This is the companion blog to the MyGovSpending.com website.





Tuesday, July 5, 2011

DEBT CEILING DEADLINE TASERS D.C. PROCRASTINATION

Pols Get Busy with Budget Numbers

On 2 August, the US Treasury expects to run short of cash.  Both sides fear a US Government default if the debt ceiling is not raised in time. 

Vice President Joe Biden is attempting to shepherd a group of Senators and House Members toward a budget deal that keeps the government borrowing. 

Public deficits have been chronic since the US Bureau of Economic Analysis began its tally in 1929.  Washington is quaking at the thought of changing its "don't worry, be happy" tax and spending habits. But change they will. Those policies have gradually metastasized over the last 80 years into a lifetime tax of $1.3 million for a typical US family and unfunded public liabilities of $800,000 in addition.

With concern swelling last year, President Obama appointed the Simpson-Bowles commission to recommend a fix.  Contrary to near universal expectations, the team produced a remarkable work product.

It recommended wholesale reform of the corrupted US tax code.  In return for closing tax breaks and straightening the twisted economic incentives, the Commission would lower tax rates significantly.

Further, Simpson-Bowles grasped the famous third rail of Social Security and Medicare. It recommends cuts to senior subsidies and increasing related taxes, while boosting benefits to the poorest of oldsters.

The Commission's plan makes progress reducing the federal deficit to 1.5% of GDP by 2020 from 10% last year.   

Obama did not endorse Simpson-Bowles.  On 13 April the Administration issued the President's Framework, staking out a separate budget position.

That Framework does not change Social Security. Attempting to control medical costs, it goes beyond Obamacare in shifting more power away from the public and to a beefier Medicare bureaucracy.

Notably, the President supports sweeping tax reform and lowering corporate income tax rates.

The President's Framework cuts deficits $2.5 trillion over the next 10 years, versus Simpson Bowles cuts of $4.0 trillion. That's from a baseline of $9.4 trillion in deficits the President first proposed in February.

Paul Ryan, chair of the House Budget Committee, reforms more.  His plan cuts Washington deficits by $4.0 trillion between 2012 and 2021. And it does this while reducing the nation's tax burden by $610 billion.

Senior subsidies are at the core of the nation's self-destructive financial trajectory.  Ryan tackles Medicare by changing the program from a free all-you-can-eat buffet to a fixed government payment toward seniors' health insurance. Most importantly, he caps the growth in taxpayer costs per beneficiary to inflation.  Of the three leading budget plans, Ryan's proposal addresses medical costs most squarely.  

Ryan's plan is a greater agent of change than the other two. His youth-oriented budget puts more of the boomer generation's cost on the boomers themselves. That reduces the burden on younger people. It offers the best hope of broad prosperity for the middle-aged and the young.  

Each of these three prominent proposals agree on important points. All favor major reform of the tax code. All make attempts at controlling medical costs.  All cut spending.  Regrettably, all continue to run deficits for a decade, too.

The current round of budget action is expected to go to the brink. Former President Clinton remarked, “If we defaulted on the debt once for a few days, it might not be calamitous.”  Expect wonderful political theatre.

This observer suggests that if you do not play a role, you will be written out of the script.  Contact all your federal, state, and local elected officials with your opinion. Do it early. Do it often.

Regardless of the outcome of the current negotiations, intense budget debate is here to stay. And that is healthy for democracy.  Citizens are learning that public sector finance is too dangerous to leave to the public sector.

Sources: US Bureau of Economic Analysis, MyGovSpending.com, the Committee for a Responsible Federal Budget, Wall Street Journal


(This article first appeared in the June issue of Smart Girl Nation.)

BUSTED BOOMERS

Mismanaged Entitlements and Generational Bankruptcy
Will You Pay? Or Someone Else?


"...The boomers are stealing our future..."  I overheard these words from a 35ish fellow talking on his cell phone. I'm a boomer. He is right.

Social Security and Medicare together are by far government's largest expenditure. They account for 22% of federal, state, and local spending.  Next in line is education at 15% and defense at 13%. 

Social Security and Medicare pump out an average of $50,000 annually per retired couple whether seniors need it or not. According to Robert Samuelson, a quarter of households over the age of 65 have incomes that exceed $75,000 annually.

