It’s the Entitlements, Stupid!

November 29, 2012

G’Day!

With apologies to President Clinton for modifying his famous phrase, this time “It’s the Entitlements, Stupid!” Virtually everyone with a functioning brain knows that our exploding National Debt and $1 trillion annual Federal Deficits are unsustainable. Without a solution to this government-imposed national crisis, the American economy will continue to stagnate, unemployment will be high, job opportunities low, and the country may ultimately decline into bankruptcy. Also, anyone with a functioning brain knows that the solution to this problem must involve compromise and agreement among the three (3) fundamental contributors to the problem; “Entitlements,” “Discretionary Spending,” and “Tax Revenues.” By listening to the Media, President Obama, and the Democrats, you would conclude that the sole cause of our country’s fiscal and debt crisis is insufficient “Taxes on Rich.” Nothing could be further from the truth. This is like trying to stand on a 3-legged stool with two of the legs removed.

Let’s analyze President Obama’s only publicly proposed solution, “Tax the Rich.” Our annual federal deficit is currently $1.3 trillion. Obama’s proposal with possible outcomes is presented below:

Obama “Tax the Rich” Proposal

Possible Annual Revenue (billions)

% Deficit Solved

Raise top 2 rates on Incomes above $200-250,000 from 33 to 35% & 36 to 39.6%

$44.2

3.7%

Raise Dividend tax from 15% to Ordinary Income Rate

$20.6

1.7%

Raise Capital Gains tax fro 15% to 20%

$3.6

0.3%

Reinstate the Pease limit on Itemized Deduction

$12.3

1.0%

Reinstate the Personal Exemption Phase-out (PEP)

$4.2

0.4%

Subtotal Tax increase for Upper-income

$84.9

7.1%

Restore Estate & Gift Tax to 2009 levels

$11.9

1.0%

Total Government Tax Revenue

$96.8

8.1%

 

The above result is a static analysis and assumes no income or behavioral change by taxpayers (highly unlikely). In total, Obama’s “Tax the Rich” solution would potentially generate $96.8 billion per year and solve a mere 8.1% of our annual fiscal deficit problem. Since neither Obama nor the Democrat leaders have publicly suggested any change in either “Discretionary Spending” or “Entitlements,” this would leave a continuing federal deficit of approximately $1 trillion per year or 92% of the fiscal problem unresolved. (Interestingly, a $1 trillion annual deficit is the amount in Obama’s currently proposed budget for the next four (4) years.) This is blind insanity and “Ostrich Management.”

“Entitlement” reform for Medicare, Medicaid, and Social Security combined with growth oriented “Tax Reform” and “Discretionary Spending” cuts are the only ways we can avoid the trap that Greece and other European socialist countries have created for themselves. By insisting ONLY on “Taxing the Rich” with no consideration for “Discretionary Spending” cuts or “Entitlement” reform, Obama appears to be more interested in political ideology than in solving our nation’s economic problems. Without correction, we will create a European slow growth dependent society for America and potentially financial collapse. We must demand a better and more comprehensive performance from our government. I believe the Republicans are correct in demanding that any agreement on additional tax revenues must be accompanied by significant cuts in federal spending.

Let’s review some fundamental facts about our unsustainable National Debt and continuing Fiscal Deficits. The table below summarizes the major items in our national economy and Obama’s 2012 enacted budget.

Item

2012 Budget Amount (Billions)

Total Current National Debt

$16,200

Estimated Gross Domestic Product (GDP)

$15,797

Total Federal Government Receipts (Tax, etc.)

$2,469

Total Federal Government Outlays

$3,796

Annual Federal Surplus (Deficit)

($1,327)

Total Mandatory “Entitlement” Outlays

$2,252

Health (Medicaid, etc.)

$361

Medicare

$484

Social Security

$818

Income Security (Food Stamps, Unemployment, Housing, etc.)

