductions in tax rates, making America competitive again and restoring booming economic growth. Over the long run, federal spending is reduced by 2050 to less than half of what it would be on President Obama’s current course, due primarily to the beginnings of fundamental entitlement reform, including the repeal and defunding of ObamaCare. This is now the official budget of the Republican House majority, which is an enormous accomplishment and testament to Ryan’s leadership.

Ryan’s $6.2 trillion in spending cuts can be contrasted with President Obama’s 2012 budget proposal to increase federal spending by another $400 billion over the current runaway spending baseline. After campaigning in 2008 on “a net spending cut,” President Obama has already increased federal spending by 28% since he first came into office. In his 2012 budget, President Obama proposes overall to increase federal spending by another 57% to over $5.7 trillion by 2021, according to the CBO. Ryan’s budget proposes to cut Obama’s spending by a trillion dollars in that year alone.

Ryan’s budget proposes first to cut non-security domestic discretionary spending back to pre-stimulus, pre-bailout levels, lower than in 2008. Total federal spending is reduced by 2015 to 20% of GDP, which is the long-run, postwar, historical average. By 2050, federal spending is reduced to 15% of GDP, less than half the spending projected by the CBO under President Obama’s current course.

Ryan would reduce the federal deficit to below $1 trillion by next year, while President Obama would run still another trillion dollar deficit estimated by the CBO at $1.2 trillion. That would make the fourth year for Obama with unprecedented deficits over a trillion, the highest previously being $458 billion under President Bush, with Reagan’s highest at $221 billion. By 2021, President Obama’s budget would still be running a deficit of $1.2 trillion, according to the CBO. Ryan’s budget would slash the deficit to $385 billion by that year, on its way to full, permanent balance soon thereafter.

Ryan’s budget proposals would reduce the national debt by over $5 trillion compared to our current course in the first 10 years.  Under President Obama’s 2012 budget, by contrast, the national debt would more than double during his one term in office, which means he will increase the national debt in those four years by more than all prior presidents, from George Washington to George Bush, combined. By 2021, President Obama would have tripled the national debt from 2008. Ryan’s budget would continue to reduce the national debt until it is paid off entirely.

Ryan’s budget would hold federal taxes at their long-run, postwar, historical average of 18.3% of GDP. That would involve repealing the $1.5 trillion in tax increases in President Obama’s budget, which are already provided for under current law.  Indeed, Ryan proposes to reduce the top federal personal income tax rate to 25% in a tax reform that would eliminate many loopholes in return. Indeed, the previously released Ryan Roadmap long-term budget plan shows that Ryan’s revenue goals can be reached with that 25% rate applying to incomes over $100,000 per year, with a 10% rate applying to incomes below $100,000.

Ryan also proposes corporate tax reform, reducing the top corporate rate to 25% as well, in return for eliminating loopholes that enabled General Electric to pay no taxes last year, while earning $14 billion in profits. American business currently suffers virtually the highest corporate tax rate in the industrialized world at nearly 40%, counting state corporate rates on average.  Even in the mostly socialist European Union, the corporate tax rate has been reduced from 38% to 24% over the last 15 years, with lower corporate tax rates from China to India to Canada leaving American business uncompetitive in the world. Yet President Obama only proposes to raise taxes on American business, which explains why America has suffered the worst economic recovery since the Great Depression under President Obama.

Ryan’s budget, by contrast, would restore economic growth and traditional America prosperity. The Heritage Foundation’s Center for Data Analysis estimates that under Ryan’s budget nearly 1 million jobs would be created next year, with unemployment declining to 4% by 2015. GDP would grow by an additional $1.5 trillion over the next 10 years, including $1.1 trillion in higher wages, providing $1,000 in additional family income each year. By 2020, the economy would be creating 2.5 million private sector jobs each year.

Ryan’s budget begins entitlement reform by repealing and defunding ObamaCare entirely. It continues that by extending the enormously successful welfare reforms adopted in 1996 by the then-Republican Congress, which involved repeal of the entitlement status of the AFDC (Aid to Families with Dependent Children) program, replacing it with fixed federal block grants back to the states to finance an entirely new welfare program based on work. Under those reforms, two-thirds left the old AFDC rolls and went to work, with their incomes rising and child poverty plummeting as a result, while spending under the old program declined by half from prior trends.

