Tag Archives: Dan Mitchell

Taxes made simple by Dan Mitchell of the Cato Institute

The Flat Tax: How it Works and Why it is Good for America

Uploaded by on Mar 29, 2010

This Center for Freedom and Prosperity Foundation video shows how the flat tax would benefit families and businesses, and also explains how this simple and fair system would boost economic growth and eliminate the special-interest corruption of the internal revenue code. www.freedomandprosperity.org

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President Obama wants to engage in classwarfare but the economic facts are on the conservative’s side. In order to get out of this mess, we must lower the taxes of the job creators and lower federal spending at the same time in order to balance the budget before we end up arriving at Greece.

Here is a great article by Dan Mitchell that  makes this issue of taxes very simple:

In my explanations of the Laffer Curve, I’ve shown evidence that high tax rates discourage productive behavior and boost the underground economy.

And if higher tax rates are sufficiently onerous, the resulting reductions in taxable income can completely offset the revenue-generating impact of higher tax rates. Indeed, this is what’s already happened with the “Snooki tax.”

And the same thing happens in reverse. If lower tax rates lead to a big enough increase in taxable income, the government actually collects more revenue – which is exactly what happened when the top tax rate was lowered in the 1980s.

I’ve also tried to explain, shifting from economics to philosophy, that confiscatory tax rates are unfair and immoral. And I’m glad to see that most Americans agree, with 75 percent of all people saying that nobody should ever face a tax rate of more than 30 percent.

Notwithstanding that polling data, though, I fear that many people don’t really understand the economics of taxation. So I’m happy to share this little story that periodically winds up in my inbox.

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Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this…

  • The first four men (the poorest) would pay nothing
  • The fifth would pay $1
  • The sixth would pay $3
  • The seventh would pay $7
  • The eighth would pay $12
  • The ninth would pay $18
  • The tenth man (the richest) would pay $59

So, that’s what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball.

“Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20″. Drinks for the ten men would now cost just $80.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. But what about the other six men ? How could they divide the $20 windfall so that everyone would get his fair share?

The bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

  • And so the fifth man, like the first four, now paid nothing (100% saving).
  • The sixth now paid $2 instead of $3 (33% saving).
  • The seventh now paid $5 instead of $7 (28% saving).
  • The eighth now paid $9 instead of $12 (25% saving).
  • The ninth now paid $14 instead of $18 (22% saving).
  • The tenth now paid $49 instead of $59 (16% saving).

Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.

“I only got a dollar out of the $20 saving,” declared the sixth man. He pointed to the tenth man,”but he got $10!”

“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar too. It’s unfair that he got ten times more benefit than me!”

“That’s true!” shouted the seventh man. “Why should he get $10 back, when I got only $2? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

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Very well done. Reminds me of the PC version of the story about the ant and the grasshopper, or perhaps the joke about using two cows to explain various economic and political systems.

And if you like those, you’ll appreciate this modern fable about bureaucracy, featuring an ant and a lion.

Did the government create the pencil or did the private market do it’s magic to make it happen?

Did the government create the pencil or did the private market do it’s magic to make it happen?

Regarding Obama’s “you-didn’t-build-that” comment back in July, I explained why that attack on entrepreneurs and small business owners was misguided.

And I also shared some humorous cartoons on the topic.

But it is true that no entrepreneur produces a product without help from many others. But what the President apparently doesn’t understand is that almost all of the real help comes from voluntary and decentralized exchange in the private market.

This CEI video is a good introduction to this spontaneous process

I, Pencil: The Movie

Published on Nov 14, 2012 by

A film from the Competitive Enterprise Institute, adapted from the 1958 essay by Leonard E. Read

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And if you want to look at the topic from a different perspective, this video helps to explain how we often get much more than we pay for in a competitive market economy.

There’s also a moral argument presented in this video from the American Enterprise Institute.

Needless to say, Walter Williams is always worth reading to understand the difference between markets and statism. And here’s some good real-world evidence about the benefits of better policy.

