I don’t want to get off on a rant here, but…*
I don’t mind people protesting against massive government expansion and taxation. But do they have to call their protests “tea parties”?
Mailing bags of tea to Congress costs very little and risks nothing. It’s just one step up from sending a strongly worded email, which is only one step up from an online form letter or petition.
Do they know what the Boston Tea Party was about? And if so, what are they implying when they send tea to Congress? We have representation to go with our taxation, more direct representation than the American Revolution established. If the “tea party” protests of 2009 aren’t really related to the original Tea Party, why draw a comparison?
I’d be more impressed if they fired a shot across the bow and coordinated a national day for cranking up their withholding allowances, just as high as they can. They’re planning their next party on Tax Day, right? One might think they’d be interested in ceasing to lend their earnings interest-free to the government. They might take some satisfaction in doing something that actually shows up on the government’s ledger.
I’d be convinced of their sincerity if they subsequently considered actually not paying their taxes next year if the government didn’t change its policies. That would be civil disobedience, as opposed to loud-but-obedient. But still, hold the tea.
The “going Galt” thing has been a bit better — at least it involves refusing to produce — but “John Galt” is a rather radical standard, ladies and gentlemen. Reducing your income so that you don’t pay the higher marginal taxes in the next bracket; partially shutting down businesses and taking more leisure time; retiring early. These are nice, but it’s like “going Martin Luther King, Jr.” without risking jail or invoking the Alamo without risking death.
Galt refused to let the public seize his creations for their (immense) benefit. He led an illegal strike. He accepted nothing more than a night watchman state. He openly scorned all religion and mysticism. His opposition to government was not of the “vote the bums out 20 months from now” variety, or merely underperforming–although he did discuss underperformers in his marathon speech, much of which is dramatized here (note: videos spoil much of the book – the part about underperformers is at 7:20 or so in Part 14).
Not that radical? Not willing to take that kind of risk? Then don’t play dress-up.
Content yourself to call your actions by their proper names. If you know what the fictional character symbolizes, and that’s not a standard by which you judge yourself, it’s better that you don’t compare your actions to his.
* This isn’t a Dennis Miller-style rant. Sorry. If I tried to emulate that, I’d just pale in comparison. Speaking of which…
Thousands of patients with terminal cancer were dealt a blow last night after a decision was made to deny them life prolonging drugs.
The Government’s rationing body said two drugs for advanced breast cancer and a rare form of stomach cancer were too expensive for the NHS.
The National Institute for Health and Clinical Excellence is expected to confirm guidance in the next few weeks that will effectively ban their use.
Note the bold term. Government rationing body. Doesn’t matter what you want or need or are even willing to pay for, does it? Denied with no recourse except to get on an airplane, fly to the US and pay for it yourself … if you can afford all of that. And what if there were no US to fall back on?
When the government owns the problem, rationing will be the result. Take a look around you and tell me what you see going on economically. What do you suppose, then, will be the case if the same sort of system exists here? How can it be any different?
And a side note about unintended consequences. If you were the CEO of the drug company that developed these drugs, would such development be a priority in the future? Right now you have the relatively free market of the US to sell such products in. And as they’re used and studied, even better drugs will result. But if that market dries up because government is unwilling to pay the price for newly and expensively developed drugs, what’s the incentive for you and your company to do so?
[HT: Below The Beltway]
When it comes to military procurement, President Obama says:
“I reject the false choice between securing this nation and wasting billions of taxpayer dollars,” Obama said on a day when he signed a presidential memorandum reforming the contracting system across the entire government.
But when it comes to a spending bill with 9,000 earmarks?
Democratic Senator Evan Bayh calls it what it is – wasteful spending.
Where’s the presidential leadership on this? If there’s waste in the procurement system and that’s a target, why isn’t waste in the spending bill also a target?
Another day older and deeper in debt. Of course, that’s because you plan to spend $3.6 Trillion on budget over the next year.
WASHINGTON – President Obama laid out his first budget plan, a bold $3.6 trillion proposal that would transfer wealth from rich taxpayers to the middle class and the poor, and predicts a stunning federal deficit of $1.75 trillion this year – nearly four times last year’s record.