$580

Net Interest on Debt

$225

Total “Discretionary” Outlays

$1338

National Defense

$702

Education

$79

 

Federal outlays in 2012 are expected to be $3.8 trillion (24% of GDP) with a $1.3 trillion deficit after government revenues of $2.5 trillion. Mandatory “Entitlements” total $2.3 trillion, (60% of federal outlays and approximately 15% of GDP), AND are growing at an alarming and unsustainable rate. Discretionary federal outlays (including National Defense) are $1.3 trillion. Simple math indicates that to balance the budget without “Entitlement” reform, the entire Federal Government “Discretionary Spending” (including National Defense) must be eliminated or tax revenues increased across-the-board by approximately 50% to eliminate the deficit. Neither of these alternatives individually or in combination is feasible or desirable. Currently the largest federal “Entitlement” outlays are: Health (Medicaid) & Medicare $845 billion, Social Security $818 billion, Income Security $580 billion, and Interest on Debt $225 billion. (Please note that “Interest on Debt” is unusually small based on an artificially low interest rate (approximately 1-1.5%) resulting from global economic problems and monetary support by the FRS. When interest rates return to normal levels the $225 billion could easily double or more in a very short period of time. Remember, interest rates were in the double digits in the late 1970s and early 1980s. Just look at the recent government borrowing rates in the troubled countries in Europe.)

While the mandatory “Entitlement” programs have good intent and are desirable, they are not sustainable and are inconsistent with economic growth policies. “Entitlements” are where the big federal outlays reside and must be part of a major solution to our fiscal and debt crisis. “Entitlement” reform is the most significant fiscal spending problem we face. Fortunately, we have excellent proposals from Conservatives and bipartisan groups available on how to fix “Entitlements” (see Bowles-Simpson, “The Moment of Truth,” Domenici-Rivlin, “Restoring America’s Future,” and The Heritage Foundation, “Saving the American Dream”). It would be helpful if Obama and the Democrats would acknowledge these or offer proposals of their own. It won’t be easy but as I said in the title, “It’s the Entitlements, Stupid!”

Let’s get to work and save our country!

The Old Guy PhD


Big Government IS STILL Our Problem – & It’s Growing!

May 16, 2012

G’Day!

A year ago on February 11, 2011 my first posted article was “Big Government IS Our Problem!” I firmly believe Big Government is STILL our problem and it is not only growing, it is accelerating! What our country needs is LESS GOVERNMENT not more. If we could get government off our backs, unnecessary discretionary spending could be eliminated, individual and business opportunities could be pursued, jobs created, and income increased, allowing our economy to expand more rapidly. Government needs to be reduced not enlarged.

Last year I believed President Obama and the Democrats would eventually consider the best interests of our country first and would finally realize that their policies were dividing and potentially bankrupting the nation and stifling economic growth. I hopefully thought the President and Congress would recognize this and relatively quickly pursue the excellent recommendations in the bipartisan Bowles-Simpson Debt Reduction Commission’s Report, which was officially presented to President Obama in early 2011. How wrong I was! Obama immediately shelved the report; the Democrats declared it dead on arrival and again failed to pass the required Federal Budget. It has now been over 3 years that the Democrats have prevented passing a budget and Obama’s huge overspending budget proposals have been overwhelmingly defeated by both Republicans and Democrats. Only the Republicans, especially Paul Ryan, have tried to adopt any of the Bowles-Simpson recommendations. Reluctantly, I have come to the conclusion that the “Obammunists” are only interested in pushing their socialist agenda for central control over our lives, our environment, and our private property. Their actions, or lack of, are driving our country into an increasingly dependent and unsustainable welfare state. More importantly, their policies are in serious danger of destroying the American creative opportunistic spirit and national prosperity in which the majority of US citizens believe and enjoy.