Open letter to President Obama (Part 250)

Federal Spending by the Numbers

Uploaded by on Jun 10, 2010

http://blog.heritage.org/2010/06/10/new-video-federal-spending-by-the-numbers The Federal Government is addicted to spending. Watch this video from the Heritage Foundation to learn about the trouble we are in and where to find solutions.

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President Obama c/o The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

Dear Mr. President,

I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a pulse on what is going on out here.

Is Greece going broke before the USA? We got to control the entitlement mentality. Will you take the bull by the horns and do something about this, Mr. President?

I wrote yesterday that the United Kingdom is doomed because there isn’t a political party with the vision or courage to restrain the welfare state.

At various points, I’ve also expressed pessimism about the future of France, Germany, Italy, Spain, Ireland, and even the United States.

Simply stated, almost all western nations suffer from the same toxic combination of dependency, demographic decline, and poorly structured entitlement programs.

But some nations are heading in the wrong direction more rapidly than others, and Greece is best example (perhaps I should say worst example?) of a country that is careening toward catastrophe.

It’s such a basket case that I’m not sure whether the politicians or the people deserve the lion’s share of the blame.

  •  The politicians deserve blame because they treat public office as a tool for self-enrichment and self-aggrandizement, largely by steering taxpayer money to friends, cronies, contributors, and supporters. Sometimes they do this in a search for votes. Sometimes in a search for cash.
  •  The people deserve blame because they view the state as a magical source of freebies and they see no economic or moral problem with using a coercive government to steal from fellow citizens. They realize the system is corrupt, which is why they seek to evade taxes, but that doesn’t stop them from trying to live at the expense of others.

In a best-case scenario, this type of dysfunctional system reduces prosperity. But when the number of people mooching off the state reaches a critical mass (as illustrated by these two cartoons), then you get societal meltdown.

Which is a good description of what’s happening in Greece.

And even when the government is on the verge of collapse and there’s pressure for reform, the political elite somehow figure out how to screw things up.

The latest example is the possible creation of “special economic zones.” When I first glanced at the story excerpted below, I thought this meant the Greek government was going to create something akin to “enterprise zones” featuring lower tax rates and less red tape.

Because I’m a supporter of the law applying equally to everybody, I’m not a big fan of such policies. I want to reduce the burden of government, of course, but I want that approach for entire countries, not just a handful of areas selected by politicians.

But at least the concept is good, right?

Not when Greek politicians are involved. They have taken the worst features of enterprise zones and combined them with the worst features of redistributionism. Here’s some of the story from Ekathimerini.

The government is paving the way for negotiations with the European Commission regarding the creation of special economic zones (SEZ) in Greece, Development Minister Costis Hatzidakis confirmed on Tuesday in Athens. …“SEZ will give a boost to the basis of the real economy,” said Hatzidakis, reiterating that the existing labor legislation will be fully respected. ..This forms part of the 10-point priority plan Hatzidakis announced yesterday aimed at boosting growth. Changes to the investment incentives law and the fast-track regulations will be completed within the next 15 days. The bill to be prepared will include subsidies of up to 80 percent for smaller companies… Public-private partnerships will be used for bolstering regional growth.

So the zones will keep all the bad labor laws, but provide big subsidies and create “public-private partnerships” (i.e., cronyism).

I hate to sound negative all the time, but that sounds precisely like the kind of nonsense that put Greece in a ditch to begin with.

To be fair, the article does talk about targeted tax relief and accelerated procedures for dealing with red tape. But that’s not exactly good news. Targeted tax cuts are a form of discrimination and they create an environment favorable to lobbying and corruption. And while it seems like good news to approve licenses more quickly, why not just get rid of bureaucratic hurdles? After all, this is the country (this is not a joke) that requires stool samples from entrepreneurs seeking to set up online companies.

It’s very hard to have any optimism after reading this type of story. Greece surely is an example of statism run amok, but let’s return to the point I made above about almost all other western nations heading in the same direction. Greece may be closest to the fiscal cliff, but the rest of us are driving in the same direction.

