Category Archives: Cato Institute

Three points where Brummett misses the boat in discussion versus Charlie Collins

September 20, 2011 – 8:51 am

Five Key Reasons to Reject Class-Warfare Tax Policy

Uploaded by on Jun 15, 2009

President Obama and other politicians are advocating higher taxes, with a particular emphasis on class-warfare taxes targeting the so-called rich. This Center for Freedom and Prosperity Foundation video explains why fiscal policy based on hate and envy is fundamentally misguided. For more information please visit our web page: www.freedomandprosperity.org.

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I was glad to hear that John Brummett was going to take place in a discussion with Charlie Collins in Fayetteville last Saturday. Sounds like some good points came out of it.

John Brummett in his recent article noted:

This forum lasted maybe 90 minutes. I can summarize as follows:

—The two of us varyingly left of center, an economics professor and labor historian named Michael Pierce and I, believe government has the responsibility and right to tax the top margins of high incomes at a higher rate and to spend for stimulus on the demand side to prime the pump of what is an otherwise dangerously idling economy. We find alarming and unsustainable the growing gap between the few rich and the many poor.

—The two wrong of center (or right, if you insist), Charlie Collins and affable local pizza mogul Rolf Wilkin, believe the economy will get better from the supply side. They believe it will do so by its own devices through the glories and innovations of the great American marketplace, but only if the government will cut taxes and reduce regulation. They believe the nation can best address the wealth gap by letting the marketplace work its natural and uninhibited magic.

 Let me address a few points where Brummett misses the boat.

 1. No where in the world is the wealth gap smaller than in the USA. It is true that our form of government has allowed even the poorest of our citizens the opportunity to advance in the income to the top. Countries that have limited freedoms have the poorest people for the most part and the largest wealth gap.

2. Cutting down on regulations is the way to go. Need I say more on this. Go into business for yourself and then write a paper on it.

3. Soaking the rich is really saying something else: “We need more tax revenue for the government to spend and we think the government can spend your money more wisely than you.” Taking all the money the rich have will not even come close to solving our budget woes. Lowering the taxes on job creators is the way to go. Why else do wealthy job creators leave Arkansas to go live in other states that do not have state income tax like us?

Let me submit this article below as further evidence.

Soak-the-Rich Taxes Soak Everyone

by Jim Powell

Jim Powell, a senior fellow at the Cato Institute, is the author of FDR’s Folly, Wilson’s War, Bully Boy, The Triumph of Liberty and other books.

Added to cato.org on September 9, 2011

This article appeared on Forbes.com on September 8, 2011.

Soak-the-rich taxes have a way of becoming people’s taxes, soaking those who never expected to pay.

This has been true from the very beginning. The first U.S. income tax was passed in 1861 to help pay the Union’s Civil War costs. Western farmers had little cash, so they favored an income tax that wouldn’t affect them. Initially the Civil War income tax was 3 percent of income over $800. Since there weren’t enough people making over $800 to finance war spending, the income tax was revised to include everyone making as little as $600, and the rate was nearly doubled.

This income tax ended in 1872, but farmers hoped to revive it so they could push the cost of government on somebody else. Another income tax was passed in 1894, and 99-9/10ths percent of the 65 million people in the United States paid nothing. A lyrical Missouri congressman exulted: “passage of the bill will mark the dawn of a brighter day, with more sunshine, more of the songs of birds, more of the sweetest music, the laughter of children well fed, well clothed, well housed.” Jubilation was short-lived, when the income tax was struck down by the U.S. Supreme Court.

Jim Powell, a senior fellow at the Cato Institute, is the author of FDR’s Folly, Wilson’s War, Bully Boy, The Triumph of Liberty and other books.

 

More by Jim Powell

The Spanish-American War (1898) spurred federal officials to scramble for more revenue. Progressives began dreaming about how to revive the income tax. Eventually, they decided their best option was the long process of amending the Constitution. In December 1906, President Theodore Roosevelt cheered them on, declaring that “there is every reason why, when next our system of taxation is revised, the National Government should impose a graduated inheritance tax, and, if possible, a graduated income tax.” It wasn’t clear what would be done with revenue generated by an income tax, since no country posed a military threat to the United States, and big-time social spending was many years away.

Following ratification by three-quarters of the states, Congress passed an income tax bill, and in 1913, President Woodrow Wilson signed it. Initially, the rates were low, and a reported 99 percent of the U.S. population paid nothing, presumably a key reason why people clamored for it.