Ryan provides for such block grants for Medicaid as well, giving the states control to redesign the program to the ultimate benefit of both taxpayers and the poor. Medicaid pays so little to doctors and hospitals today that the poor suffer troubling difficulties in obtaining essential health care under the program, with worse health outcomes as a result. Ryan’s reforms would allow states to provide the poor with funding to purchase private health insurance, which would free the poor from the Medicaid ghetto to enjoy the same health care as the middle class. Ryan also extends block grants to food stamps, with a work requirement for the able bodied under both programs. Dozens of overlapping job training programs are consolidated under state control as well.

Under Ryan’s Medicare reforms, new retirees starting in 2022 would be free to use their share of Medicare funds for the purchase of private health insurance. Lower income and sicker retirees would get more to ensure their continued access to essential care, while higher income retirees would get less.

Ryan’s budget would also terminate hundreds of duplicative federal programs, reduce farm subsidies, cut the federal work force by freezing hiring, terminate federal bailouts, and slash corporate welfare, including President Obama’s handouts for uncompetitive, high cost energy. Ryan was wise to avoid any Social Security benefit cuts, because allowing workers the freedom to choose personal accounts for the program is a far better alternative, shifting that spending to the private sector. But politically that requires a new president to champion.

Instead of considering these serious, responsible, long-term reforms, President Obama, Senate Majority Leader Harry Reid, and other Democrats seem to be spoiling for a government shutdown over the minor budget cuts involved in the continuing resolution for 2011. They think they and their media allies can dupe gullible voters into blaming the Republicans for any shutdown. They misread the politics of the 1995 shutdown, when voters actually rewarded both the congressional majority Republicans and President Clinton for agreeing to budget cuts that balanced the budget then without tax increases. It is time for grassroots conservatives, Tea Party activists, and mainstream Americans to hold today’s New Left Democrats responsible for their manipulative, irresponsible cynicism.

Update: Also read “Boehner: Democrats win in a shutdown” [2] and “Obama in campaign mode, still demagoging budget battle” [3] at the Tatler.

Article printed from Pajamas Media: http://pajamasmedia.com

URL to article: http://pajamasmedia.com/blog/paul-ryan%e2%80%99s-tea-party-budget/

URLs in this post:

[1] 2012 budget released yesterday: http://pajamasmedia.com/blog/paul-ryans-budget-the-path-to-prosperity/

[2] “Boehner: Democrats win in a shutdown”: http://pajamasmedia.com/tatler/2011/04/06/boehner-democrats-win-in-a-shutdown/

[3] “Obama in campaign mode, still demagoging budget battle”: http://pajamasmedia.com/tatler/2011/04/06/obama-in-campaign-mode-still-demagoguing-budget-battle/

I will leave you to ponder the state of affairs where a $12 billion cut in spending is "piddling"
 
This is the end, beautiful friend, the end.....

http://rightwingnews.com/john-hawkins/5-things-that-will-happen-to-you-when-america-goes-bankrupt/

Five things That Will Happen To You When America Goes Bankrupt
Written By : John Hawkins
“Madness is rare in individuals – but in groups, parties, nations, and ages it is the rule.” — Friedrich Nietzsche

Does it seem too strong to call the way America deals with its debt “madness?” If not madness, then what? Denial? An addiction? However you phrase it, we’re a country that’s in deep trouble, but so many of us seem unable to deal with it.

Liberals in this country, for the most part, will admit that we’re running up “unsustainable” deficits. Yet, these same liberals adamantly oppose any and all serious efforts to do anything about it. If you move out from liberals to the general public, once again you’ll find plenty of people who admit that this nation has a huge problem. Yet, when you leave generalities, get down to specifics, and start looking for programs to cut, then suddenly everyone gets nervous and says, “never mind.” It’s like the old saying, “Everyone wants to go to heaven, but no one wants to die.”

