Archive for the ‘budget’ Category

He Started It

Wednesday, March 11th, 2009

Barack Obama has pointed out to journalists that “it wasn’t under me that we started buying a bunch of shares of banks. It wasn’t on my watch. And it wasn’t on my watch that we passed a massive new entitlement -– the prescription drug plan — without a source of funding.” As Micheal Tanner of Cato puts it “He Has a Point.” Many Republicans in Congress, as well as some conservative commentators like Rush Limbaugh, have been extremely hypocritical in attacking spending now that Obama is in power and not causing a stir when Bush was in charge.

This does not excuse the bad behavior. If big spending was bad when Bush was in power, big spending is bad now. In many ways, the Democrats often sound like two kids quarreling tattling “He started it” to excuse bad behavior.

Bailing Out Investors Bad Decisions

Tuesday, September 30th, 2008

The United States is economy is in pretty bad shape right now. The economy is in such poor shape right now that we must hand over at least $700 billion to the Treasury Secretary to purchase bad debt from Wall Street.

The reason many people say we need a bailout is to make up a string of bad decisions made on Wall Street. From what I understand the problem is that Wall Street firms continued to create securities consisting of worthwhile and worthless mortgages that eventually created convoluted securities than no wants any more. If no one continues to buy these securities, banks on Wall Street will lose lots of money, which it feared will create a credit crisis that will mean it will be more difficult for consumers and businesses to borrow money.

I remain unconvinced that this bill is a good idea. $700 billion is a lot of taxpayer money equal roughly the cost of Iraq war to date. The federal government does not have this kind of money to spend over a short period of time due to Congress inclination not to limit spending or raise taxes this bill will probably largely be financed through government spending which will push us further into an economic crisis. Sure the bill may not actually cost $700 billion, some people think the government will actually make money off the bailout but the bailout could alternatively cost more than $700 billion since 700 billion is just a figure basically made up by the Treasury Secretary.

The bailout goes against the way capitalism works. Capitalism is a system of economics based on profit and loss. Traditionally in capitalism, people who are more productive and make a profit are rewarded, the opposite side of the coin is that people have to take losses when they make bad decisions. The people who invested in mortgage securities whose worth is not clear made bad decisions. If you take away the downside of bad decisions, you will just encourage people to engage in riskier decisions without any regard to whether or not they will be profitable; economists call this moral hazard.

The House of Representatives did vote down the bailout yesterday but the bill is not completely dead. It appears as the bill will be reintroduced in the House of Representatives on Thursday after Congress returns from the Jewish holiday.

Update 1:

Social Security Is A Disgrace

Tuesday, September 16th, 2008

Earlier this year John McCain said that Social Security is a disgrace. John McCain meant that Social Security benefits may not be there for future generations, but John McCain would be correct to say that Social Security is a disgrace..

Social Securtiy is a disgrace not just because Social Security is a multi-generational Ponzi shceme but also because Social Security increases poverty by giving people a disincentive to save because a belief will be created that the government is saving for them. Edgar K. Browning,Research fellow at the Independent Institute, explains:

While it reduces poverty by providing income to retired persons, it discourages private saving during the working years—ultimately decreasing the private assets people bring to their retirement. The net effect of this is increased poverty among the retired population.

To understand this conclusion, it is important to compare the rate of return on taxes paid that is generated by Social Security to the rate of return people could receive on their private saving. For those retiring in 2008, the average implicit real (inflation-adjusted) rate of return on Social Security taxes paid was slightly below 3 percent—and it is scheduled to decline to under 2 percent in the next forty years. In contrast, if people retiring in 2008 had invested the taxes they paid into Social Security in a balanced portfolio (60 percent stocks and 40 percent bonds), they would have received a return of 5.5 percent.

The difference between a 5.5 percent return and a 3.0 percent return may not sound like much, but in annual returns compounded over a lifetime, this difference has a huge influence on the income available during retirement. In fact, the annual retirement income provided by a 5.5 percent return is double than that provided by the 3.0 percent return of Social Security. Even more compelling, an investment in the stock market averages a 7 percent real return, which would mean an annual income of three times what Social Security provides.

In short, it is likely that we would have fewer poor among the elderly had they been free to invest their taxes in private assets. Once Social Security’s rate of return drops to below 2 percent, it will only continue to aggravate poverty in the future.

While this simple comparison is compelling, it overlooks the huge hidden costs of this system. By reducing the incentive for workers to save privately for their own retirement, we reduce the economy’s saving and investment in productive assets. This means the economy grows more slowly as a result of Social Security and people end up with lower incomes even before they pay their taxes. When this cost is taken into account, the real return from Social Security to those retiring today is actually negative!