And if you think this is overheated rhetoric (yes, I’m prone to hyperbole), check out these dismal numbers from the Bank for International Settlements and the Organization for Economic Cooperation and Development.

P.S. The BIS and OECD numbers show that the United States is in worse shape – in the long run – than every European welfare state. I assume this is largely based on assumptions of health care spending rising more rapidly in America. The bad news is that this is a reasonable assumption (thanks to our third-party payer problem). The good news is that we can easily solve the problem with a combination of entitlement reform (which deals with a direct cause of third-party payer) and tax reform (which deals with an indirect cause of third-party payer).

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Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your commitment as a father and a husband.

Sincerely,

Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733, lowcostsqueegees@yahoo.com

Open letter to President Obama (Part 248)

Federal Spending by the Numbers

Uploaded by on Jun 10, 2010

http://blog.heritage.org/2010/06/10/new-video-federal-spending-by-the-numbers The Federal Government is addicted to spending. Watch this video from the Heritage Foundation to learn about the trouble we are in and where to find solutions.

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President Obama c/o The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

Dear Mr. President,

I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a pulse on what is going on out here.

We must change the upward trend of spending in our country now or entitlement debt will bankrupt us.

Back in 2010, I posted a fascinating map from the Economist website, showing debt burdens (as a share of GDP) for nations around the world. This data showed lots of red ink, with Western Europe generally being more indebted than the United States.

In 2011, I posted some charts from a study by the Bank for International Settlements, revealing that the long-run fiscal outlook for the United States is worse than the outlook for European nations.

In other words, our politicians to date haven’t over-spent as much as their counterparts in Europe, but it appears that – if government is left on auto-pilot – America will suffer more from excessive government than European nations in the future.

Here’s some new evidence about the perilous long-term state of public finances in America. According to the Organization for Economic Cooperation and Development, the United States has to do more than almost every other nation to avoid becoming another Greece.

If this data is correct, the United States isn’t just in danger of becoming Greece. It’s actually in worse shape than Greece. Not just Greece, but every other European welfare state as well. That doesn’t bode well.

But time for some caveats. The OECD research mistakenly focuses on debt levels and what needs to happen to reduce red ink to a certain level. This isn’t a meaningless issue, but it puts the cart before the horse. What matters most is the size of government and the total burden of government spending – not whether it is financed with borrowing rather than taxes.

This doesn’t mean the long-run estimates are wrong. But if the focus is on the real problem of government spending, then it is much more apparent that the only feasible solution is to restrain the growth of government spending.

If the burden of government spending grows slower than the economy’s productive sector (i.e., Mitchell’s Golden Rule), then deficits and debt fall. To be blunt, if you cure the disease, the symptoms automatically disappear.

Which helps explain why I’m a fan of the Ryan budget, particularly his reforms to Medicare and Medicaid.

P.S. Regular readers know I’m not a fan of the OECD (for many reasons), but the economists at the Paris-based bureaucracy generally are competent at putting together good data. It goes without saying, of course, that this doesn’t justify raping taxpayers to subsidize economists.

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Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your commitment as a father and a husband.

Sincerely,

Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733, lowcostsqueegees@yahoo.com

Open letter to President Obama (Part 247)

The Laffer Curve, Part I: Understanding the Theory

Uploaded by on Jan 28, 2008

The Laffer Curve charts a relationship between tax rates and tax revenue. While the theory behind the Laffer Curve is widely accepted, the concept has become very controversial because politicians on both sides of the debate exaggerate. This video shows the middle ground between those who claim “all tax cuts pay for themselves” and those who claim tax policy has no impact on economic performance. This video, focusing on the theory of the Laffer Curve, is Part I of a three-part series. Part II reviews evidence of Laffer-Curve responses. Part III discusses how the revenue-estimating process in Washington can be improved. For more information please visit the Center for Freedom and Prosperity’s web site: http://www.freedomandprosperity.org

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President Obama c/o The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

Dear Mr. President,

I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a pulse on what is going on out here.

We got to reduce taxes to grow our economy!!!