The fabled trust funds are just that - fables.  From a taxpayers' viewpoint, the trust funds are irrelevant. They never held any real money.  The trust funds can pay out only if citizens pay in - with higher taxes, fewer public services, or borrowing yet more. 

Holistically, the boomer's retirement picture is even worse. In 2007, before the recent recession, the median household aged 55-65 had wealth of only $250,000. The cost of a barebones retirement is in the neighborhood of $600,000 to $800,000 depending on assumptions. That $350,000 to $550,000 shortfall can only be closed if seniors' cut living expenses or youngsters pay up.

A hard view of the situation is that seniors consumed their earning years while relying on Social Security's "don't worry, be happy" financial structure. Only the boomers are financially responsible for their own mistake.

The softer, more emotionally soothing view is that the retiring boomers are senior citizens stuck in a tight spot. How they got there does not matter. They need a big financial hand from the youngsters in the pursuit of one version of fairness. 

As younger people living in the boomers' wake come to grips with the problem, a middle position seems logical. The boomers dallied while the most anticipated train wreck in history unfolded. They were negligent in planning for their retirement. 

Therefore, the Woodstock generation should take a large portion of the financial responsibility by accepting lesser subsidies.  Subsequent workers will pony up some of the boomers' shortfall out of the goodness of their hearts. 

So far, young people are too busy studying, building careers, and raising families to pay much attention. So not surprisingly, today's proposals put most of the burden on them.

Post-boomers will be prudent to make sure this does not happen again. So they'll engineer a stronger retirement funding mechanism.

There are only three ways to fix today's problem. 1) Cutting senior subsidies puts the burden on boomers - unless, of course those benefit cuts are pushed into the future. That puts the cost on youngsters.

2) Raise taxes. Here, again the weight falls on youngsters because they'll be paying those taxes.

Or 3) reduce the cost of retirement. This could be a very rich vein. US health care is two to four times more costly than other rich country medical systems. Productivity savings of 6% - 10% of GDP are ripe for harvest...sufficient to ease the transition to a new system. 

Chew on this issue. Don't discard proposals condemned as politically undoable now. Times change.  Cutting current benefits, means-testing, pushing medical cost savings, prioritizing disability, and private accounts all have great potential.

Enough stress is building in the system to force a torrent of change over a short span.

With the cohesion that Smart Girl Nation Summits build, and a little luck, the Smart Girl generation can enjoy a theft-free future.

(This article first appeared in the May issue of Smart Girl Nation.) 

The Tax Man Cometh

This year 38%  of America will be funded via coercion.

The tax man cometh. This month and every month. This day and every day.

Citizens obediently dish out the shekels in the certain knowledge that if they refuse, the state will respond with serious ugliness. 

Take Kaleesha Cashstrapt, a woman with a husband and two kids. Together they expect to earn a very typical $75,000 in cash income this year. Government will pump $30,000[1] directly and indirectly from her family into its own wallet.  

Government has punctured Kaleesha's finances with a variety of intravenous tubes. Income taxes - often thought of as a big, brazen pipeline - account for only 14% of Kaleesha's total tax.  Social Security and Medicare suck out another 37%.  Sixteen percent drips out in deceptively small streams via sales and other taxes on everyday purchases. Then Kaleesha's family ultimately pays all business taxes through higher prices, lower wages, or smaller returns on stockholdings. That's 20%.  Property taxes make up most of the rest.

But we're still missing a big piece.  Borrowing is simply taxes deferred. So add another 33% to that tax burden.

Note that the rich pay more.  Good estimates show the top 4% of families by income paying 32% of all federal, state and local taxes. As a portion of economic income (which includes more than cash income) the non-rich pay 26% of their income in taxes. The rich - those earning above $200,000 - pay 30%. 

Clearly, the threat of force is necessary to collect taxes. Government is expected to spend 38% of GDP this year. So 38% of the economy is coercively based. America's founding ideals appear forgotten. George Burns may have inspired the public sector when he cracked, "Sincerity is everything. If you can fake that, you've got it made".

With 38% of citizens lives deemed public property, raising taxes may no longer be the path of least resistance. 

Finally citizens are paying attention to public finances. Rolling back the concentrated force of government won't be easy. Nor will taxpayers ever be rubes again.

The tax man will never goeth away. Nor should he. In time, however, he may be satisfied little more than a simple cup of tea.

(This piece was first posted in the April 2011 issue of Smart Girl Nation.)