Obama blamed the expected federal deficit explosion on a “deep and destructive” recession and recent efforts to battle it, including the Wall Street bailout and the $787 billion stimulus plan.
Among the budget proposals, the plan would:
extend a $400 tax credit for most workers while letting expire former President George W. Bush’s tax cuts for couples making more than $250,000 a year. The budget contains almost $1 trillion in tax hikes over 10 years on individuals making more than $200,000 and couples earning more than $250,000;
close tax loopholes for the wealthy to raise $318 billion toward a down payment on Obama’s universal health care plan;
clamp down on the Pentagon budget, which would get a 4 percent boost next year, but would then get increases of 2 percent or less over the next several years;
make permanent the expanded $2,500 tax credit for college expenses;
spend more than $6 billion on cancer research at the National Institutes of Health next year, a 15 percent hike;
spend $3.9 billion to improve the nation’s sewage treatment plants and drinking water systems; and
raise $15 billion a year, beginning in 2012, from auctioning off carbon pollution permits to help develop clean-energy and renewable-energy technologies. The administration “will work expeditiously” to get Congress to approve an 83 percent reduction in global warming emissions by mid-century. There’s also more money at NASA for space-based monitoring of greenhouse gases.
After reviewing some of the comments from those intended to be taxed, as well as some of the criticisms of those taxpayers’ intelligence [as an aside, I think the liberals denouncing both the story and the interviewees are playing a little fast and loose with the assumptions, since the taxpayers displayed no misunderstanding of marginal rates, and voiced concerns solely based on principles], I got to thinking about how much money will this proposed tax hike really raise. This seems important, not only because of the size of proposed budget, but also since a common refrain from those in favor of letting the top rate snap back to 39.6% (from the current 35%) is that it will only cost those taxpayers 5 cents on the marginal dollar, which is very little to worry about much less enough to change behavior, or so the argument goes.
Before looking at the actual numbers, let’s get something straight first. While it is accurate to say that raising the top rate only costs these taxpayers a nickel per extra dollar earned, that is not all that is being proposed. These taxpayers will also be losing deductions and credits that they would otherwise have, as well as paying extra taxes on anything subject to cap-and-trade taxes, should that lovely piece of legislation be passed. Moreover, if you truly believe Obama when he says that those with incomes less than $250,000 per year will receive a tax cut, then it seems ludicrous to pretend that at least some, if not virtually all, of those taxpayers near the margin will change their working behavior so as to be in the benefit group rather than the extra-taxed one.
Nevertheless, for purposes of calculating the expected tax revenues generated under this plan, I’m going to assume that nobody changes their behavior in the slightest (i.e. everyone earns as much taxable income as possible), and that the number of taxpayers and the amount of taxes paid largely mirrors the 2006 numbers (which is the most recent data available).
According to IRS figures [xls], about 50% of all taxable income came from the $200,000 and above earners in 2006. By my calculations that came to $2.056 Trillion dollars in taxable income from 3,847,241 taxpayers (about 9% of all returns). This cohort paid approximately $522 Billion in taxes, or about 62.4% of the total $837 Billion in tax receipts. These are the people upon whom the new burden will be placed according to President Obama.
In order to figure out how much taxable income is above $200K (there is no breakout for $250K and above), I took all of the taxpayers in the $200K to infinity range (3,847,241) and multiplied it by 200,000 (= 769,448,200,000).
I then subtracted that number from the (rounded) total of taxable income for the same range (@ $2.056 Trillion), and got $1,286,551,800,000. If I thought about it correctly, then that should be the amount of taxable income above $200K.
I then took my above-$200K number and multiplied it by 5 cents, figuring that the increase in marginal rate of 4.6% would lead to about a nickel per taxable dollar earned in new revenues, if everything were to remain static.
From all of that I figured that approximately $64.3 Billion in new taxes would be raised by the new tax hike … to cover a $3.6 Trillion budget.
I sent my calculations to Dale, who became so engrossed in the matter that he put together an entire spreadsheet figuring the numbers in not one, not two, not three, but in six different ways. I realized later that asking Dale to check out my math was rather like standing on one foot and excitedly calling attention to my “skill” while in the midst of an acrobat convention.