But as Wilson maneuvered the United States into World War I, there were higher taxes for everyone. By 1918, the top rate hit 77 percent. “Never before, in the annals of civilization,” noted Columbia historian Edwin Seligman, “has any attempt been made to take that much of a man’s income by taxation.” A lot of ordinary folks found they were subject to the income tax, too.

Ordinary folks were soaked again during the New Deal years (1933-1940) when federal spending doubled. True, President Franklin Delano Roosevelt seemed to be soaking-the-rich when he raised income tax rates on job creators whom he denounced as “economic royalists.”

Yet only about 5 percent of the population paid federal income taxes. The biggest source of federal revenue throughout the New Deal was the excise tax on beer, cigarettes, soft drinks, chewing gum, radios and other cheap pleasures enjoyed disproportionately by middle class and poor people. Until 1936, the federal excise tax generated more revenue than the federal personal income tax and the federal corporate income tax combined. Moreover, New Deal subsidies for big farmers were financed by forcing the three quarters of Americans who weren’t farmers to pay higher food prices. The New Deal was mainly paid for by the middle class and the poor.

The Revenue Act of 1942, amidst World War II, doubled the tax base and clearly made the personal income tax a people’s tax — the biggest source of federal revenue. Although the income tax had been sold to soak-the-rich and give everyone else something for nothing, ordinary folks faced a 23 percent rate on income up to $2,000, plus the headache of maintaining detailed records, filling out forms, dealing with inquisitorial audits and possible seizures.

Soak-the-rich taxes are for suckers. President Obama, like so many politicians who came before, is singing the happy song that only millionaires and billionaires will have to pay. But runaway spending — whether because of war or entitlement programs — drives government to extract revenue from people with much lower incomes, like the nearly half the population that pays no federal income tax now. The violence in Europe suggests they will be shocked and outraged when that happens.

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By Everette Hatcher III | Also posted in Taxes | Tagged , , , | Comments (0)

Obama wants to help liberal states

September 19, 2011 – 6:35 am

Obama wants to help liberal states

It is clear now the agenda behind the recent jobs program President Obama has proposed. He wants to help liberal states with their budget problems.

One Reason Obama Wants Another State Bailout

Posted by Tad DeHaven

I recently discussed why the additional federal subsidies for state and local government that President Obama is proposing as part of his “job plan” are a bad idea. A new study from two Harvard economists suggests that the president’s affinity for these subsidies might have something to do with the fact that the aid would be particularly helpful to states with more left-leaning legislators and strong public sector unions.

The study from Daniel J. Nadler and Sounman Hong (see here) found that states with stronger public sector unions and a higher proportion of left-leaning state legislators face higher borrowing costs:

We find that, all things being equal, states with weaker unions, weaker collective bargaining rights, and fewer left-leaning state legislators pay less in borrowing costs at similar levels of debt and similar levels of unexpected budget deficits than do states with stronger unions and more left-leaning legislators. More practically, these findings suggest that the strength of public sector unions has become among the most important factors in bond market perceptions of a state’s risk of financial collapse.

Why do these states face higher borrowing costs? Nadler and Hong explain:

These “political” factors might signify to the bond market whether a state government has the willingness and capacity to initiate needed fiscal adjustments and austerity measures during the state fiscal crises that followed the financial crisis, and thus might provide some information to market participants about the likeliness that a given state government will choose to default on its debt instead of making politically difficult or undesirable budget cuts. Similarly, public sector labor environment variables, such as union strength, might signify to market participants the degree of organized political opposition state lawmakers would have to overcome to implement such austerity measures.

In a corresponding Wall Street Journal op-ed, Nadler and Paul E. Peterson, director of Harvard’s Program on Education Policy and Governance, do a nice job of explaining why the separation of responsibility between the federal government and the states has been crucial to the country’s economic rise:

Federal rescue of states is a dramatic departure from past practice. State bankruptcies date back to the 1840s when, amid a financial crisis, Pennsylvania, Michigan, Illinois and five other states discovered they had invested too heavily in infrastructure. The last state bankruptcy was in Arkansas during the 1930s. But overall the instances were few; in each case the federal government refused to come up with a fix.

Bankrupt states paid the price, but for the country as a whole, a system of fiscally sovereign states has proven incredibly beneficial to the nation’s economic well-being. Every state is responsible for its own police, fire, schools, transport and much more, and most of the time they do reasonably well. If they manage their affairs so as to attract business, commerce and talented workers, states prosper. If states make a mess of things, citizens and businesses vote with their feet, marching off to a part of the country that works better.

It is this exceptional federalist system that helped drive the rapid growth of the American economy throughout the first two centuries of the country’s history. Because state and local governments competed with one another for venture capital, entrepreneurial talent and skilled workers, governments generally had to be attentive to the needs of both citizens and commerce.

