Sunday, February 28, 2010

Saving Entitlements By Cutting Taxes

In the previous issue of National Review (2/22/2010), an article by George Gilder lays out the rationale for a payroll tax cut. (Being generally put off by wonkish discussions of tax policy I had initially passed over the piece). Gilder notes that advocates for such a move include such disparate figures as Massachusetts Senator Scott Brown, former Clinton Labor Secretary Robert Reich and former Republican VP candidate Sarah Palin. Gilder doesn't support the cut for the usually expressed reasons - for providing employers with more money to pay wages and hire workers or for helping poor and middle-income wage earners make ends meet or for allowing workers to keep more of what they earn or for creating jobs.

The main reason Gilder supports a payroll tax cut is because it would incentivise retired and soon to retire older workers to remain in the workforce. With the surge of baby boomers leaving the workforce and drawing down their promised Social Security and Medicare benefits there will be left a smaller cohort of younger workers carrying an increasingly heavier burden. Gilder wants to stanch the seniors' stampede to the exits with a cut in payroll (SS and Medicare) taxes. This contraintuitive approach - cutting the revenue sources of those entitlements to save them - would work by improving economic productivity. It would increase the proportion of what Gilder calls "real" revenue. That is, revenue generated by the production of life enhancing goods and services rather than funds merely seized by the government. Gilder points out the following.

Employees now pay 6.2 percent of wages, and employers match this, for a total of 12.4 percent of earnings up to $106,800. In addition, 1.45 percent of wages are withheld, and matched by the employer, for Medicare, with no earnings cap. If you opt out of this system and retreat to self-employment, you will have to pay 15.3 percent of your income into Social Security and Medicare.

Such steep labor costs stifle new business creation and hiring. With small businesses estimated to provide 70% of new jobs, that 15.3% is an especially powerful drag on the economy. Gilder adds,

These imposts come on top of income and corporate taxes that bring total levies on the output of productive employees to a marginal level near 50 percent, with the rates rising in 2011 at both the state and federal levels.

...This tax structure induces the retired to avoid new income, which is diminished nearly dollar-for-dollar by benefit reductions. Yet the best way to sustain the ever-increasing burden of health-care spending is by keeping skilled and experienced workers at work, where they add real value to the economy. Skilled workers create and maintain jobs for others and enhance the productivity of the entire work force. Today, such workers may find their skills more favorably employed on golf courses and beaches than in mentorships and consultancies.

Or by recording enlightened musings in a blog.

As a new member of that ever growing retiree population, I have little financial incentive to re-enter the job market and generate real government revenue. Much better for me to draw from the entitlement pool than to add to it. As for taxes, one reason I've been able to retire is that my much smaller yearly income is minimally diminished by the highly progressive income tax system and not at all by payroll taxes. I was (very pleasantly) surprised that I had substantially overestimated my income tax last year and will be receiving a hefty tax refund. Rewarded for not working! I think I can learn to like those liberal Democrats!

But I am fortunate that I've been able to accumulate enough wealth over the years which, along with a pension, generates sufficient income for a comfortable lifestyle. What of those not so fortunate? Well, they may need to continue to work, but have little incentive (financially speaking) beyond just showing up. Why bother working longer and harder, generating new ideas, innovating, increasing productivity, when the government will just take a larger share of the compensation for those efforts? Why use the skill and knowledge developed over a lifetime to embark on a new, private enterprise when, with the payroll tax, the feds will take, right off the top, over 15% of the profits? Then, if successful, the job creating entrepreneur is punished further with confiscatory tax rates. And with President Obama and Congressional Democrats threatening to impose additional penalties on income over $250,000 (or is it $200,000?) to pay for their awful cap and tax and health care "reform" plans, is it any wonder there's so much negative sentiment about the future?

George Gilder has a simple prescription for this malaise.

...reduce the payroll tax by at least a third. Then we should move toward a flat tax. Lower tax rates will mean more jobs and income for Americans of all ages, higher values for our equities and other assets, and the building up of real capabilities — as opposed to federal accounting balances.

Friday, February 26, 2010

American Exceptionalism, Foolish Friedman, Yiddish Slang

Some noteworthy items in the latest issue of National Review (3/8/2010). One is an essay by Rich Lowry and Ramesh Ponnuru discussing the origins and propagation of American exceptionalism, the great good it has accomplished for the country and the world and the forces working against it. That President Obama is currently allied with those forces helps to explain the widespread and spirited opposition to his agenda. is blindness to ignore that American exceptionalism has homegrown enemies — people who misunderstand the sources of American greatness or think them outdated. If they succeed, we will be less free, less innovative, less rich, less self-governing, and less secure. We will be less.

As will the world. The Europeans can afford a foreign policy devoted nearly exclusively to “soft power” because we are here to defend them and mount the forward defense of freedom. Who is going to do that for us, when we are no longer doing it for ourselves? Who will answer the call when America is no longer home?

Jonah Goldberg has a grand time mocking author and NY Times columnist Thomas Friedman's condescending and self-absorbed sophistries.

He (Friedman) claims to be simplifying complex ideas and making them more understandable. But what he is in fact doing is taking an already simple idea — say, that of a level playing field — and making it meaningless. You can boil something down to the essentials, but if you keep boiling it you’re just left with nonsense.