After Dale played with the numbers [xls] for awhile, he arrived generally at the conclusion that the absolute most that could be raised was in the neighborhood of $85 Billion, and at worst around $55 Billion. On average, Dale calculated that approximately $65 Billion was the likely amount of new tax revenue that could be expected if all payers in the 2006 cohort behave exactly as they did then. Sticking with the metaphor, “Yes, Michael, that’s a decent one-legged stand you have there.”
In short, a complete klutz has a better chance of joining the Flying Wallendas than the bottom 95% of taxpayers do of getting a tax cut. Instead, they will all see a significant tax hike, whether in their marginal rates, in excise taxes, corporate taxes, fuel taxes, or other forms of indirect taxation. And as those taxes begin to mount up, and the national debt does it’s best imitation of the Challenger, people will work and produce less and less, and tax revenues will dry up.
That is the plan for our recovery. Read it and weep.
It is certainly worse abroad than here. As Dale pointed out, if this is a failure of the “free market” why is Europe, which is very tightly regulated, having a worse time than we are? Ambrose Evans-Pritchard has a blog post outlining the woes of Europe. First, the real possibility of repudiation of debt:
Ex-Bundesbank chief Karl Otto Pohl has just said that Ireland and Greece are in danger of defaulting on their sovereign debts and/or may be forced out of the Euro, for those who may not be aware of his Sky interview by my colleague Jeff Randall.
“I think there are countries considering the possibility. It would be very expensive,” he said. “The exchange rate would go down, 50 or 60% and then interest rates would go sky high because the markets would lose all confidence.”
Then we have the possible abandonment of the Euro in order to “re-establish economic competitiveness quickly”:
Laurence Chieze-Devivier from AXA Investment Managers — in “Leaving the Euro?” — says that the rocketing debt costs of Ireland, Greece, Spain, and Italy are taking on a life of their own. (Italy has just revised is public debt forecast from 2010 from 101pc to 111pc. That is a frightening jump. While the CDS default swaps on Irish debt is are at 376 basis pouints. Austria is at 240. This is getting serious).
It is far for clear whether all these countries will accept the sort of drastic retrenchment required to stay in EMU. “By leaving the euro, internal adjustments would become less `painful’. An independent currency would re-establish economic competitiveness quickly, not achieved by a sharp drop in employment or wage cuts”.
The possible death of the “European nation”:
Carsten Brzeski for ING in Brussels said the eurozone laggards were more likely to default than pay the punishing costs of leaving EMU.
“It is difficult to believe that Portugal, Italy, Ireland, Greece, and Spain, would be better off outside the eurozone. While a government could possibly get away with a redenomination of its debt, the private sector would still have to service its foreign debt. We believe any attempts to leave monetary union would lead to the mother of all crises, and total isolation in any future European integration”
Mr Brzeski said the bigger danger is that countries will face a buyers’ strike for their debt as a flood of bond issues across the world saturates the markets.
“A further worsening of the crisis could lead to (partial) sovereign defaults in one or several countries.”
How is that likely to happen?
The country’s parliament could pass a law redenominating debt into the new Lira, Drachma, or whatever. But there would be a pre-emptive run on bank deposits long before then. “Anyone not desirous of losing money would presumably see the writing on the wall and transfer any funds beyond the reach of the state. In other words, close down that account with Monte dei Paschi di Siena and open a new one with Commerzbank in Germany”.
Such a wholesale shift would lead to a collapse in the money supply, perhaps equal to the 38pc contraction in M3 from October 1929 to April 1933 in the US — but concentrated in a much shorter period. “Banks would be forced to call in outstanding loans, bring about a collapse in the country’s business.”
Certainly a bit of a doomsday scenario, but, unfortunately, not at all outside the realm of possibility. In fact, as they are, some are arguing it will happen in the near future. Almost every bit of it the result of market distortions implemented or enabled by government.
In this podcast, Bruce, Bryan, and Dale talk about the president’s new budget, and the end of the Post-WWII global financial system.
The direct link to the podcast can be found here.