In my opinion it is not too late to correct this adverse trend toward mediocrity and save our nation. America can resolve its fiscal and debt crisis and restore our country to a united foundation for responsible government and future prosperity. However, this can only occur if we return to the principles that have made America the greatest and most exceptional country in the world. These principles are: Constitutionally protected individual liberties, free markets, sound fiscal and monetary policies, economic growth, and Constitutionally limited government. The “Obammunists” are rapidly leading us away from all these principles and toward a future of economic stagnation, shared poverty, limited personal freedom, and dependence on government for much of our survival. Under Obama, America is declining quickly into a centrally controlled overregulated socialist state with increasingly limited opportunities for aspiring individuals and companies to succeed.

So what should we do? The first and most vital action individuals can take is to become informed about the issues and vote out the “Obammunists” in the November election. This one single accomplishment will at least stop the rot and give us the opportunity to correct the damage done by Obama and the Democrats. Next we should demand our new President and Congress concentrate on resolving our fiscal/debt crisis, get our economy back on track, and create productive private sector jobs. As I outlined a year ago, at least six actions should be undertaken: 1) Stop/Minimize non-essential regulations, 2) Have a business-friendly government, 3) Reduce tax rates, especially on business, through tax reform, 4) Enact an energy policy that encourages rather than discourages development of domestic sources of traditional energy, 5) Fix the fiscal and debt crises by cutting government spending, revising entitlements, and increasing tax revenues through tax reform, 6) Pass the three pending Free Trade bills and expand them to include other trading partners. Of these six actions only #6, the Free Trade bills, has been passed. (see “Yes, We CAN Grow the Economy and Create Jobs!”)

More specifically, I suggest our new government in 2013 accomplish the following ten (10) priority items:

1)   Unless already accomplished in 2012 by the outgoing President and Congress, immediately extend all the 2012 tax rates for 2 years or until the Tax Reform in Item 6) below is enacted.

2)   Immediately declare a moratorium on any non-essential new laws and regulations.

3)   Immediately rescind Obamacare (unless The Supreme Court has already done this for us).

4)   Immediately rescind the Dodd-Frank Act and its approximately 400 new required regulations (most of which are still to be written). In this regard the most important pieces that need to be rescinded are “The Bureau of Consumer Financial Protection”, “The Financial Stability Oversight Council”, and “The Durbin Amendment”.

5)   Initiate and approve a medium term Balanced Federal Budget that downsizes government, reforms taxes by simplifying the code, reducing tax rates, broadening the tax base, and eliminating politically motivated subsidies. This budget should reform entitlements to sustainable levels, assure the defense and security of America, and reduce and “Cap” the Federal Government Spending at 18-20% of GDP. (see “Bowles & Simpson Have it Right!”)

6)   Initiate and enact the necessary tax and entitlement reform necessary to accomplish suggestion 4) above. (see “Fiscal & Debt Crises – Tax Reform Essential!”)

7)   Demand that any and all new laws or regulations enacted have a “Sunset Clause” that automatically terminates the new law within no more than 10 years.

8)  Demand that Congress review and terminate annually for the next five years at least 10% of all currently existing laws and regulations that are non-essential, unnecessary, or out of date.

9)   Demand a review of all Executive Departments and Agencies of our Government with the goal of downsizing or eliminating over time those that are non-essential, unnecessary, or just bloated. I suggest the prime candidates for consideration are the Departments/Agencies/Bureaus of: Environmental Protection, Energy, and the National Labor Relations Board.

10)   Longer term, Congress should initiate and pass a Federal “Balanced Budget Amendment” to the Constitution. Forty-nine states currently have some version of a balanced budget requirement. Only Vermont does not. (see “Is a Balanced Budget Amendment Necessary?”)

Our country can be saved if the American People recall and return our government to the original spirit and intent of our founders. The United States is exceptional among all nations because of our Constitutional support of individual liberties, private property rights, a free market capitalist society, and limited government. Government should be the servant of the people. The American People should not be the servants of the government. It’s time to take back our country! Study the issues and vote in November!

The Old Guy PhD