Unfortunately, the 20th century’s trend for the federal government to subsidize and manage more and more state and local affairs has worsened in the last 10 years as the chart in my blog post shows. If our bloated federal government is ever to be reined in, a return to fiscal federalism is a must. And if the states are to get their financial houses in order, state policymakers can’t be allowed to believe that a federal policy of “too big to fail” applies to them. (See this Cato essay for more on fiscal federalism.)

By Everette Hatcher III | Also posted in President Obama, spending out of control | Tagged , , , | Comments (0)

President Obama’s plan not going to get passed

September 16, 2011 – 10:03 am

Hopefully the House of Representatives will tell President Obama his plan will not pass. It is very costly and would not accomplish anything positive. In fact, the White House tells us that this plan will be paid for by the rich and no one will notice at all. Take a look at this video clip from the Cato Institute:

Ignore Costly, Unneeded Plan

by Jagadeesh Gokhale 

Jagadeesh Gokhale is a senior fellow at the Cato Institute, member of the Social Security Advisory Board, and author of Social Security: A Fresh Look at Policy Options University of Chicago Press (2010).

Added to cato.org on September 14, 2011

This article appeared in The Philadelphia Inquirer on September 14, 2011.

President Obama hopes that his jobs plan will be passed quickly by Congress. It shouldn’t be passed at all.

The president’s speech centered on two key ideas: additional spending on construction projects and hiring incentives, and a tax cut for low- and middle-class families through an extension and expansion in the temporary payroll tax cut scheduled to expire this year.

The total package is expected to cost about $450 billion — about half the size of the stimulus enacted in 2009. However, a quick look at statistics on domestic investment, trade, and consumption suggests that this new stimulus is not needed. Indeed, it would be a mistake to pass it if the objective is to create sustainable job growth.

Congress should ignore Obama’s repeated calls to pass his domestic policy proposals.

The president linked his spending proposals to the need to put construction workers back to work. These workers are the largest group among those who lost jobs during the 2007-09 recession, initially from the housing-sector bust and later because of a steep decline in investment spending by firms that ditched plans to add to their production capacity. But data from the U.S. Bureau of Economic Analysis shows that both private and total domestic investment spending (mostly the former) are already recovering from the decline they suffered during the recession.

Growth in investment spending, which cratered after the first quarter of 2008, is now back to its prerecession level. That means the lack of progress in reducing the unemployment rate is not because firms are not spending to increase capacity, but because there is a mismatch in jobs available and worker skills. Increasing government spending on additional construction projects is therefore misguided: It will simply slow the change in skills and training that workers must undergo to be successful in a changing economy. We might want to “out-educate, out-invest, and out-innovate the rest of the world,” but doing so by siphoning away resources that private firms could invest, while encouraging a stagnant skill pool, is the wrong direction.

That brings us to the payroll-tax cuts that are intended to stimulate consumption spending. Again, however, BEA data show that private consumption growth is already on the mend. The steep decline in consumption growth during 2008-09 has already been restored.

Consumption growth averaged 1.3 percent per year from 2002 to ’07 and this growth has already recovered back to above 1.0 percent per year since the second quarter of 2009. This is consistent with a recovery in firms’ expectations of sustained growth in demand and should lead to continued recovery in domestic investment spending. Adding a stimulus to consumption spending does not appear justified, except to purchase an insurance policy for Obama’s reelection bid at taxpayer expense.

Jagadeesh Gokhale is a senior fellow at the Cato Institute, member of the Social Security Advisory Board, and author of Social Security: A Fresh Look at Policy Options University of Chicago Press (2010).

 

More by Jagadeesh Gokhale

Foreign trade is the one sector where BEA data show the balance of trade and income has worsened since early 2009. A renewed push to expand trade agreements and markets is the only economically sound element in the president’s speech to Congress on job creation.

Obama said that every dollar of the new spending and tax cuts will be paid for. The question is, who will pay and when? The clear answer is that the election insurance policy the president is demanding will be deficit financed. The only payment mechanisms Obama identified was a one-line exhortation for the super-committee to “do more” and a vague reference to working on Medicare reform.

Finally, cutting payroll taxes but keeping the Social Security and Medicare trust funds whole by transferring IOUs to them shifts the burden of funding entitlements to taxes on capital income. Warren Buffet notwithstanding, taxing capital income is well known to degrade economic incentives to save and invest — a policy contradictory to the president’s objective of creating sustainable job growth. Such a policy may deliver a bang, in terms of jobs, that the president wishes today, but it will demand more bucks and induce more job losses in the future.