Sadly, this is a natural outgrowth of ladling out public funds to special interests. There is so much collective money that few people feel or appreciate it even when billions are saved. Yet, if we yank even a few million away from special interest groups like PBS, Planned Parenthood, or the unions, they squeal like pigs that are about to accidentally be put in the wolves’ pen at the zoo.

In the face of that, people have to realize that this country is on pace to go bankrupt — and it could happen relatively soon if we don’t start taking serious steps to control our spending. Mike Pence thinks we could be just ten to fifteen years away. Tom Coburn is less optimistic and thinks it could happen in as little as five years. If that happens, we’re not a tiny country like Greece — we’re the biggest economy in the world. That means there’s no cavalry coming to pay our bills for us because we ARE the cavalry.

What happens then? Well, we don’t know for sure, but we can make some educated guesses about what COULD happen and how it will impact YOUR life.

1) Your life savings could be reduced to nothing almost overnight. Inflation is a fact of life. Thomas Sowell has noted, “As of 1998, a $100 bill would not buy as much as a $20 bill would buy in the 1960′s.” That’s under normal circumstances.

However, the thing governments have traditionally done when they simply can’t pay their debts is print more money. The problem with this is the further you expand the money supply, the less the money you already have on hand is worth. This can wipe out the savings of a lifetime in a relatively short period. Imagine spending billions of dollars just to buy a loaf of bread. Sound far-fetched? Well, guess what? That has happened in the Weimar Republic, which was crushed under debts from WWI and decided to pay it off by printing more money. It could happen here, too, and all the money you’ve scrimped and saved could become worthless in a short order.

2) Your taxes will skyrocket. We’ve been conned into thinking that we can fund a massive government on the backs of the rich. This is simply not so. It’s not working today and it’s not going to happen in the future. We cannot tax the rich enough to pay off our debt or even enough to keep the government going long-term. Even if we could, the rich have the resources to flee the country for greener pastures if they’re being taxed into oblivion. The middle class? Not so much.

What that means is the more desperate the government gets, the more the average American is going to be hammered with new taxes. How much more of your income can you afford to send overseas to pay China for the money they’ve loaned us to keep PBS, Planned Parenthood, and the National Endowment of the Arts going? What about if the country goes bankrupt and your income tax rate shoots up to fifty percent? How are you going to pay your mortgage? How are you going to feed your kids? When the government runs out of cash and it can’t borrow any more money, then it will start leveling massive taxes on the American people.

3) Your life could be in danger. If the government goes bankrupt, you’ll have an extremely angry, confused, and frustrated populace that has little faith in its leaders — combined with a horrific economy and a reduced ability of the government to keep order. Under those circumstances, widespread rioting and violent crime seem entirely plausible.

When Argentina had its crisis, violence went up 142% and “young men began looting supermarkets.”

Here’s some of what happened during the German hyperinflation of the currency in Weimar Republic after it started printing money night and day,

The flight from currency that had begun with the buying of diamonds, gold, country houses, and antiques now extended to minor and almost useless items — bric-a-brac, soap, hairpins. The law-abiding country crumbled into petty thievery. Copper pipes and brass armatures weren’t safe. Gasoline was siphoned from cars. People bought things they didn’t need and used them to barter — a pair of shoes for a shirt, some crockery for coffee. Berlin had a “witches’ Sabbath” atmosphere. Prostitutes of both sexes roamed the streets. Cocaine was the fashionable drug.

4) Your payments from the government will dramatically decrease or stop altogether. Contrary to what some people believe, Medicare and Social Security are paid out of the same fund that pays for everything else. In other words, if the government goes bankrupt, there is no money set aside to pay for these programs. So, if you’re receiving Social Security, Medicare, welfare, food stamps, or any other similar programs, those checks could stop or be slashed down to nothing. That seems unthinkable to people, but if the government doesn’t have any money, then it can’t pay it out to people. As they say, “You can’t get blood out of a turnip.”

5) You will have a dramatically reduced standard of living. If taxes and inflation escalate dramatically, both of which are very likely if we go bankrupt, economic activity will slow to a crawl and we’ll go into a depression. We’re not talking about a “This is the worst economy since the Depression” situation that we hear every time there’s a mild downturn in the economy; we’re talking about a REAL depression. Businesses will close left and right, the stock market will tank, unemployment will soar to heights not seen since the thirties, and the government won’t be in a position to help very much.

