Too Much Debt, Not Enough Solutions

That’s the title of a recent opinion piece written by Alan Simpson and Maya MacGuineas. Simpson is a former Wyoming senator and was the co-chair of the National Commission on Fiscal Responsibility and Reform (the Simpson-Bowles commission). That commission offered common sense approaches to controlling the national debt in the report it issued in 2010. The commission’s findings were of course ignored by the President and Congress because they couldn’t reach a consensus. Politicians kick the can down the road when someone, such as the commission tells them, “Our fiscal challenges are real. The solutions will be painful, and there is no easy way out.” Those words will never escape the lips of a politician whose primary focus is getting reelected.

The national debt has increased markedly in the past few years, and is approaching $18.5 trillion dollars. The article points out that people have a difficult time conceptualizing a trillion dollars. “If you spend a buck a second, you won’t hit a trillion for 32,500 years. If you spent a million a day since the birth of Christ, you wouldn’t be at a trillion yet.”

The headlines today indicate that our current politicians are not ready to take action on getting the debt under control. The new grand plan that was cobbled together to prevent a government shutdown increases the debt by $80 billion over the next two years. Debt has increased from 34 percent of the GDP in 2007 to 74 percent today. Further increases will only add to the crushing problem we are willing to leave to future generations.

Co-author of the article MacGuineas is president of the Committee for a Responsible Federal Budget and head of Campaign to Fix the Debt. I predict the AARP won’t like anything that the committee or the campaign recommends.


dodd-frankThe subtitle of this book is “What It Does and Why It’s Flawed.” It was edited by Hester Pierce and James Broughel and was written by them and others at the Mercatus Center at George Mason University. I recommend it to anyone who has even the slightest interest in the legislative response to the financial crises that began in mid-2006. You don’t even need to read the entire book to be better informed about the Dodd-Frank Wall Street Reform and Consumer Protection Act. There is a short description of what each of the sixteen “Titles” comprising the act were intended to do followed by a brief summary of why the approach is flawed. “The act requires the creation—by one count—of 398 new rules and will affect the U.S. economy by restricting or requiring specific activity.” Only a small fraction of the regulations that are required by the act have been finalized. “Assuming the remaining regulations are proportionately restrictive…Dodd-Frank would create 13,323 new restrictions in total.” Continue reading

Social Security Projections

The U.S. deficit continues to grow out of control, and there should have been actions taken to address the problem long before now. However, President Obama’s comments that the deficit is not a short term problem indicates to me we won’t do anything about the deficit for the next four years. Much of the problem is caused by “entitlement” commitments, and President Obama said in his inaugural address that he has no intention of doing anything about those either.

I’m baffled how the American people and the media are going along with the “don’t worry, be happy” approach. Looking at Social Security alone is frightening. A recent article by Chuck Saletta on the Motley Fool points out that each new analysis finds that the program will reach “financial unsustainability” sooner than the previous analyses. The Social Security Trustees reported in 2008 that problems would not be encountered until 2041. The date has now changed to 2033, and that is going to continue to move closer.

Money taken from employees and employers is invested in bonds, and bonds that mature must be replaced with new ones. The older bonds were yielding much more in interest than the ones currently available. The program is projected to earn $5.4 billion less in bond interest in 2012. The fact the Federal Reserve has recently said they are going to artificially keep interest rates low until the unemployment rate begins to drop means the revenue is not going to improve. Continue reading

Fiscal Cliff Shenanigans

President Obama has repeatedly talked about imposing a “Warren Buffet Rule” for income taxes, which refers to the outrage he is said to feel that his wealthy supporter pays a lower income tax percentage than his secretary. Drilling down into the recently passed “Fiscal Cliff” bill that Mr. Obama signed into law reveals some curious aspects that don’t seem to be consistent with that position.

An article by Brad Plumer of the Washington Post gives a good start to understanding how much our elected leaders care about fair taxation. Section 322 provides a $9 billion tax break to manufacturers such as General Electric and big banks for what is called “active financing.” That section allows deferring U.S. taxes on overseas income. I’m not against helping U.S. companies be competitive in the global market. However, I recall Mitt Romney was chastised by the media for not pledging to end the provision which President Obama has now quietly signed it into law.

There are other aspects of the law that are even more curious. “Carried interest,” which is the share of profits paid to private equity and hedge fund investment managers are not taxed at the same rates as salaries. The new law will allow those payments to be taxed at a top rate of 20% for individuals earning over $400,000 or $450,000 for joint returns. If that one doesn’t bother you, how about a100 % exclusion on gains from qualified small business (QSB) stock held for at least five years. How many middle class Americans will benefit from that or have even ever heard of it? Continue reading

Fair Income Tax Rates

The primary campaign strategy of President Obama to secure his re-election was to advocate that wealthy (successful) people should pay higher taxes. I assume that resonated because many assumed that the government having more money would provide them more benefits. That discounts the continuous television ads pointing out that Mr. Romney is a Capitalist, that he did not believe it was the place of government to provide free birth control, and the government should pay for Big Bird episodes. (And, yes, I’m oversimplifying.)

So here we are in the midst of a government-created economic crisis about whether the primary objective of Congress is to raise taxes on those who have been successful, to cut spending, or to do nothing and see what might happen next. My bet, and I make that bet without judging whether it is the best approach, is that our highly paid government officials will do whatever they think is best for their political careers.

Government officials from areas where Democrats dominate will hold out for tax increases on the wealthy and will not risk suggesting reform of entitlement programs that they know are economically unsustainable.  Republicans will feebly demand some sort of spending and entitlement reform. The country will continue to be awarded with a lack of leadership from the President and Congressional leaders. I predict President Obama will continue to campaign that everything is the fault of Republican leaders going back to George W. Bush. I also predict that he will be heartily awarded with applause for that meaningless rhetoric. Continue reading

Dueling Presidential Candidate Gaffes

With less than a week until we learn who will be elected president it seems the time is right for a mention of gaffes by the two candidates. It wouldn’t be a duel if the subject referred to Joe Biden and Paul Ryan, since Mr. Biden would win on the numbers of gaffes by an overwhelming margin.

Mitt Romney stirred understandable criticism when he foolishly mentioned that he need not campaign to the 47 percent of Americans who are “dependent on government” and consider themselves “victims.” He later said that he understood that he wasn’t going to get the vote of people who expected that the government’s job is to redistribute wealth, and that “I’m not going to get them.” He added “I do believe we should have enough jobs and take-home pay to allow people to pay taxes. I think people would like to be paying taxes.”

Mr. Obama presented a different opinion in an appearance at Loyola University in 1998 when he was an Illinois state senator. The admittedly 14 year-old video has Mr. Obama saying, “The trick is figuring out how do we structure government systems that pool resources and hence facilitate some [wealth] redistribution — because I actually believe in redistribution, at least at a certain level to make sure that everybody’s got a shot.” Continue reading