Congress should ignore Obama’s repeated calls to pass his domestic policy proposals.

By Everette Hatcher III | Also posted in President Obama | Tagged , , , , | Comments (0)

Obama wants to raise taxes on job creators

September 16, 2011 – 7:42 am

Uploaded by on Aug 6, 2010

Cenk Uygur (host of The Young Turks) filling in for Chris Jansing on MSNBC talks to Dan Mitchell of the Cato institute to compare Reaganomics to Obamanomics.

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What should we do when we are caught in a slow economy? What did Reagan do in 1981? He lowered taxes to stimulate the economy. However, President Obama wants to raise taxes.

Obama’s Jobs Plan: Permanent Tax Hikes on Job Creators

By Curtis Dubay
September 15, 2011

When President Obama unveiled his much-hyped American Jobs Act to a joint session of Congress last week, he promised that the increased spending and temporary tax cuts the plan entails would be fully “paid for.” He did not specify in that speech the details of how he would offset the costs of his plan other than he would charge the “super committee” with this responsibility.

This week, he released his own proposals to pay for the plan. To no one’s surprise, the plan would offset the costs of its jobs policies solely with tax hikes and not one penny of spending reductions.

The tax increases the President proposes are the same old hodgepodge of tax hikes he has proposed often since taking office, and they have been rejected by Democratic and Republican Congresses alike each time he’s pushed for them. In the end, the tax hikes would be permanent while the jobs policies temporary; thus, the proposal is really a tax hike plan rather than a jobs plan.

Tax Hike on Job Creators

Almost all of the $447 billion in increased revenue called for by President Obama would come from raising taxes on job creators,[1] the same job creators whom President Obama wants to hire more workers to reduce the unemployment rate.

The plan would raise taxes on job creators by capping the deductions that families and businesses earning more than $250,000 a year could claim. It would reduce the deductions of these families and businesses to the amount they could claim had they only earned enough to qualify for the 28 percent tax bracket instead of the higher tax brackets (33 percent and 35 percent) they face now.

For example, under the current tax code, $100,000 of deductions for a family that pays the 35 percent rate reduces its tax bill by $35,000. Under the plan’s tax hike, this family’s deductions could only reduce its tax bill by $28,000, or what it would have been under the 28 percent rate. The tax hike would be bigger as the family’s deductions increase.

This tax hike would be on top of the 3.8 percent surtax on investment income (passed as part of Obamacare) that these same families and businesses will pay beginning in 2013 and the higher marginal income tax rates they will pay if President Obama gets his way and the Bush tax cuts expire at the end of 2012. If marginal income tax rates rise, the tax increase from limiting deductions would increase as well.

The families that would pay these higher taxes are the investors that the economy needs to provide capital to businesses and entrepreneurs so they can expand and start new operations that would employ new workers. A recent study from President Obama’s own Treasury Department shows that 90 percent of businesses that pay their taxes through the individual income tax code and employ workers would pay the higher taxes under the President’s plan.[2]

This tax hike would negate any benefits of the President’s jobs policies. Capping deductions as President Obama’s plan does would raise the marginal effective tax rate of these important job creators and therefore reduce their incentives to invest and take on new risk—permanently. Less investment and less risk-taking means fewer new jobs created.

Since it is likely President Obama’s job proposals would create few, if any permanent, positions, taken together with the tax hike on job creators, his plan would likely reduce employment in the long term.[3]

Industry Specific Tax Hikes

The rest of the tax hikes in President Obama’s plan specifically target the oil industry and jet manufacturers. He would mostly raise their taxes by limiting their ability to “expense” (or deduct at the time of acquisition) their purchases of capital equipment.

The President’s desire to strip these targeted industries of the ability to deduct their capital purchases faster than current depreciation schedules allow is at odds with his own position on expensing. The President insisted that the 2010 tax deal to extend the Bush tax cuts include 100 percent expensing for all capital purchases for all businesses for one year. This latest jobs bill—which oil and jet tax hikes are supposed to help pay for—includes an extension of that expensing policy.

More troubling is the President’s apparent lack of understanding of the actual impact that his policies would have. He frames the jet tax hike as a hike on the owners of corporate jets, but the burden of his policy would fall on the workers that manufacture the jets. The tax hike would raise the cost of jets, which would reduce the demand for them. Reduced demand would ultimately result in fewer jobs for the blue-collar workers who manufacture the planes.