If that happens in a country like America, where people have been so prosperous for so long, it’s going to produce utter misery. It’s not a lot of fun to be poor under the best of circumstances, but it’s much worse to go from having a comfortable life with a bright future to growing vegetables to eat in the backyard and wondering how you’re going to keep warm in the winter.
 
The two preceding articles clearly illustrate why Canada needs to reduce its integration with the American economy. Our 80% share of trade with the US needs to be spread around to insulate us from any catastrophe south of the border. We can, and should do this with the emerging power houses like India. We are still a resource driven economy, and can sell our goods anywhere. We can not continue to rely on convenient access to the US to drive our financial security.
 
"The Office of the Comptroller of the Currency today announced formal enforcement actions against eight national bank mortgage servicers and two third-party servicer providers for unsafe and unsound practices related to residential mortgage loan servicing and foreclosure processing. The eight servicers are Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife Bank, PNC, U.S. Bank, and Wells Fargo. The two service providers are Lender Processing Services (LPS) and its subsidiaries DocX, LLC, and LPD Default Solutions, Inc.; and MERSCORP and its wholly owned subsidiary, Mortgage Electronic Registration Systems, Inc. (MERS).  ...


No telling if anyone will get a home back on this, but the possibility is out there since there is a solid argument being made in regional court actions that without wet signature documents and proper registration, the banks might not really hold claims they thought...  so watch this one carefully..."

 
ModlrMike said:
The two preceding articles clearly illustrate why Canada needs to reduce its integration with the American economy. Our 80% share of trade with the US needs to be spread around to insulate us from any catastrophe south of the border. We can, and should do this with the emerging power houses like India. We are still a resource driven economy, and can sell our goods anywhere. We can not continue to rely on convenient access to the US to drive our financial security.


Agreed, but moving away from the Americans and towards the only really 'open' markets (the European Union being the biggest “protection” racket in the world) will be more difficult according to this article, reproduced under the Fair Dealing provisions (§29) of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/news/national/asia-from-opportunity-to-crisis-in-the-eyes-of-canadians/article1984793/
Asia: from opportunity to crisis in the eyes of Canadians

Canadians are fully aware of the growing clout of China and other fast-growing Asian economies – and they grasp their rapidly increasing importance on the world stage. But the more they see, the more uneasy they are.

More Canadians now regard the economic power of China, India and a handful of other emerging Asian countries as a threat than as an opportunity. When that question was posed in 2008, more than 60 per cent saw Asian expansion as an opportunity. Today, it’s below 50 per cent

Two-thirds of the 2,926 Canadians polled think China will surpass the U.S. in global influence in a decade and one third believe India will do the same. Yet they also see less chance to take advantage of such a sea change, and their attitude to emerging Asia in general has turned several degrees colder, says a new national survey.

Only 44 per cent view China as important to this country’s prosperity, compared with 59 per cent in 2008. “This downward trend holds true for all Asian economies,” says the Asia Pacific Foundation of Canada, which commissioned the online poll and revisits the subject about every 18 months. “The result is somewhat surprising because the number of Canadians who think we should be diversifying trade to become less dependent on the U.S. has grown over time.”

web-asia-folio-set_1264918a.jpg


It’s a puzzling dichotomy, considering that Canada’s commodity export engine depends increasingly on Asian demand. Also, changing demographics mean that more young Canadians have links to Asia through family, education or business than ever before.

“What goes into the net calculation of Canadians, we don’t know. But it would be a combination of economic, lifestyle and values issues that are founded on inadequate information and a general uncertainty about what this all means,” said Yuen Pau Woo, president and CEO of the foundation.

“I think it has to do with fear and uncertainty about Canada’s place in the world, and the impact of rising powers that are not well understood by Canadians,” he said from Montreal, where the foundation was launching a “national conversation” to address the widening divisions exposed by the poll and highlight the importance of adapting to the shift in power toward emerging Asia.

web-asia-folio-set_1264917a.jpg


It does not take a survey to underscore Canadian worries about China, analysts say.