And things are only going to get worse. Although Obama assures us, “the underlying [Social Security] system is sound,” economists have emphasized for years that this is not the case. Today, government expenditures on Social Security and its companion retirement program, Medicare, are 7.3 percent of GDP. However, the Boards of Trustees of Social Security and Medicare tell us that figure will rise to 15.2 percent by 2040 if we don’t change the rules for determining benefits.

Ultimately that means we will have to more than double tax rates to pay the benefits Congress has unwisely legislated. Or we will have to cut benefits in half, or some combination. Raising taxes would be disastrous—imagine a 35 percent payroll tax rate (compared to the present 15.3 percent) and higher income tax rates as well. And since Medicare is partially funded by the federal income tax, its rates would have to rise as well.

Neither option is attractive, but cutting benefits is clearly preferable since people would then depend more on private saving. Most economists favor gradually raising the retirement age as the least painful way of cutting benefits. But the longer we wait, the harder it is to implement this option and the more likely we will be forced to accept substantially higher taxes.

The elderly poor, as well as the rest of us, are ill served by politicians who systematically downplay the huge costs of Social Security and delay confronting what is indeed a true crisis.

Earmarks are closer to being under control

Tuesday, August 19th, 2008

Taxpayers for Common Sense has an analysis of the new spending bills including the number and the amount spent on earmarks is down:

During this election year, lawmakers are showing slight restraint in writing the earmarks in the FY 2009 spending bills, according to an analysis by Taxpayers for Common Sense (TCS) (click here for the new database). The House has increased the number and value of earmarks at about the same rate.  The Senate has cut earmarks by 16% in the spending bills in terms of total dollars. The analysis is based on all the bills that have passed full committee and are awaiting action in both chambers. 

 

TCS analyzed the available House and Senate Fiscal Year 2009 spending bills and found that earmarks decreased by more than 15% in the Senate and increased nearly 7% in the House compared to the same appropriations bills at the similar point last year. The House increased the number of projects in these bills by 5% from 4,149 in 2008 to 4,367 in 2009 and the Senate reduced total projects from 4,313 in 2008 to 4,093. To some extent this represents the Senate restraining their irrational earmark exuberance of last year. In the six bills that were available for both chambers, the Senate still outstrips the House in total earmark cost: $5.86 billion to $5.12 billion.

 

One of the more remarkable shifts is a $426 million drop in Senate earmarks for the Transportation-Housing and Urban Development spending bill (the House bill hasn’t been considered yet). This is at least in part due to the cratering of the Highway Trust Fund, which is fueled by the gas tax. Overspending in previous years, coupled with the precipitous drop in gas tax receipts as motorists drive less, has drained the fund and well for earmark spending. The only other bill to have a similar fall on a percentage basis was the Commerce-Justice-Science spending bill, which also fell more than 30%, or $228 million.

 

But don’t get your hopes up yet;

There are twelve final spending bills for the federal government. So in turn, there are 24 final House or Senate bills. Congress has only released 15 of those bills. With so many bills not considered, including the Defense spending bill that includes more earmarks than each of the House and Senate passed bills, much can still change. And that assumes that the spending bills will move under relatively regular order.

Earmarks is not the end all of spending but earmarks create the quickest route to corruption and may raise the level of overall spending by the Federal Government.

Harvard Political Review

Thursday, August 7th, 2008

Harvard Political Review has an article addressing the need to get the appropriations process under control. The article by Pio Szamel points out the corruption that has lately been found in the appropriation process. The article offers two options to get control of the appropriations process limit earmarks or find more accountability:

While the current process is certainly not ideal, the question of how to reform it is a controversial one. One approach is to eliminate earmarks entirely. Some members of Congress, with the support of presidential candidate Sen. John McCain (R-Ariz.) and Speaker of the House Nancy Pelosi (D-Calif.), tried to enact a one-year moratorium this spring. However, the measure failed in the Senate by a 71-29 vote as rank-and-file senators voted to protect the pork that helps their bids for re-election. Nevertheless, clamping down on earmarks remains a priority for many reformers because earmarks are considered to be the easiest avenue for corruption: they provide a mechanism for individual members to direct money to specific causes, groups, and even corporations.

But Adam Hughes of OMB Watch, a non-profit budget watchdog organization, told the HPR that there is another approach to reform: an emphasis on transparency rather than on eliminating all earmarks. “There’s been a lot of negative press around the term earmark,” he explained, before pointing out some valuable projects that were funded by earmarks, such as the Iraq Study Group. Rather than get out of the earmark business entirely, Hughes argued that the problem is accountability, noting that “when you can operate unaccountable to others, you can do whatever you want.” The solution is then to make the process more transparent, thereby fostering accountability.

The article points accountability efforts have been more effective than attempts to limit earmarks.

The article misses the major way to combat government corruption which is to reduce the size of government. Many earmarks are for activities to be performed at a local level. What we need is a change to at the very least to expect a lot less from our federal government.

Hillary is Right!