This is not just theory. In 1990, a 10 percent tax on luxury yachts went into effect. Congress passed the measure assuming that the rich buyers of yachts would pay the burden. But when the price of yachts rose, orders dried up and the yacht-building industry dried up as well. As The New York Times chronicled then, it was the blue-collar workers who lost their jobs and ended up bearing the pain of the tax.[4] The situation was dire enough that Congress repealed the devastating tax in 1993.

Stop Digging

In the Administration’s poorly crafted and contradictory jobs package, the American people get permanent tax hikes that would enlarge the federal government to offset the cost of temporary jobs policies that would not create any jobs. In the long run, the tax hikes in this plan are more likely to destroy more jobs than the jobs policies create.

Unfortunately, President Obama will not consider policies that would actually create jobs by reducing the high level of uncertainty that persists in the economy today. This would include doing things such as:

  • Fundamental revenue-neutral tax reform that repairs the tax base and lowers marginal tax rates to improve the incentives for income production;
  • Reducing the crushing amount of regulations coming from various federal government agencies;
  • Repealing Obamacare and its onerous regulations and taxes;
  • Repealing the Dodd–Frank financial reform legislation; and
  • Stopping incessant calls for higher taxes.

American workers do not need policies that will further inhibit job creation and dig deeper the already-deep jobs hole that the President’s policies have created.

Curtis S. Dubay is a Senior Analyst in Tax Policy in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

By Everette Hatcher III | Also posted in President Obama, Ronald Reagan, Taxes | Tagged , , , , | Comments (0)

Taking care of the taxpayer’s money?

September 15, 2011 – 10:15 pm

When I look at how the Obama administration has used the taxpayer’s money it makes me want to cry.

Solyndra: Another Energy Boondoggle

Posted by Tad DeHaven

The details surrounding the $535 million government loan to Solyndra – the now-bankrupt solar energy company that had been the green apple of the president’s eye – are still emerging. It remains to be seen whether or not the Obama administration broke any laws when it pushed the loan out the door despite obvious problems with the company’s finances.

At the very least, the administration is guilty of wasting taxpayer money. In that regard, it’s no different than all the other administrations that have tried to tinker with energy markets. When the dust settles, Solyndra will take its place alongside other infamous federal energy boondoggles, including the Synthetic Fuels Corporation, the Clinch River Breeder Reactor, and the Superconducting Super Collider. (All of these and more are discussed in a Cato essay on federal energy subsidies.)

Congressional Republicans are salivating over the prospects of a scandal involving a key initiative of the administration. But Republicans should be careful when casting stones given their past and present support for energy subsidies. (Note to investigative reporters: Republican [and Democratic] governors like to hand out subsidies to businesses, which often backfire on taxpayers. I’d know.)

As the political circus over the Solyndra loan unfolds, let’s not lose sight of the fact that the more important question is whether taxpayers should be forced to subsidize energy companies to begin with. The Cato essay argues that they shouldn’t:

The private sector is entirely capable of performing research into coal, nuclear, solar, and alternative energy sources for itself. Businesses will fund new technologies when there is a reasonable chance of commercial success, as they do in every other private industry. Federal subsidies may even be actively damaging to our energy future by steering markets in the wrong direction, away from the best long-term energy solutions…

Policymakers often make grandiose promises, such as proposing to make America ‘energy independent’ or to convert the nation to a ‘green economy.’ Those visions don’t make any sense, but even if they did history shows that the Department of Energy would be incapable of putting them into place with any degree of competence. Federal energy schemes are often poorly managed and generate huge cost overruns, or they aim at objectives that make little economic sense[.]

By Everette Hatcher III | Also posted in President Obama | Tagged , , , , | Comments (0)

Dept of Education infringing again

September 14, 2011 – 3:16 pm

Over and over I have said that if we want to save some money then we need to eliminate the Dept of Education. Here is another reason to mentioned in this fine article below:

Sen. Rubio to Sec. Duncan: Dear Sir, Obey the Law

Posted by Andrew J. Coulson

Senator Marco Rubio has just written to Secretary of Education Arne Duncan, requesting that he not break the law. At issue is the administration’s plan to offer states waivers from the No Child Left Behind act if they agree to adopt national standards or pursue other educational goals of the administration. Rubio states that these conditional waivers violate the U.S. Constitution, the Department of Education Organization Act, and the No Child Left Behind Act. He’s right.

As my Cato colleagues and I have noted many times, the Constitution mentions neither the word “school” nor the word “education,” and so, under the 10th Amendment, reserves power over those concerns to the states and the people.