“It is understandable that people feel uneasy about the rise of China in general and have concerns about its economic expansion around the world,” said Wenran Jiang, who holds a research chair at the University of Alberta's China Institute. “After all, China is not a democracy but an emerging superpower that has the potential to challenge U.S. dominance. But such fear … cannot be justified against the reality.”

Mr. Jiang noted, for example, that China’s investment in Canada pales in comparison to its acquisition binge in some other parts of the world. In Canada, China has mainly pursued minority stakes in energy and resource projects, supplying cash that has helped sustain their development – and create jobs – in the wake of the financial crisis.

But the simple fact is that most countries turn inward in response to hard economic times. And in Canada, manufacturing and other woes can be laid partly at the feet of the Chinese and their deliberately undervalued currency. China’s worsening human rights record may also be a factor, although the survey revealed a split among Canadians on the issue.

“Look no further than hockey sticks,” said Arthur Heinmaa, managing partner with Toron Investment Management in Toronto, who keeps a close watch on global market developments. He was referring to the recent decision by iconic Quebec stick maker Sher-Wood Hockey Inc. to transfer its remaining production to China, with the loss of about 40 jobs.

“Slowly, friends and neighbours are losing jobs. both because of the high Canadian dollar and Chinese competition,” Mr. Heinmaa said, adding that trade with China is critical – in theory. “It’s great in the abstract. But then it hits home [through job losses]. And that’s what it comes down to.”

Very often, maybe most often, policy is limited by the practicalities of politics and what Canadians believe is a practical political reality.
 
Kalatzi said:
"The Office of the Comptroller of the Currency today announced .....
From this site's Guidelines:
• You will properly attribute any quotes to the appropriate author or speaker.


But you knew that because reading those guidelines is one of the conditions of signing up here  ;)


.....oh, and you may wish to point out where your cut&paste ends and your insightful thoughts begin, since your use of quotation marks confuses the issue
 
The history of the US debt limit, which has been raised 10 times since 1917, and its current implications, are discussed in two recent Congressional Research Service publications:

"The Debt Limit: History and Recent Increases," March 7, 2011:  http://www.fas.org/sgp/crs/misc/RL31967.pdf

"Reaching the Debt Limit: Background and Potential Effects on Government Operations," February 11, 2011:  http://www.fas.org/sgp/crs/misc/R41633.pdf
 
They Ryan budget passes the House. While it is clear the Dems still control the Senate and the President is assured of vetoing it, they key is to signal intent (which will calm jittery markets) and make everyone stake out their positions. Anyone who votes "no" to the budget will have a lot of explaining to do.

In a way, this is similar to the early 1990's, when Canada's debt threatened to overwhelm us (anyone recall the "Northern Peso?"). We had several years of warnings, lurid press coverage and finally the Economist magazine declaring Canada to be an honourary third world nation before the Chreitien government took action. Paul Martin did eventually hack and slash the budget by raiding EI, cutting spending and offloading services to other levels of government (but it is only evil when the other side of the political spectrun does this, as Mike Harris could attest), thus reducing the deficit, but never the debt. The Ryan budget is one of the last warnings before any serious action is taken (and given political realities, we wait until 2012 or the bond market demands serious risk premiums (interest rates) against US Treasuries).

http://www.nationalreview.com/corner/264872/ryans-budget-passes-house-daniel-foster

Ryan’s Budget Passes House
By Daniel Foster
Posted on April 15, 2011 3:08 PM
The House has adopted Rep. Paul Ryan’s 2012 budget resolution, which would cut $6 trillion in spending over the next 10 years, on a 235-193 vote. No Democrats voted for the plan.

Here’s Ryan in advance of the vote on the House floor:


“We cannot avoid this choice. To govern is to choose. We are making a choice, even if we don’t act. And that is the wrong choice. In the words of Abraham Lincoln: ‘We cannot escape history. We of this Congress and this Administration will be remembered in spite of ourselves.’