Even though I’m not a Romney fan, I sometimes feel compelled to defend him against leftist demagoguery.

But instead of writing about tax havens, as I’ve done in the past, today we’re going to look at incremental tax reform.

The left has been loudly asserting that the middle class would lose under Mitt Romney’s plan to cut tax rates by 20 percent and finance those reductions by closing loopholes.

That class-warfare accusation struck me as a bit sketchy because when I looked at the data a couple of years ago, I put together this chart showing that rich people, on average, enjoyed deductions that were seven times as large as the deductions of middle-income taxpayers.

And the chart includes only the big itemized deductions. There are dozens of other special tax preferences, as shown in this depressing image, and you can be sure that rich people are far more likely to have the lawyers, lobbyists, and accountants needed to exploit those provisions.

But that’s not a surprise since the internal revenue code has morphed into a 72,000-page monstrosity (this is why I sometimes try to convince honest leftists that a flat tax is a great way of reducing political corruption).

But this chart doesn’t disprove the leftist talking point, so I’m glad that Martin Feldstein addressed the issue in today’s Wall Street Journal. Here’s some of what he wrote.

The IRS data show that taxpayers with adjusted gross incomes over $100,000 (the top 21% of all taxpayers) made itemized deductions totaling $636 billion in 2009. Those high-income taxpayers paid marginal tax rates of 25% to 35%, with most $200,000-plus earners paying marginal rates of 33% or 35%. And what do we get when we apply a 30% marginal tax rate to the $636 billion in itemized deductions? Extra revenue of $191 billion—more than enough to offset the revenue losses from the individual income tax cuts proposed by Gov. Romney. …Additional revenue could be raised from high-income taxpayers by limiting the use of the “preferences” identified for the Alternative Minimum Tax (such as excess oil depletion allowances) or the broader list of all official individual “tax expenditures” (such as tax credits for energy efficiency improvements in homes), among other credits and exclusions. None of this base-broadening would require taxing capital gains or making other changes that would reduce the incentives for saving and investment. …Since broadening the tax base would produce enough revenue to pay for cutting everyone’s tax rates, it is clear that the proposed Romney cuts wouldn’t require any middle-class tax increase, nor would they produce a net windfall for high-income taxpayers. The Tax Policy Center and others are wrong to claim otherwise.

In other words, even with a very modest assumption about the Laffer Curve, it would be quite possible to implement something akin to what Romney’s proposing and not “lose” tax revenue.

This doesn’t mean, of course, that Romney seriously intends to push for good policy. I’m much more concerned, for instance, that he’ll wander in the wrong direction and propose something very bad such as a value-added tax.

But Romney certainly can do the right thing if he wins. Assuming that’s what he wants to do.

Just like he can fulfill his promise the reduce the burden of government spending by implementing Paul Ryan’s entitlement reforms. But don’t hold your breath waiting for that to happen.

_________

Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your commitment as a father and a husband.

Sincerely,

Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733, lowcostsqueegees@yahoo.com

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The Laffer Curve, Part II: Reviewing the Evidence

This video is second installment of a three-part series. Part I reviews theoretical relationship between tax rates, taxable income, and tax revenue. Part III discusses how the revenue-estimating process in Washington can be improved. For more information please visit the Center for Freedom and Prosperity’s web site: http://www.freedomandprosperity.org.

The Laffer Curve, Part III: Dynamic Scoring

Open letter to President Obama (Part 241)

 

President Obama c/o The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

Dear Mr. President,

I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a pulse on what is going on out here.

Letting the Federal Reserve continue to print money is not the way to go.

Ron Paul has made “End the Fed” a popular slogan, but some people worry that this is a radical untested idea. In part, this is because it is human nature to fear the unknown.

But there are plenty of examples of policy reforms that used to be considered radical but are now commonplace.

This list could go on, but the pattern is always the same. People assume something has to be done by government because “that’s the way it’s always been.” Then reform begins to happen and the myth is busted.

But is money somehow different? Not according to some experts.

Here’s some of what John Stossel wrote in a recent column.