The Act creating the Department of Education is equally clear:

No provision of a program administered by the Secretary or by any other officer of the Department shall be construed to authorize the Secretary or any such officer to exercise any direction, supervision, or control over the curriculum, program of instruction, administration, or personnel of any educational institution, school, or school system… .[Section 3403(b)]

Nor is the NCLB particularly ambiguous:

‘Nothing in this title shall be construed to authorize an officer or employee of the Federal Government to mandate, direct, or control a State, local educational agency, or school’s specific instructional content, academic achievement standards and assessments, curriculum, or program of instruction. [Section 1905]

The Secretary’s conditional waivers from NCLB mandates, in return for dancing as he desires on national standards, seem to violate all of the above. I wonder if any education reporter will have the temerity to ask Arne Duncan on what grounds he believes he is entitled to ignore these laws? Senator Rubio’s letter certainly gives them a golden opportunity to do so.

By Everette Hatcher III | Tagged , , , , | Comments (0)

Stimulus did not work earlier and will not now (Part 1)

September 13, 2011 – 1:08 pm

Government Spending Doesn’t Create Jobs

Uploaded by on Sep 7, 2011

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In the debate of job creation and how best to pursue it as a policy goal, one point is forgotten: Government doesn’t create jobs. Government only diverts resources from one use to another, which doesn’t create new employment.

Video produced by Caleb Brown and Austin Bragg.

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When I think of all our hard earned money that has been wasted on stimulus programs it makes me sad. It has never worked and will not in the future too. Take a look at a few thoughts from Cato Institute:

Feeling Spent

by Michael D. Tanner

This article appeared in The New York Poston September 13, 2011. 

On Thursday night, the president laid out his plan for job creation, a $447 billion stimulus proposal, most of which we have seen before. After all, if Congress passes this new round of government spending, it would be the seventh such stimulus program since the recession began. George W. Bush pushed through two of them, totaling some $200 billion, and Obama already has enacted four more, with a total price tag of roughly $1.3 trillion.

The result: Three years and $1.5 trillion of spending later, we are back to the same gallimaufry of failed ideas. Among the worst:

1. Temporary Tax Cuts. The president wants to extend and expand the temporary reduction in the Social Security payroll tax that Congress enacted last December. The president also called for a grab-bag of tax credits for businesses that buy new equipment, hire veterans or even give workers a raise. There is obviously nothing wrong with letting workers keep a bit more of their money. And some of the tax breaks might encourage businesses to speed up otherwise planned hiring or purchases, providing a short-term economic boost. But neither people nor businesses tend to make the sort of long-term plans needed to boost production, generate growth and create jobs on the basis of temporary tax changes. This is especially true when businesses can look down the road and see tax hikes in their future.

If government spending brought about prosperity, we should be experiencing a golden age.

2. Further Extending Unemployment Benefits. The president wants to spend $49 billion to provide another extension of unemployment benefits to 99 weeks. Of course everyone can sympathize with the plight of the long-term unemployed. But, the overwhelming body of economic evidence suggests that extending unemployment benefits may actually increase unemployment and keep people out of work for longer. In fact, many economists believe that current extensions of unemployment benefits have already extended the average length of unemployment by three weeks or more.

By Everette Hatcher III | Also posted in spending out of control | Tagged , , , , | Comments (0)

Despite Brantley’s view,Social Security really is a Ponzi scheme (Part 1) (jh1d)

September 13, 2011 – 7:42 am

Social Security is a Ponzi scheme (Part 1)

Governor Rick Perry got in trouble for calling Social Security a Ponzi scheme and I totally agree with that. Max Brantley wants to keep insisting that this will be Perry’s downfall but  think that truth will win out this time around. This is a series of articles that look at this issue.

Is Social Security a Ponzi Scheme?

by  on September 10, 2011 at 12:47 pm in Economics | Permalink

Matt Yglesias says anyone who thinks social security is a Ponzi scheme is nuts. So let’s take a look at some of these nuts. First up is Nobel prize winner Paul Samuelson who wrote:

Social Security is a Ponzi Scheme that Works

The beauty of social insurance is that it is actuarially unsound. Everyone who reaches retirement age is given benefit privileges that far exceed anything he has paid in — exceed his payments by more than ten times (or five times counting employer payments)!

How is it possible? It stems from the fact that the national product is growing at a compound interest rate and can be expected to do so for as far ahead as the eye cannot see. Always there are more youths than old folks in a growing population. More important, with real income going up at 3% per year, the taxable base on which benefits rest is always much greater than the taxes paid historically by the generation now retired.

…A growing nation is the greatest Ponzi game ever contrived.