The intro and outro music is Vena Cava by 50 Foot Wave, and is available for free download here.
As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2007, they can be accessed through the RSS Archive Feed.
A lot of high-fives on the left concerning a portion of the budget dealing with energy. The Center For American Progress, in a post entitled “Energy Budget Is Sunlight After Eight Years of Darkness” says:
The most significant energy proposal in this budget is the inclusion of revenue in 2012 from the auction of all greenhouse gas emission allowances to major polluters under a cap-and-trade system. The budget assumes that this program will raise $646 billion between 2012 and 2019. Some of these funds would create jobs via a $120 billion investment in clean energy technologies over the same period. The auction revenue would pay for a “global warming tax cut” for working families with $526 billion. It would fund Making Work Pay, which provides a refundable income-tax credit for low-income working families. Any remaining funds would go to other families and businesses to offset higher energy prices.
In other words, CAP believes that adding huge additional costs onto the already high cost of producing goods, services and energy will “create jobs” to offset those lost apparently. And the money collected will be redistributed to make things fair.
As so-called members of the “reality based community”, you have to wonder if they’ve ever bothered taking off the rose colored glasses and glanced around the real world.
Alan Wood in Australia asks:
CAN the Senate save Kevin Rudd and Penny Wong from their global warming folly? It can, and it might, if it rejects the Government’s attempts to prematurely lock Australia into a flawed carbon trading scheme. Ask yourself, do you believe that the worst global recession since the Depression, with job losses accelerating, is the time for Australia to introduce a carbon trading scheme that will squeeze growth, jobs and investment? Business certainly doesn’t.
Is there anyone in the Congress who can do the same for Barack Obama? Probably not. Do they understand that the carbon trading schemes in place around the world are literally melting down? Again, probably not.
And jobs? Well right here at home we can learn from the impact of the draconian regulations and resultant costs imposed on industry by such schemes and what that means. California, as usual, provides the case study:
California regulators Thursday adopted the world’s first mandatory measures to control highly potent greenhouse gases emitted by the computer manufacturing industry. “The financial impact is going to be severe,” Gus Ballis, a spokesman for chip maker NEC Electronics America Inc., a subsidiary of NEC Electronics Corp. in Japan, told the board. Ballis warned, “We’re potentially on the chopping block — whether they are going to keep us or pull our production back to Japan.”
The painful loss of 1850 jobs at Pacific Brands in NSW, Victoria and Queensland is more than a byproduct of the global recession. The main reason for shifting to China, chief executive Sue Morphet said on Wednesday, is that manufacturing in Australia “is no longer a competitive advantage” to the company. The Prime Minister owes it to businesses large and small, as well as to Labor’s core constituency, workers, to re-evaluate the impact on employment of his emissions trading scheme, especially in mining, where Australia has such a strong comparative advantage.
The German biofuels industry is facing bankruptcy according to their industry association, despite millions of state-sponsored subsidies in recent years. “It is five to twelve, but few politicians understand,” said the chairman of the Association of German Biofuel Industry (VDB), Kurt Stoffel. “The biodiesel market for trucks has come to a complete halt,” said Stoffel.
Britain said on Thursday it backed the building of new coal plants and would make a decision soon on whether these must have expensive, climate-friendly technologies fitted called carbon capture and storage (CCS). “We will need new fossil fuel plants including coal if we are going to maintain diversity in energy mix and energy security….”,
Yet here we are getting ready to implement a scheme that is already seen to be worsening the economic conditions around the world (and being abandoned by those realing the losses). Unsurprisingly our implementation would most likely occur just as we are beginning to see an end to the recession.
The administration certainly seems to be aware of the cost of such legislation but still plans on pursuing it:
Steven Chu, President Barack Obama’s new Secretary of Energy, told The New York Times earlier this month that reaching agreement on emissions trading legislation would be difficult in the present recession because any scheme to regulate greenhouse gas emissions would probably cause energy prices to rise and drive manufacturing jobs to countries where energy was cheaper.
Yet, with blinders fully in place, and giddy at the prospect of sticking it to evil corporations while redistributing their ill-gotten gains, the left applauds a plan which will cripple our economy for decades to come.