Why must our government make currency competition illegal? …Competition is generally good. Why not competition in currencies? Most people I interviewed scoffed at the idea. They said private currency should be illegal. But impressive thinkers disagree. In 1975, a year after he won the Nobel Prize in economics, F.A. Hayek published “Choice in Currency,”which has inspired a generation of “free banking” economists. Hayek taught us that competition not only respects individual liberty, it produces essential knowledge we cannot obtain any other way. Any central bank is limited in its access to such knowledge, and subject to political pressure, no matter how independent it’s supposed to be. “This monopoly of government, like the postal monopoly, has its origin not in any benefit it secures for the people but solely in the desire to enhance the coercive powers of government,” Hayek wrote. “I doubt whether it has ever done any good except to the rulers and their favorites. All history contradicts the belief that governments have given us a safer money than we would have had without their claiming an exclusive right to issue it.” Former Federal Reserve economist David Barker discussed this idea recently with me. “There are a lot of ways that private money might be better,” Barker said. “It might have embedded chips that would make it easier to count.” The chips would also prevent counterfeiting. There used to be private currencies. A businessman who sold iron and tin made coins that advertised his business. The Georgia Railroad Co. also produced its own currency. This became illegal in 1864 — Abraham Lincoln was a fan of central banking.

Stossel’s historical references are particularly important. As I explain in this video, many nations – including the United States – used to have competing currencies.

Uploaded by on Mar 21, 2011

The Federal Reserve has existed for almost 100 years and it has created depressions, recessions, inflation, and bubbles. This CF&P Foundation video explains the origin of central banking and mentions possible alternatives that will be discussed in subsequent mini-documentaries.

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And if you want a thorough analysis of the Fed’s performance, I urge you to watch this George Selgin speech. Then ask yourself whether we would have been in better shape with private currencies.

__________

Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your commitment as a father and a husband.

Sincerely,

Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733, lowcostsqueegees@yahoo.com

Open letter to President Obama (Part 239)

Is Washington Bankrupting America?

Uploaded by on Apr 20, 2010

Be first to receive our videos and other timely info about economic policy. Subscribe at http://www.bankruptingamerica.org
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According to a recent poll, 74 percent of likely voters are extremely or very concerned about the current level of government spending. And 58 percent think the level of spending is unsustainable.

Is the public right? Is Washington bankrupting America? Some facts from the video:

Spending per household has risen over 40 percent in the last 10 years and is set to do so again in the next 10 pushing debt (and interest on the debt) to unprecedented levels. But that’s just a result of PAST spending…

Our government owes $106 trillion in FUTURE spending commitments – that cannot be paid for.

We can solve it, but politicians will have to make tough choices. Increasing taxes can’t do the trick ($106 trillion is equivalent to taking all of the taxable income from every American nine times over), nor is it fair to saddle taxpayers with a problem created by government irresponsibility.

We need real spending reform. Merely returning to the spending per household levels of the 1990s would balance the budget in three years.

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President Obama c/o The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

Dear Mr. President,

I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a pulse on what is going on out here.

When are we going to see REAL SPENDING CUTS? I am tired of this being talked about but not done.

I’m in Slovenia where I just finished indoctrinating educating a bunch of students on the importance of Mitchell’s Golden Rule as a means of restraining the burden of government spending.

And I emphasized that the fiscal problem in Europe is the size of government, not the fact that nations are having a hard time borrowing money. As explained in this video, spending is the disease and deficits are one of the symptoms.

This is also an issue in the United States, and Steve Moore of the Wall Street Journal is worried that the GOP ticket is debt-obsessed and doesn’t have sufficient enthusiasm for lower tax rates and tax reform.