Thursday, August 7th, 2008

I don’t often agree with Hillary Clinton on anything but Senator Hillary Clinton has a column in the Wall Street Journal arguing for fiscal restraint on the executive. Quote:

I’ve proposed a comprehensive overhaul to root out corruption in no-bid contracts and other shady deals. Reforms must include the following:

- Instead of rewarding companies that exploit tax shelters and incorporate in tax havens, let’s ban the federal government from contracting with companies that hide profits offshore.

- We should put in place safeguards so that contracts are awarded to responsible companies that abide by the law and complete the work they’re hired to do.

- Let’s put a stop to the disgraceful practice of giving bonuses to contractors for work never performed, which has been allowed to happen in Iraq and throughout the federal government according to the GAO and inspectors general.

- We need to increase transparency and competition in the contracting system, and to stop the ideological privatization of critical governmental functions.

Except for the last measure these all seem like good ideas. Federal contracting has failed recently in Iraq and with FEMA after Hurricane Katrina.

However, there is nothing wrong in of itself with federal contracting and privatization. There is no efficiency gained by the government by producing everything which is the logical extent of attacking privatization.

Bobby Jindal Keeps The State Legislature In Check

Wednesday, July 2nd, 2008

Bobby Jindal has vetoed a bill that would have doubled the salaries of Louisiana legislators.

BATON ROUGE — Gov. Bobby Jindal announced today that he has vetoed the legislative pay raise.

After days of saying he would not reject the unpopular measure, Jindal said this morning that he had changed his mind.

“I thank the people for their voice and their attention,” Jindal said of the public outcry against the raise. “I am going to need your help to move this state forward. … The voters have demanded change. . . . I made a mistake by staying out if it” originally.

Jindal said that legislators “are going to be angry I broke my word to them” by promising to stay out of the pay raise issue. “Let them direct their anger to me and not the people of this state,” Jindal said.

The governor said that although he originally promised to refrain from injecting himself in the issue because a veto may threaten his future legislative programs, he was wrong.

“The bottom line is that allowing this excessive legislative pay raise to become law would so significantly undercut our reform agenda and so significantly diminish the people’s confidence in their own government that I cannot let it become law, so I have vetoed the bill.”

One would think of all people fellow politicians would know not to believe what a politician tells you. This is a good example that if the public demands something from the legislature politicians will respond and it does not necessarily cost the taxpayer money.

Bobb Barr Says Cut Spending First

Tuesday, May 6th, 2008

Bob Barr has a new video on YouTube calling for cuts in government spending and tax reform.

Bob Barr states that cutting the size of the government spending is more important than changing tax policy. I like tax cuts a lot but the problem with the Bush administration has been government spending not the lack of tax cuts.

Bob Barr stresses the need for tax reform stating that any reform of the system would be better than what the United States has now. Bob Barr has been the supporter of the Fair Tax which is essentially a national sales tax plan. Bob Barr does mention he is open to other types of tax reform plans including a flat tax plan. This is good news because I dislike the fair tax because I am afraid it would impose a harsh regulatory burden on small businesses. Barr’s ability to consider other tax reform policies makes him a more of an attractive candidate for Libertarians.

The Fiscal Costs of The Iraq War Add Up

Tuesday, May 1st, 2007

We will soon be approaching four years since the start of the war in Iraq and the bill is beginning to add up.

When the new funding for the war passes, the total will rise to $564 billion. McClatchy lists some of the other purchases that the government could make with the money being spent on Iraq:

“What could that kind of money buy?

A college education – tuition, fees, room and board at a public university – for about half of the nation’s 17 million high-school-age teenagers.

Pre-school for every 3- and 4-year-old in the country for the next eight years.”

Of course the government shouldn’t be spending any more money. This war has been paid for through increasing government debt. The large federal deficit has hurt the value of the U.S. dollar and increasing government debt leads to investment in government securities as opposed to capital investments that will stimulate the economoy.

Long term fiscal costs must be considered that will be needed to care for veterans. Four years of war produces veterans with needs that will have to be addressed for lifetimes.

Maybe a relatively small amount of money for peanut storage in exchange for hundreds of billions saved ending the war in Iraq.

I Do Not Trust The CBO

Monday, January 22nd, 2007

Since September I have been an intern at the National Taxpayers Union Foundation. My main responsibility has been working on the BillTally project. Some of my analysis has come in part from the CBO.

I used to trust the CBO. But that trust has vanished. Today, I read the CBO report for HR 5 and it seems completely off base. The government is going to save money by reducing the interest they charge on student loans? I don’t think so. The CBO’s logic is that certain offsets will save boatloads of money.

It is highly dubious to think that the CBO has included the fact that people will be more likely to rely on federal student loans now that they will have lower interest rates. THe likely result of this legislation is a rising cost of college which would hurt the very students the legislation was designed to help!

P.S. I’m looking for a job preferably in D.C., N.Y.C. or somewhere else cool.