“Will this be remembered as the Congress that did nothing as the nation sped toward a preventable debt crisis and irreversible decline? Or will it instead be remembered as the Congress that did the hard work of preventing that crisis – the one that chose this path to prosperity?

UPDATE: How significant a victory for conservatives is the Ryan budget? Way back in January, a GOP aide inside the budgeting process told me that the Ryan folks had a two-by-two matrix of what they thought was possible to get in the budget. On the x-axis was whether non-defense discretionary spending would be rolled back to 2008 or 2006 levels. On the y-axis, whether or not the budget would make a serious attempt to tackle entitlements. At the time I told the aide the smart money was on a budget with 2006 spending levels and no entitlement reform, as it was far more politically palatable. The source expressed hope that I was wrong, but worried that I was right.

Well, I was wrong: The Ryan budget rolls back non-security discretionary spending to 2006 levels, and fundamentally reforms Medicare and Medicaid.

How did it happen?  One, the overlapping coalition of freshman, tea-partiers, and conservative stalwarts put their foot down and made leadership understand that they mean business. And two, President Obama’s proposed budget was a joke, leaving an opening for a bold GOP plan.



 
The administration sees the writing on the wall and tries to influence events (but not in a meaningful manner):

http://www.washingtonpost.com/business/economy/obama-administration-officials-tried-to-keep-sandp-rating-at-stable/2011/04/19/AFfAeO8D_print.html

Obama administration officials tried to keep S&P rating at ‘stable’

By Zachary A. Goldfarb, Tuesday, April 19, 8:55 PM

The Obama administration privately urged Standard & Poor’s in recent weeks not to lower its outlook on the United States — a suggestion the ratings agency ignored Monday, two people familiar with the matter said.

Treasury Department officials had been discussing with S&P whether the ratings agency should change its outlook on the United States to “negative” from “stable,” an indication that the country could lose its crucial AAA rating in coming years over its soaring debt levels.

Treasury officials told S&P analysts that they were underestimating the ability of politicians in Washington to fashion a compromise to curb deficits, a Treasury official said. They argued a change in ratings was not needed at this time because the debt was manageable and the administration had a viable plan in the works, the official said.

But S&P analysts told Treasury officials on Friday that they were unmoved — and released a report that expressed skepticism that the political parties could come together on how to bring spending in line with revenue.

Any doubts by credit rating agencies about government debt has the potential to increase borrowing costs for the Treasury.

It is not uncommon for companies and governments to push back when they don’t agree with a decision made by a credit ratings agency. Sometimes, companies that issue debt — which also pay for the ratings — will shop around for the best rating.

But the U.S. government is an unusual case — it doesn’t solicit ratings. S&P and the other major credit rating agencies offer their judgments notwithstanding.

Spokesmen for the Treasury and S&P declined to comment on the record.
 
The ingenious economists of America are reasonable persons amenable to the fact that the only way to modernize its economy and prosper is to leave 90-95 percent of industries to the market. Prices and wages are allowed to settle accordingly based on the supply and demand. Determining wages by the law of supply and demand while establishing a safety net minimum wage are great attractions that cause the American workforce to be very productive. Why would I settle in a forest in Siberia if the wage is not attractive if not high? Privatized healthcare is not the end of the world for Obama, distrustful of God that He would grant us a healthy body by praying. That is why the US healthcare is two -tier. Government hospitals in Chicago can accomodate those who cannot afford them pllust he fact taht there will always be altruists among talented doctors..
 
Bracket creep, generational wealth transfer and now this...

http://www.nytimes.com/2011/04/18/opinion/18douthat.html

The Middle-Class Tax Trap
By ROSS DOUTHAT

“Let’s tell the truth,” Walter Mondale said, accepting the Democratic nomination in 1984. “Mr. Reagan will raise taxes, and so will I. He won’t tell you. I just did.”

Three months later, Mondale lost 49 states, and liberal politicians learned a valuable lesson. In the decades since, national Democrats have often promised to raise taxes — but only for the rich, and never for the middle class.

Bill Clinton wrote the playbook: “We will lower the tax burden on middle-class Americans,” he pledged in 1992, “by asking the very wealthy to pay their fair share.” In 2008, Barack Obama imitated Clinton, campaigning on a promise to raise taxes for the richest 5 percent while cutting them for everybody else.

