Free Markets, Free People

Daily Archives: February 14, 2012


Government dependency tipping point? Been there, done that ….

More on the increasing culture of dependency on government:

The percentage of people who do not pay federal income taxes, and who are not claimed as dependents by someone who does pay them, jumped from 14.8 percent in 1984 to 49.5 percent in 2009. This means that in 1984, 34.8 million tax filers paid no taxes; in 2009, 151.7 million paid nothing.[2]

It is the conjunction of these two trends—higher spending on dependence-creating programs, and an ever-shrinking number of taxpayers who pay for these programs—that concerns those interested in the fate of the American form of government. Americans have always expressed concern about becoming dependent on government, even while understanding that life’s challenges cause most people, at one time or another, to depend on aid from someone else. Americans’ concern stems partly from deeply held views that life’s blessings are more readily obtained by independent people and that growing dependence on government erodes the spirit of personal and mutual responsibility created through family and civil society institutions. These views help explain the broad public support for welfare reform in the 1990s.

This ethic of self-reliance combined with a commitment to the brotherly care of those in need appears threatened in a much greater way today than when this Index first appeared in 2002. This year, 2012, marks another year that the Index contains significant retirements by baby boomers. Over the next 25 years, more than 77 million boomers will begin collecting Social Security checks, drawing Medicare benefits, and relying on long-term care under Medicaid. No event will financially challenge these important programs over the next two decades more than this shift into retirement of the largest generation in American history.

And yet we just got a budget from the President of the United States which essentially ignores that fact.  Just like his previous three.

But more important than that is this culture of dependence that has perniciously grown in this country over the preceding decades fueled by politicians and the ideology of the left.  

Libertarians and many Conservatives have been warning about this phenomenon for years.  But in 2008, what had been a relatively slow ride to growing dependence became a ride on a rocket sled:

Not only did the federal government effectively take over half of the U.S. economy and expand public-sector debt by more than all previous governments combined, it also oversaw a second year of enormous expansion in total government debt at the federal level. Much of that growth in new debt can be traced to programs that encourage dependence.

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In 40 plus years we’ve gone from a dependency percentage of 28.3% to over 70% in 2010.  I don’t think anyone realized how big the change has been or what significance it has.  But it has made us a nation of takers vs. makers

As Heritage’s Bill Beach and Patrick Tyrrell explain, "the index score has grown by more than 15 times its original amount. This means that, keeping inflation neutral in the calculations, more than 15 times the resources were committed to paying for people who depend on government in 2010 than in 1962."

It is the same trap that countries like Greece were in and will result in the same collapse.

Ed Feulner adds some context to the increased percentage of dependence:

Perhaps the most startling part of the index concerns how much assistance is being distributed. Americans who rely on government receive an average $32,748 worth of benefits. How high is that? Higher than the average American’s disposable personal income: $32,446.

Why work?

And:

More than 67.3 million Americans rely on assistance from Washington for everything from food, shelter and clothing to college tuition and health care. These benefits cost federal taxpayers roughly $2.5 trillion annually.

So the president offers a 3.8 trillion dollar budget of which, according to these numbers, all but 1.3 trillion goes to “assistance”.

And in order to offset these “assistance” payments somewhat, the president decides that the only Constitutionally mandated expense within the budget – defense – has to pay the butcher’s bill.

We talk about “tipping points” often, but looking at that chart, I’m convinced that tipping point may have been passed years ago.

Some quotes to leave you with.  Rep. Allen West, this past weekend said he has no problem with a safety net.  His problem is “when that safety net becomes a hammock.”  In this case a $32,000 hammock.

Alexis de Tocqueville reputedly said that the American republic will last only "until the majority discovers it can vote itself largess out of the public treasury."  We’ve seen that majority discover it with a vengeance.

And finally, George Bernard Shaw said, ““Liberty means responsibility. That is why most men dread it.”

70% dependence says a majority now dreads “it”, and has decided it likes others, the makers, paying their way.

As one friend aptly described it on reviewing these numbers, “we’re screwed”.

~McQ

Twitter: @McQandO


Economic Statistics for 14 Feb 12

The following statistics were released today on the state of the US Economy:

Despite strong core numbers, weak auto sales meant that retail sales were up a less-than-expected 0.4% for January. Ex-autos, retail sales rose 0.7%, and removing gasoline sales brings the core number to 0.6%.

In weekly store sales, ICSC-Goldman reports a weak -2.0% drop in sales, with the year-on-year rate at 2.8%. Redbook is also weak at a 2.7% same store sales increase from last year.

Export prices rose 0.2% for January, which is up 2.5% from last year. Import prices rose 0.3% for the month, and 7.1% for the year.

The NFIB Small Business Optimism Index rose very slightly to 93.9 in January.

The Ceridian-UCLA Pulse of Commerce Index fell 1.7% in January to a level of 93.17.

Business inventories rose 0.4% in December. Sales rose 0.7%, so the stock-to-sales ratio dropped to 1.26.

~
Dale Franks
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Obama budget full of gimmicks and rosy assumptions

Representative Paul Ryan characterized the Obama budget as not a fiscal plan but “a political plan designed to help the President’s reelection.”  Getting into the details seems to validate Ryan’s point.

He also pointed out that the debt crisis is the most predictable crisis imaginable and the president has "punted" again with this budget. Said Ryan, “Instead of an America built to last we get an America drowning in debt.”

The White House claims the Obama budget saves 4 trillion over and above the Budget Control Act.  But in fact, the Obama budget rides the base line and throws more taxing and spending on top of it (while claiming to save 4 trillion).  Analysis of the budget shows, at best, a savings of 300 billion over 10 years.