Stylistically, Paul Ryan’s Republican convention speech last night was a grand slam. …But was it the growth message that supply-siders wanted to hear, or debt-clock obsession? There were clearly apocalyptic claims. “Before the math and the momentum overwhelm us all, we are going to solve this nation’s economic problems,” said Mr. Ryan in reference to the federal rea ink. “I’m going to level with you; we don’t have that much time.” …In fact, he talked about turning around the economy with “tax fairness.” Ugh, that’s an Obama term. …Larry Kudlow of CNBC and a former Reagan economist tells me, “Paul’s speech just didn’t have the growth, tax-cutting message. We didn’t even get the words tax reform. I don’t know what happened, but it worries me.” It’s a question of priorities. Are Mitt Romney and Paul Ryan signaling that they will put spending cuts ahead of pro-growth tax-rate cuts?

I share Steve’s concern, but with a twist.

I’m not worried that the Republicans will put spending cuts ahead of tax cuts. I’m worried that they won’t do spending cuts at all (even using the dishonest DC definition) and therefore wind up getting seduced into some sort of tax-increase deal that facilitates bigger government.

As a general rule, it is always good to do spending cuts (however defined). And it is always good to lower tax rates. And if you can do both at the same time, even better.

But since I have low expectations, I’ll be delighted if we “merely” manage to get entitlement reform during a Romney-Ryan Administration. That would mean some progress on the spending side and presumably reduce the risk of bad things (like a VAT!) on the revenue side.

_________

Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your commitment as a father and a husband.

Sincerely,

Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733, lowcostsqueegees@yahoo.com

Open letter to President Obama (Part 231)

President Obama c/o The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

Dear Mr. President,

I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a pulse on what is going on out here.

We got to stop all the red ink. How can keep our federal spending at the high level it is at now and not end up in Greece? As the president you should take the bull by the horns and balance the budget!!!!

The burden of federal spending in the United States was down to 18.2 percent of gross domestic product when Bill Clinton left office.

But this progress didn’t last long. Thanks to George Bush’s reckless spending policies, the federal budget grew about twice as fast as the economy, jumping by nearly 90 percent in just eight years This pushed federal spending up to about 25 percent of GDP.

President Obama promised hope and change, but he has kept spending at this high level rather than undoing the mistakes of his predecessor.

This new video from the Center for Freedom and Prosperity Foundation uses examples of waste, fraud, and abuse to highlight President Obama’s failed fiscal policy.

Published on Aug 12, 2012 by

This mini-documentary from the Center for Freedom and Prosperity Foundation highlights egregious examples of wasteful spending from the so-called stimulus legislation and explains why government spending hurts economic performance.

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Good stuff, though the video actually understates the indictment against Obama. There is no mention, for instance, about all the new spending for Obamacare that will begin to take effect over the next few years.

But not everything can be covered in a 5-minute video. And I suspect the video is more effective because it closes instead with some discussion of the corrupt insider dealing of Obama’s so-called green energy programs.

__________

Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your commitment as a father and a husband.

Sincerely,

Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733, lowcostsqueegees@yahoo.com

Open letter to President Obama (Part 230)

 

President Obama c/o The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

Dear Mr. President,

I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a pulse on what is going on out here.

You have seen the figures like I have Mr. President. Social Security will run out of money in the next few decades.

Liberals that say that Social Security is running fine don’t want to live in the real world but in a make-believe liberal world that doesn’t exist.

I don’t give the issue much attention on this blog, but I’m very interested in Social Security reform. I wrote my dissertation on Australia’s very successful system of personal retirement accounts, for instance, and I narrated this video on Social Security reform in the United States.

So I was very interested to see that the Associated Press put out a story warning about the dismal state of the program’s finances.

Here’s some of what the AP reported.

For nearly three decades Social Security produced big surpluses, collecting more in taxes from workers than it paid in benefits to retirees, disabled workers, spouses and children. The surpluses also helped mask the size of the budget deficit being generated by the rest of the federal government. Those days are over. Since 2010, Social Security has been paying out more in benefits than it collects in taxes… The projected shortfall in 2033 is $623 billion, according to the trustees’ latest report. It reaches $1 trillion in 2045 and nearly $7 trillion in 2086, the end of a 75-year period used by Social Security’s number crunchers because it covers the retirement years of just about everyone working today. Add up 75 years’ worth of shortfalls and you get an astonishing figure: $134 trillion. Adjusted for inflation, that’s $30.5 trillion in 2012 dollars, or eight times the size of this year’s entire federal budget.