Last week, in his address on deficit reduction, the president followed the playbook once again. In the throat-clearing section of the speech, Obama promised “tough choices” that put “everything on the table.” But his tax proposals were aptly summarized by The Atlantic’s Clive Crook: “The rich can pay for it all.”

As it happens, they can’t. Squeezing the wealthy buys some short-term deficit reduction: over the next decade, President Obama’s plan could trim (almost) as much off the deficit as Paul Ryan’s controversial Republican budget — $4 trillion, give or take.

But that $4 trillion is just a fraction of America’s projected long-term debt. The whole point of the Ryan plan is that the real deficit reduction starts at year 10, when his Medicare reforms are phased in.

Under the president’s plan, we soak the rich in the short term, and then just keep going deeper into the red.

Does a plan to cut the deficit with middle-class tax increases exist? In a sense, it does. It’s called the “current law baseline,” a Congressional Budget Office projection in which the Bush-era tax rates aren’t renewed in 2012, the Alternative Minimum Tax (which is supposed to hit only the rich but increasingly bites into middle-class paychecks) isn’t indexed for inflation, and Medicare payments to doctors are slashed by 20 percent.

With these policies, the deficit drops away in the next 10 years, and more important, it stays manageably low for the decades after that.

This projection has become a touchstone for liberal wonks — “the graph that all budget discussions should start with,” The Washington Post’s Ezra Klein wrote last week. It does not represent their ideal policy vision by any means, but it is frequently cited as proof that we do not need to radically reform entitlements to keep the country
solvent.

All we need to do instead is let taxes rise and keep on rising. This is how the “current law baseline” cuts the deficit: Thanks to inflation and bracket creep, its tax code gradually subjects more and more Americans to rates that now fall only on the wealthy.

Today, for instance, a family of four making the median income — $94,900 — pays 15 percent in federal taxes. By 2035, under the C.B.O. projection, payroll and income taxes would claim 25 percent of that family’s paycheck. The marginal tax rate on labor income would rise from 29 percent to 38 percent. Federal tax revenue, which has averaged 18 percent of G.D.P. since World War II, would hit 23 percent by the 2030s and climb even higher after that.

Such unprecedented levels of taxation would throw up hurdles to entrepreneurship, family formation and upward mobility. (Or as the C.B.O. puts it, in its understated way, they would “tend to discourage some economic activity,” and “harm the economy through the impact on people’s decisions about how much to work and save.”)

They could have ugly political consequences as well. Historically, the most successful welfare states (think Scandinavia) have depended on ethnic solidarity to sustain their tax-and-transfer programs. But the working-age America of the future will be far more diverse than the retired cohort it’s laboring to support. Asking a population that’s increasingly brown and beige to accept punishing tax rates while white seniors receive roughly $3 in Medicare benefits for every dollar they paid in (the projected ratio in the 2030s) promises to polarize the country along racial as well as generational lines.

The Republican vision for entitlement reform, President Obama said last week, would lead to “a fundamentally different America” than the one we inhabit today. He’s right: asking the elderly to pay more for their health care, as Paul Ryan proposes to do, would transform the American social contract, and cause no small amount of pain.

But what Obama didn’t acknowledge is that the alternative path could lead to a different country as well — a more stagnant and balkanized society, in which our promise to the elderly crowds out the fundamental promise of America itself.
 
Looking at how the debt is structured makes the issue of extracting ourselves from this mess even harder. Is there a similar calculation for Canada? (Note; the $140 trillion figure represents the sum total of Federal, State and Municipal debts, plus all their unfunded liabilities such as Social Security and pensions)

http://www.nationalreview.com/exchequer/265199/four-national-debts

The Four National Debts
April 20, 2011 4:00 A.M.
By Kevin D. Williamson

Tags: Four different Treasury instruments

As I have argued (repeatedly, endlessly, ad nauseam, I know!), our real national debt is not that $14.3 trillion we always hear about, but more like $140 trillion. Another thing to keep in mind: That $14.3 trillion is not just one national debt, but four of them.