If ever there were budget proposals poised to send us into darkness, it is this plan put forward by the Obama administration.
Barack Obama is about to submit his first budget to Congress.
Finally, because we’re also suffering from a deficit of trust, I am committed to restoring a sense of honesty and accountability to our budget. - President Barack Obama to a joint session of Congress, Feb 24, 2009
That’s the promise. The reality, as the Washington Post observes, isn’t quite in keeping with the promise:
President Obama’s spending plan is built on the assumption that lawmakers can resolve some hugely contentious issues — and it relies on a few well-worn budget tricks.
The tricks? The usual stuff – calling something what it isn’t and inflating future spending numbers to make the future real numbers appear to be “savings”. For instance:
And though Obama told Congress on Tuesday that his budget team has “already identified $2 trillion in savings” to help tame record budget deficits, about half of those “savings” are actually tax increases, administration officials said. A big chunk of the rest of the savings comes from measuring Obama’s plans against an unrealistic scenario in which the Iraq war continues to suck up $170 billion a year forever.
The tax increases, of course, include an increase in taxes on the top 2%. And further savings are based on pretending that the Bush administration planned on spending $170 billion (seems like a small number when compared to the numbers being thrown around these days, doesn’t it?) beyond 2011 when it planned on pulling the bulk of the troops out of the country.
“It’s a hollow number,” said Sen. Judd Gregg (R-N.H.), the senior Republican on the Senate Budget Committee, who recently withdrew as Obama’s nominee to head the Commerce Department. “You’re not getting savings if you’re assuming spending that isn’t actually going to occur.”
What accounts for the other major source of income?
But to pay for it, the president counts on a big infusion of cash from a politically controversial cap-and-trade system, which would force companies to buy allowances to exceed pollution limits.
The promise that energy costs are going to skyrocket seems one promise he’s bent on keeping. That of course will require more spending to offset the consequences (but don’t figure on being in on the subsidy, you probably won’t qualify). And then there’s the redistributionist “spread the wealth” bonus to be realized from cap-and-trade:
Obama also wants to use the money to cover the cost of extending his signature Making Work Pay tax credit, worth up to $800 a year for working families. That credit, which will cost $66 billion next year, was enacted in the stimulus package, but is set to expire at the end of 2010.
Cover the cost is a way of saying, making the program permanent.
Then there’s the deficit promise. Obama has set a goal of cutting the deficit in half by the end of his first term. As observers say, there’s absolutely nothing difficult about reaching that goal:
This year’s budget deficit is bloated by spending on the stimulus package and various financial-sector bailouts, expenses unlikely to be repeated in future years. The nonpartisan Congressional Budget Office recently predicted that the deficit could be halved by 2013 merely by winding down the war in Iraq and allowing some of the tax cuts enacted during the Bush administration to expire in 2011, as Obama has proposed. That alone would cut the deficit to $715 billion, according to the CBO.
Notice that final number, folks. That’s “half” of the deficit. In other words he’s going to be running a deficit north of $700 billion dollars and trying to convince you how well he’s done. In fact, all he’ll have done is add several trillions to the debt with several trillions more to come if reelected.
The era of big deficit financed government isn’t just back, it’s back on steroids sitting in a rocket sled pointed at economic hell.
The Washington Post tells us:
President Obama is proposing to begin a vast expansion of the U.S. health-care system by creating a $634 billion reserve fund over the next decade, launching an overhaul that most experts project will ultimately cost at least $1 trillion.
I put those words in bold so you would understand that even the WaPo considers his plan to be “a vast expansion”.
Now, a question for you – when is the last time you remember “experts” who projected anything to do with the cost of a government program coming anywhere close to the ultimate cost? Or overestimating the cost?
So what can we really expect the true “ultimate” cost to be? Well if history is any guide somewhere around 2 to 3 times what they’re “projecting.”
And how will he pay for this? Why the same way Medicare has – by shifting costs to patients with private insurance and letting them pick up the slack:
Obama aims to make a “very substantial down payment” toward universal coverage by trimming tax breaks for the wealthy[tax increases - ed.] and squeezing payments to insurers, hospitals, doctors and drug manufacturers, a senior administration official said yesterday.