Samuelson wrote that in 1967 riffing off his classic paper of 1958. By “as far as the eye cannot see” he apparently meant not very far because it soon became clear that the system could not count on waves of youths or rapid productivity growth to generate the actuarially unsound returns that made the program so popular in the early years.

Milton Friedman and Paul Samuelson rarely agreed on much but Friedman also called social security a Ponzi scheme. In fact, he called it The Biggest Ponzi Scheme on Earth but perhaps Yglesias puts Friedman in the nut category so let’s go for a third Nobel prize winner who recognizes the Ponzi like nature of social security, none other than…..Paul Krugman (writing in 1996):

Social Security is structured from the point of view of the recipients as if it were an ordinary retirement plan: what you get out depends on what you put in. So it does not look like a redistributionist scheme. In practice it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in. Well, the Ponzi game will soon be over, thanks to changing demographics, so that the typical recipient henceforth will get only about as much as he or she put in (and today’s young may well get less than they put in). (ital added, AT)

Of these, I agree the most with Krugman. Social Security is not necessarily a Ponzi scheme but it only generated massive returns in the past because of its Ponzi-like aspects. The Ponzi-like aspects are now over and social security is turning into what is essentially a forced savings/welfare program with, as Krugman recognizes, crummy returns for average workers. Social security is thus a Ponzi scheme which has not gone bust but it has gone flat.

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So here you have it. Both liberals and conservatives can take a calm look at the issue of social security and recognize how Ponzi like it is.

By Everette Hatcher III | Also posted in Milton Friedman, spending out of control | Tagged , , | Comments (0)

President Obama’s job speech reacted to by Heritage Foundation scholars (Part 1)

September 11, 2011 – 7:33 am

Everyone wants to know more about the budget and here is some key information with a chart from the Heritage Foundation and a video from the Cato Institute.

I love going to the Heritage Foundation website because of articles like this:

Heritage’s experts watched President Barack Obama’s jobs speech delivered to a joint session of Congress. Here are some of their immediate reactions:

Jobs for Teachers?

In his remarks tonight, President Obama argued that his jobs proposal would create more jobs for teachers. He went as far as to say laying off teachers…”has to stop”.

But since 1970, student enrollment in public elementary and secondary schools has increased just 7 percent, while public elementary and secondary staff hires have increased 83 percent. Moreover, in the 1950′s, there were approximately 2.36 teachers for every non-teacher in a school district. Today, in our nation’s school systems, that ratio is closer to 1 to 1. So every teacher in the classroom has an administrative counterpart in your local public school district. That is a tremendous strain on state budgets. But it is also a huge boon the education unions.

President Obama’s call to spend more precious taxpayer dollars to “prevent teacher layoffs” may do more to inflate schools’ non-teaching rosters than to retain teachers.

On a per-pupil basis, federal spending on education has nearly tripled since the 1970′s. And those who have benefited the most from this profligacy aren’t the children sitting in the nation’s classrooms. No, the increase in federal education spending (and commensurate increase in Washington’s involvement in local schools) hasn’t led to improvements in academic achievement, to increased graduation rates, or even to a narrowing of the achievement gap. It hasn’t served to improve outcomes for children, but it has propped-up the public education jobs program that too often aims to meet the needs of the adults in the system, not the children it was designed to educate.

– Lindsey Burke

A Puzzling Plan to Allow Refinancing of Mortgages

One of the more puzzling parts of the President’s plan promises to allow more Americans to refinance their mortgages, but provides no details about how.  The President promises that with refinancing, families could save about $2,000 a year, but like similar past promises few homeowners are likely to see those savings.

Briefing papers released by the White House say that the economic team will “work with” Fannie Mae, Freddie Mac, the regulator that runs them since both effectively failed three years ago, and “industry leaders” to make the 2009 Housing Affordable Refinance Program (HARP) more effective.

This means that the White House still has no idea how to do this. HARP, which was supposed to help between 4 and 5 million homeowners who owe more than their property is worth, and several other attempts to help under water homeowners have all been resounding failures.

In theory, refinancing at today’s record low mortgage rates is a good idea that would reduce monthly mortgage payments for those whose mortgages are refinanced. This would especially benefit homeowners who have paid their mortgage on time, but still owe more than the house is worth. These homeowners would be more likely to stay in the house.

However, even a well planned refinancing program would still be slow and complex. And sadly, there is no sign that the Administration has figured out how to successfully structure such a program.

Mortgages are both made and refinanced one at a time. The several past efforts to do mass refinancings have foundered in a mass of overwhelmed phone lines, complex paperwork requirements, and confusion. Some housing advocates talk about redoing hundreds of mortgages at a time, but have no idea how to legally implement such a goal.