As for an “America Built To Last”, Obama approaches that in a very odd way.  He goes after businesses and investors:

1. The top income rate would be raised to 39.6 percent vs. 35 percent today.

2. Under the “Buffett rule,” no household making over $1 million annually would pay less than 30 percent of their income in taxes.

3. Between now the end of a second Obama term, Obama proposes $707 billion in “net deficit reduction proposals.” Of that amount, only 16 percent is spending cuts.

4. The majority of small business profits would be taxed at 39.6 percent vs. 35 percent today.

5. The capital gains rate would rise to 25.0 percent (including the Obamacare surtax and deduction phase out) from 15 percent today.

6. The double-tax on corporate profits (including dividends) would increase to 64 percent based on the statutory corporate tax rate (58 percent using the effective tax rate), easily the highest among advanced economies.

7. The double tax on corporate profits (including capital gains) would increase to 51 percent (44 percent using the effective tax rate), also among the highest among advanced economies.

Those details alone are a basis for declaring his budget “dead on arrival” at Congress.  These new taxes would take the tax revenue as a share of GDP to 20.1 percent in 2022.  The historical average is 18 percent.  In a time of deep recession, when government should be proposing economic, tax, labor and trade policies to create jobs and move the economy in a positive direction, Obama’s budget proposes to do exactly the opposite.  The attack on small business, as well as corporations, points to a president out of touch with the problems of the economy.  He claims to save 4 trillion on debt with these policies but in fact, his budget proposals add 6.7 trillion to the debt over the next 10 years and the debt-to-GDP ratio is predicted to be 74.2 percent this year and 76.5 percent in 2022.

And here’s the bottom line truth about policies such as Obama is pursuing:

Corporate taxes are paid by consumers in higher prices and by workers in lower wages – so much for the promise not to increase taxes on those making less than $250,000. Every good tax economist knows this, but the president chooses to ignore reality and demagogue the issue.

Indeed.

Given that, how does the White House justify such policies?  Well, it simply makes up a rosy forecast for the future, that’s how.  3.4 percent in 2015, 4.1 percent in 2017 and 3.9 percent in 2018.  As James Pethokoukis points out:

The U.S. economy has only seen a run like that three times in the past four decades.

Yet we’re supposed to believe that we’ll come roaring out of one of the longest and deepest recessions since the Great Depression with taxes focused mostly on business at a higher than historical rate?  Not likely.

Meanwhile we’re being told by the President’s Chief of Staff that it is all the Republican’s fault that we don’t have a budget out of the Senate.  Mistakenly claiming that it takes 60 votes to pass a budget, he points to the Republican Senators as the obstructionists.

Of course, on budget matters, it only takes a simple majority.  And there are 53 Democratic Senators.   If you recall, the Senate minority leader, Republican Mitch McConnell introduced and got votes on two budgets last year – the Ryan budget, voted down by Democrats and President Obama’s budget which was voted down 97-0.   Harry Reid, however, has introduced no budget in over 1,000 days.

And the gimmicks:

At issue is how the government projects spending and deficits going forward. Of the $4 trillion in deficit reduction claimed by the White House, $3 trillion would come from a combination of tax increases and spending cuts. Another $900 billion would come from domestic spending caps agreed to with Republicans last year to resolve the impasse over raising the nation’s statutory borrowing limit.

But if Congress and the president did nothing, spending would actually fall by $2 trillion under current law. That is because automatic cuts to defense and nondefense programs totaling $1.2 trillion are already set to go in force in 2013. The Obama budget assumes those cuts will not happen. The president also assumes that sharp cuts to reimbursement rates for doctors treating Medicare patients will never be enforced, but the budget does not detail how those scheduled cuts will be prevented.

Republicans say that effectively negates $522 billion over 10 years, since Congress will have to figure out how to pay for the so-called Medicare doc fix.

Republicans also protest that Mr. Obama is "saving" nearly $1 trillion by not spending over the coming decade what the United States has spent each year on wars in Iraq and Afghanistan.

So the Obama savings are built on assuming the “Doc Fix” won’t be made and that war spending will remain at the current level (even with the withdrawal from Iraq and the coming withdrawal from Afghanistan) for 10 years – something obviously not the case.  He’s built his 4 trillion in “savings” on 1 trillion in tax increases, 2 trillion on spending cuts already enacted into law (sequestration), 1 trillion assuming war spending will remain level for 10 years.  Meanwhile most of his spending cuts come from where?  The military, of course.

Finally, remember this?

“This is big,” wrote White House director of new media Macon Phillips in a February 23, 2009 blog post, ”the President today promised that by the end of his first term, he will cut in half the massive federal deficit we’ve inherited. And we’ll do it in a new way: honestly and candidly.”

Indeed, President Obama did make that promise that day, saying, “today I’m pledging to cut the deficit we inherited in half by the end of my first term in office. This will not be easy. It will require us to make difficult decisions and face challenges we’ve long neglected. But I refuse to leave our children with a debt that they cannot repay — and that means taking responsibility right now, in this administration, for getting our spending under control.”

This budget does none of the above.  In fact, it’s not even close.  There are no “difficult decisions” included.   There are now “challenges” faced.  As Rep. Ryan said, Obama has again “punted”.

This is indeed the most predictable crisis imaginable and again, the man who claimed he would do what is necessary to fix the problem has once again kicked the can down the road.

~McQ

Twitter: @McQandO

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