First of all, kudos to the AP. I criticized them for a sloppy and biased report on poverty last month, so it behooves me to mention that their story on Social Security is mostly fair and accurate.

My only complaint is that the story does include some analysis of the Social Security Trust Fund, even though that supposed Fund is nothing but a pile of IOUs – money that one part of the government promises to give to another part of the government.

But let’s set that aside. Another interesting tidbit from the story is this quote from one of the kleptocrats at the American Association of Retired Persons. Note that he implicitly rules out any changes other than those that enable the government to “pay the benefits we promised.”  But that shouldn’t be a surprise. AARP is part of the left-wing coalition.

“I’m not suggesting we need to wait 20 years but we do have time to make changes to Social Security so that we can pay the benefits we promised,” said David Certner, AARP’s legislative policy director. “Let’s face it. Relative to a lot of other things right now, Social Security is in pretty good shape.”

But I will say that Mr. Certner is sort of correct about Social Security being in better shape than Medicare and Medicaid. But that’s like saying the guy with lung cancer who is 75 lbs overweight is in better shape than the two guys with brain tumors who are both 150 lbs overweight.

If you have to engage in fiscal triage, it would be smart to first address Medicare and Medicaid, but Social Security also needs reform. And not the kind of statist reform the folks at AARP would like to see.

By the way, you probably won’t be surprised to learn that President Obama’s approach is similar to the left-wingers at AARP. Here’s a video I narrated about his preferred policy.

It seems that the question doesn’t matter with this administration. The answer is always to impose more class-warfare tax policy.

P.S. If you need to be cheered up after reading this post, here’s a good cartoon showing the difference between Social Security and a Ponzi scheme, and here’s another cartoon showing what inspired Bernie Madoff to steal so much money.

__________

Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your commitment as a father and a husband.

Sincerely,

Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733, lowcostsqueegees@yahoo.com

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Open letter to President Obama (Part 229)

 

President Obama c/o The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

Dear Mr. President,

I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a pulse on what is going on out here.

One thing that stands out about Dan Mitchell is that is not a Democrat or a Republican but a lover of freedom like Milton Friedman was. Don’t you want to take up for freedom like Dan does? Don’t you think we should attempt to grow the private sector more than the public sector? Take a look at this article of his below.

Posted by Ryan Minto on August 16, 2012

By DANIEL J. MITCHELL

Thanks to several years of fiscal restraint during the 1990s, the burden of federal spending dropped to 18.2% of gross domestic product by the time Bill Clinton left office. The federal budget today consumes more than 24% of economic output, a one-third increase since 2001 in the share of the U.S. economy allocated by politics rather than market forces. That makes the Republican House budget, which would reverse this trend, extremely important for the economic health of the country.

Both political parties deserve blame for the spending spree that’s put America in a fiscal ditch. President George W. Bush was a big spender and President Obama has compounded the damage with his stimulus spending and other programs.

But the era of bipartisan big government may have come to an end. Largely thanks to Rep. Paul Ryan and the fiscal blueprint he prepared as chairman of the House Budget Committee earlier this year, the GOP has begun climbing back on the wagon of fiscal sobriety and has shown at least some willingness to restrain the growth of government.

The Ryan budget has generated considerable controversy in Washington, and it will become even more of an issue now that Mr. Ryan is Mitt Romney’s running mate. So it’s an appropriate time to analyze the plan and consider what it would mean for America.

image

Chad Crowe

The most important headline about the Ryan budget is that it limits the growth rate of federal spending, with outlays increasing by an average of 3.1% annually over the next 10 years. If spending is left on autopilot, by contrast, it would grow by 4.3% (or nearly 39% faster). If President Obama is re-elected, the burden of spending presumably will climb more rapidly.