Of course, understand that when the cost of your private health insurance benefit goes up because of all the “squeezing” (i.e. cost shifting) going on, your company will either cut benefits, raise your insurance premium or both. And you shouldn’t at all be surprised that if given the option of dropping health care insurance for a government run system or continuing to pay through the nose for a private one, your company takes the first option. That is also part of this plan, although unstated.
Let me clarify something in the previous post. Some commenters are saying that they don’t understand how government will allow private money to be created, and relinquish the death hold they want to keep on the economy. The short answer is, I don’t think they’ll have a choice. We’ll concentrate on the US here, but keep in mind that the rest of the developed nations are in even worse shape than we are.
What allows the government–any government, but democratic ones in particular–to operate as they do is the consent of the people. Even totalitarian governments have to worry about that, ultimately, although they can keep the lid on for a time, even for a couple of generations. But even totalitarian regimes often run into explosions which topple them, eventually.
But the loss of faith in a liberal, democratic government is the kiss of death for that government. It doesn’t take a full scale revolution. it just takes people to stop cooperating. India was liberated through non-violent action. So was South Africa. nce the people say, “You’re done.” the government is done.
Right now our economic system is built on nothing more than the “full faith and credit” of the US Government. And that will last only as long as we, the people, have faith in it.
Now this particular recession may not be the one that kills that faith. It may be just one of the warning signs of a coming collapse. But a crash is coming, and, I think sooner, rather than later. We cannot continue indefinitely to fund the spending of the richest country on earth with the savings of one of the poorest.
The total debt and future obligation of the US government now exceeds, by a substantial percentage, the total with of the country’s assets. We have a mountain of debt and payment obligations that exceeds our ability to meet, even if we were able to liquidate the entire country.
If we wish to retire those obligations we have essentially two alternatives: We can repudiate them, or we can pay them off through hyperinflation, which, as a practical matter, amounts to the same thing.
For instance, let’s take social security and medicare. We simply don’t have enough money to pay those obligations. We can slash benefits, or eliminate cost of living increases, which is nothing more than repudiating the debt. We can raise the payroll tax to 30% or more, but that will slow economic growth so much that the increase in revenue will be more than offset by the increased unemployment and slower GDP growth that would result, which would make it even more difficult to pay off other obligations, such as Treasury Bonds. Or we can simply print the money, and pay off the paper obligation with money that has signifigantly less purchasing power than the face value of the obligation.
However we go about it, it amounts to a repudiation of all or part of our obliations, and reveals that the government is both faithless and, as investors take note of the repudiation and decide not to buy government paper any more, creditless as well. What paper they have, they will attempt to unload on any idiot stupid enough to take them.
The dollar will collapse to the point that imported goods, even cheap, shoddily made Chinese ones, might as well be made of unobtainium.
The life savings of million upon millions of Americans will evaporate overnight.
There will be serious hardship, and massive unemployment.
That’s the kind of hardship I’m talking about.
So, how much trust will there be in a government who, after all that, comes back and says, “We’ve learned our lesson. Trust us now. It’ll all be different this time.” among a people who’ve watched the government repudiate all of the promises made over the last 70 years?
And how much more will this be true if there is a feasible, private alternative, consisting of hundreds, perhaps thousands of independent sources of money, and credit? One whose reliability can be publicly judged every minute of every day, and which has no coercive power?
It wouldn’t take a revolution to force the government out of the money and economics business. Or the retirement or health care business. All it will take is a lack of trust. Who will want to do business with an entity that has utterly failed to deserve any trust?
The collapse itself will be the revolution.
UPDATE: By the way, the government’s repudiation of its obligations has already begun, in regards to Social Security. If you are in my age cohort or younger, you are not allowed to retire at age 65. Your retirement age is now 72. The government changed the deal. For us, we have to wait an additional 7 years to begin collecting our benefits. Those of us who do not die before age 72, that is.
That wasn’t the deal we had when we started our working lives. The government unilaterally changed the terms of our Social Security compact. They didn’t call it “repudiation” but, that’s certainly what it was.