There are two flavors of national debt: debt held by the public and intragovernmental debt. The first category — securities held by investors, basically — is the one we mostly worry about. (I worry about the other one, too, but that’s another story.) If I may be permitted to express it in its full glory, the debt held by the public as of April 15 amounts to $9,679,202,714,701.01. (Love, love, love that penny on the end — can’t say Treasury isn’t minding the details! Wasn’t it Ben Franklin who said, “Mind the pennies and the trillions will take care of themselves”? Or something like that?)

That debt held by the public is really four debts, because we have four main ways of financing our borrowing: Treasury bills, Treasury notes, Treasury bonds, and Treasury Inflation Protected Securities (TIPS). Bills are the shortest-term security, the attention-deficit-disorder case of the U.S. sovereign-debt world, maturing in one year or less. Notes, like liberal-arts graduates, mature in one to ten years, and bonds, like a mortgage (remember mortgages?), go from 20 to 30 years. TIPS are a mixed bag, in five-year, ten-year, and 30-year versions. TIPS are a relatively new thing, having been introduced in 1997. They’ve grown popular, from accounting for $33 billion of the national debt in their first year to $640 billion as of March 2011.

Now, when you’ve got $9,679,202,714,701.01 in debt floating around out there in the marketplace, and you’ve got S&P sort of frowning in a meaningful way at your ledger, and bond funds are wishing you the very best of British luck as they dump your debt and refuse to buy any more, but you just can’t help yourself and have to buy a shiny new windmill whenever you see one — in that sort of a situation, you might be keenly interested in how much of your debt is financed through short-term bills vs. how much is locked into 20- or 30-year rates with the long bond. We are starting to have that discussion just now. And it ain’t pretty: The average maturity is 59 months, and about $1.7 trillion of the publicly held debt is in short-term notes, which presents real, sobering risks of the standing-on-a-ledge variety should interest rates spike up.

Here’s the thing: It costs more to finance your debt with 30-year bonds than with 30-day bills. (Yeah, I know, they’re 28-day bills, but cut a poet some slack.) That’s because investors, like men with options, are commitment-shy. If you’re going to lock your investment down for 20 or 30 years, you want a pretty high rate of return. But for 28 days? Less so. But there’s a tradeoff: Interest rates change, sometimes dramatically and often unexpectedly. When the 28-day bill comes up and you still haven’t balanced the budget, you have to refinance that debt. Ben Bernanke and Ramesh Ponnuru are working hard to keep Washington’s short-term borrowing rate at basically zero right now, so there’s a lot of incentive to use short-term rather than long-term financing. Sometimes that works out well: The Clinton administration pushed a lot of our debt into shorter-term instruments back in the 1990s and helped save a bundle on borrowing costs. (The other way to save a bundle on borrowing costs: Stop borrowing.) But sometimes taking the short-term deal and leaving yourself open to unexpected changes in debt-service costs is really, really stupid: Ask somebody who signed up for one of those brilliant adjustable-rate mortgages that take you from free money to pawn-shop rates overnight. A lot of people, myself included, worry that we’ve got too much short-term debt and should use more long-term financing to protect ourselves from interest-rate risk, even if it costs more to do so. Why? Because debt service is one of those checks the government absolutely has to write, and you don’t want surprises. That’s how you get the sort of fiscal crisis that leaves you with banana-republic finances while the Canadians laugh at you.

Incidentally, the Obama administration may be the world-champion deficit spenders, but maturity rates actually hit their low during the Bush administration: In 2008, average maturity was only 48 months. In 2000, long-term bonds accounted for 21 percent of the total debt; by 2009, bonds were down to just under 10 percent of the debt. They’ve climbed a bit since then, up to 10.3 percent. (If you want to check my math, there’s a spreadsheet o’ Treasury figures here.)

The real action seems to be in the medium range, in the notes: In 2008, we owed about $2.8 trillion on those; by 2010 it was $5.6 trillion, and it was $5.8 trillion as of March 2011. Let’s hope we get our finances in order before those come due.

— Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism. You can buy an autographed copy through National Review Online here.
 
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