This comes as a surprise to many people since the press is filled with stories about the Ryan budget imposing trillions of dollars of “savage” and “draconian” spending cuts. All of these stories, however, are based on Washington’s misleading budget process that automatically assumes an ever-expanding government. The 4.3% “base line” increase is the benchmark for measuring “cuts”—even though spending is rising rather than falling, and it’s only the rate of spending growth that is being slowed.

Even limiting spending so it grows by 3.1% per year, as Mr. Ryan proposes, quickly leads to less red ink. This is because federal tax revenues are projected by the House Budget Committee to increase 6.6% annually over the next 10 years if the House budget is approved (and this assumes the Bush tax cuts are made permanent). Since revenues would climb more than twice as fast as spending, the deficit would drop to about 1% of gross domestic product by the end of the 10-year budget window.

To balance the budget within 10 years would require that outlays grow by about 2% each year. Spending in the Ryan budget means the federal budget reaches balance in 2040. There are many who would prefer that the deficit come down more quickly, but from a jobs and growth perspective, it isn’t the deficit that matters.

Rather, what matters for prosperity and living standards is the degree to which labor and capital are used productively. This is why policy makers should focus on reducing the burden of government spending as a share of GDP—leaving more resources in the private economy.

The simple way of making this happen is to follow what I’ve been calling the golden rule of good fiscal policy: The private sector should grow faster than the government. This is what happens with the Ryan budget. The Congressional Budget Office expects nominal economic output (before inflation) to grow about 5% each year over the next decade. So if federal spending grows 3.1% annually, the burden of federal spending slowly shrinks as a share of GDP.

According to the House Budget Committee, the federal budget would consume slightly less than 20% of economic output if the Ryan budget remained in place for 10 years. This would be remarkable progress considering that the federal government is now consuming 24% of GDP vs. Mr. Clinton’s 18.2% in 2001. If Paul Ryan’s policies are social Darwinism, as Mr. Obama and his allies allege, one can only speculate where Bill Clinton ranks in their estimation.

Spending restraint also creates more leeway for good tax policy. Regardless of what you think about deficits, the political reality is that it is difficult to lower tax rates if government borrowing remains at high or rising levels. If deficit spending continues at current levels, then higher tax rates are almost sure to follow. And higher tax rates can’t create an environment conducive to more investment and jobs.

The Ryan budget avoids this unpleasant outcome by addressing the problem of excessive government spending. This makes it possible to extend the 2001 and 2003 tax-rate reductions. It also clears the way for other pro-growth reforms, such as Gov. Romney’s proposed across-the-board 20% income tax cut, a more competitive 25% corporate tax rate, and less double-taxation of dividends and capital gains.

One of the best features of the Ryan budget is that he reforms the two big health entitlements instead of simply trying to save money. Medicaid gets block-granted to the states, building on the success of welfare reform in the 1990s. And Medicare is modernized by creating a premium-support option for people retiring in 2022 and beyond.

This is much better than the traditional Beltway approach of trying to save money with price controls on health-care providers and means testing on health-care consumers. Price controls are notoriously ineffective—because health-care providers adapt by ordering more tests and procedures—and politically unsustainable due to lobbying pressure. Means testing imposes an indirect penalty on people who save and invest during their working years. That should be a nonstarter for a political party that seeks to encourage productive behavior and discourage dependency.

But good entitlement policy also is a godsend for taxpayers, particularly in the long run. Without reform, the burden of federal spending will jump to 35% of GDP by 2040, compared to 18.75% of output under the Ryan budget.

Assuming the GOP ticket prevails in November, Mitt Romney will make the big decisions on fiscal policy. But there is no escaping the fiscal math. If Mr. Romney intends to keep his no-tax-hike promise, he has to restrain the growth of spending. This doesn’t mean he has to go with every detail of the Ryan budget—but it’s certainly a good place to start.

Mr. Mitchell is a senior fellow at the Cato Institute.

A version of this article appeared August 16, 2012, on page A11 in the U.S. edition of The Wall Street Journal, with the headline: What’s Really in the Ryan Budget.

__________

Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your commitment as a father and a husband.

Sincerely,

Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733, lowcostsqueegees@yahoo.com

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