Another question that must be answered if the mortgage refinancing proposal would cost money. Briefing papers are silent on this, but a refinanced mortgage will produce lower earnings for the lender. If the mortgage value is written down to the actual value of the house (which is unknown at the moment), there would be additional costs. And most importantly, how would this proposal create jobs?

Until there are details, the President’s proposed mortgage refinancing program, like its predecessors will be little more than another unkept promise.

– David John

In 2010, the U.S. spent more on interest on the national debt than it spent on many federal departments, including Education and Veterans Affairs.

BILLIONS OF DOLLARS (2010)

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In One Year, Spending on Interest on the National Debt Is Greater Than Funding for Most Programs

Source: White House Office of Management and Budget.

Chart 29 of 42

In Depth

  • Policy Papers for Researchers

  • Technical Notes

    The charts in this book are based primarily on data available as of March 2011 from the Office of Management and Budget (OMB) and the Congressional Budget Office (CBO). The charts using OMB data display the historical growth of the federal government to 2010 while the charts using CBO data display both historical and projected growth from as early as 1940 to 2084. Projections based on OMB data are taken from the White House Fiscal Year 2012 budget. The charts provide data on an annual basis except… Read More

  • Authors

    Emily GoffResearch Assistant
    Thomas A. Roe Institute for Economic Policy StudiesKathryn NixPolicy Analyst
    Center for Health Policy StudiesJohn FlemingSenior Data Graphics Editor

     

By Everette Hatcher III | Also posted in President Obama, spending out of control | Tagged , , , , | Comments (0)

Dear Senator Pryor, why not pass the Balanced Budget Amendment? (Part 6 Thirsty Thursday, Open letter to Senator Pryor)

September 8, 2011 – 12:53 am

Dear Senator Pryor,

Why not pass the Balanced Budget Amendment? As you know that federal deficit is at all time high (1.6 trillion deficit with revenues of 2.2 trillion and spending at 3.8 trillion).

On my blog www.HaltingArkansasLiberalswithTruth.com I took you at your word and sent you over 100 emails with specific spending cut ideas. However, I did not see any of them in the recent debt deal that Congress adopted. Now I am trying another approach. Every week from now on I will send you an email explaining different reasons why we need the Balanced Budget Amendment. It will appear on my blog on “Thirsty Thursday” because the government is always thirsty for more money to spend.

New CBO Numbers Re-Confirm that Balancing the Budget Is Simple with Modest Fiscal Restraint

Posted by Daniel J. Mitchell

Many of the politicians in Washington, including President Obama during his State of the Union address, piously tell us that there is no way to balance the budget without tax increases. Trying to get rid of red ink without higher taxes, they tell us, would require “savage” and “draconian” budget cuts.

I would like to slash the budget and free up resources for private-sector growth, so that sounds good to me. But what’s the truth?

The Congressional Budget Office has just released its 10-year projections for the budget, so I crunched the numbers to determine what it would take to balance the budget without tax hikes. Much to nobody’s surprise, the politicians are not telling the truth.

The chart below shows that revenues are expected to grow (because of factors such as inflation, more population, and economic expansion) by more than 7 percent each year. Balancing the budget is simple so long as politicians increase spending at a slower rate. If they freeze the budget, we almost balance the budget by 2017. If federal spending is capped so it grows 1 percent each year, the budget is balanced in 2019. And if the crowd in Washington can limit spending growth to about 2 percent each year, red ink almost disappears in just 10 years.

These numbers, incidentally, assume that the 2001 and 2003 tax cuts are made permanent (they are now scheduled to expire in two years). They also assume that the AMT is adjusted for inflation, so the chart shows that we can balance the budget without any increase in the tax burden.

I did these calculations last year, and found the same results. And I also examined how we balanced the budget in the 1990s and found that spending restraint was the key. The combination of a GOP Congress and Bill Clinton in the White House led to a four-year period of government spending growing by an average of just 2.9 percent each year.

We also have international evidence showing that spending restraint – not higher taxes – is the key to balancing the budget. New Zealand got rid of a big budget deficit in the 1990s with a five-year spending freeze. Canada also got rid of red ink that decade with a five-year period where spending grew by an average of only 1 percent per year. And Ireland slashed its deficit in the late 1980s by 10 percentage points of GDP with a four-year spending freeze.

No wonder international bureaucracies such as the International Monetary fund and European Central Bank are producing research showing that spending discipline is the right approach

Daniel J. Mitchell • January 27, 2011 @ 12:00 pm
Filed under: Government and Politics; Health Care; Tax and Budget Policy

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