And of Friedman's admiration for the tyrannical thugocracy that runs China,

Friedman should actually be offering a sincere prayer for forgiveness of his Durantyesque sycophancy in behalf of a totalitarian regime with the blood of 65 million people on its hands. If he’d written a chapter called “Nazis for a Day,” this point would be more obvious to more people. But instead of contrition we get scores more columns gushing about how great China is for being able to get all of the policies right. is either deranged or dishonest to suggest that China — with its ever-growing tally of coal factories, poisoned rivers, corrupt regulators, etc. — is some great steward of the environment. It may or may not be leading in the manufacture of green technologies — though don’t take Friedman’s word for it; he rarely sources his too-good-to-check claims — but it is also burning fossil fuels faster than any other country.

And the NR editors write about VP Joe Biden's recent comments about the Iraq war vis-a-vis the Obama administration. (See my previous post on the matter).

Recall the thinking of Barack Obama and Joe Biden about the Iraq War. Obama opposed President Bush’s surge in Iraq, saying it would make things worse. He wanted to declare the war lost and come home. Biden proposed essentially splitting the country into three: a Sunni land, a Shiite land, and a Kurdish land. John McCain remarked that you would have to draw lines through a lot of Baghdad bedrooms, because Iraqis intermarry. In any event, the Bush administration had the war pretty much won by the time of the Obama inauguration. And, the other night, Biden went on television and said, “I am very optimistic about Iraq. I mean, this could be one of the great achievements of this administration.” Chutzpah is a popular Yiddish word. Schmuck is another.

Lowry, Ponnuru


Friday, February 12, 2010

Biden's Iraq Revisionism

...we have to decentralize, not centralize this government. We’ve got to get the world community in on owning part of this, by calling an international conference to put pressure on the regional powers.

If we don’t do those two things, I don’t see a happy ending to this whole undertaking. We may be forced into a position where there’s no option, at some point, to withdraw and try to contain the chaos.

Vice President Joe Biden, April, 2007

The surge is not working.

Barack Obama campaign website, July, 2008

I mean, this could be one of the great achievements of this administration. You’re going to see 90,000 American troops come marching home by the end of the summer. You’re going to see a stable government in Iraq that is actually moving toward a representative government.

I’ve been there 17 times now. I go about every two months, three months. I know every one of the major players in all the segments of that society. It’s impressed me. I’ve been impressed how they have been deciding to use the political process rather than guns to settle their differences.

Biden on Larry King Live, Wednesday, February 10, 2010

Biden's latter remarks fit squarely in the "You've GOT to be kidding!" category. He couldn't spare a word of praise for or acknowledgement of President George W. Bush's steadfast pursuit of a peaceful, democratic Iraq. Instead Biden shamelessly credits the Obama administration for the impending achievement of that outcome.

Biden isn't taken seriously by anyone outside of the editorial staff at Newsweek (and those who take that publication seriously) so his comments can be dismissed as typical claptrap. But Biden was backed up yesterday by WH press secretary Robert Gibbs who said that it was the current administration that fixed what was broken in Iraq. [Gibbs, of course, is a fool in his own right. Witness the recent terrorist-friendly revelation that the would be Christmas Day bomber Umar Farouk Abdulmutallab is talking again, providing (doubtlessly obsolete) information. This after Gibbs claimed that five weeks earlier interrogators got all they could from Abdulmutallab in 50 minutes of questioning].

Biden and Gibbs ignore that it was the Bush administration that guided the nascent Iraqi government through its early stages of existence - its drafting of a constitution and its holding of national elections. It was the Bush administration that negotiated the Status of Forces agreement between the U.S. and Iraq which outlined the conditions of American withdrawal and the Strategic Framework Agreement which detailed areas of future cooperation between the two countries. And it was George W. Bush who made the singularly courageous decision to commit to a surge in 2007 - a decision almost universally opposed and derided, with Messrs. Biden and Obama joining with the naysayers. Had we followed the advice of the cut-and-run crowd, Iraq would now be in a state of violent chaos. Bush rejected that advice, the surge succeeded and Joe Biden is free to preen gracelessly.

Still, Biden's mendacious boasting can be viewed as progress of a sort. That he claims to be "impressed" by events in Iraq is an oblique admission of the success of the war. Even Gibbs, in his defense of Biden, spoke of the "debate" as to whether the Iraq project was a diversion from the "real" war on terror in the Afghanistan-Pakistan region. Previously, there was no "debate" in the minds of Democrats. The Iraq war was clearly a mistake. Over time, as the far reaching benefits of Iraq's liberation are realized, only the anti-American left, the isolationist right, and the most intransigent Bush haters will cling to that view.

Sunday, February 7, 2010

Fixing The Economy For Dummies

As we continue to slog our way through the Frank-Dodd economic slump, the worst since Jimmy Carter's stagflation thirty years ago, (and before that, FDR's 1937-38 depression), the only sensible proposals to restore prosperity are coming from Republicans. Wisconsin Rep. Paul Ryan's "Roadmap For America's Future" (link below) details the steps necessary to fix the economy. George Will (also linked below) provides some of the plan's highlights.


Two rates: 10 percent on incomes up to $100,000 for joint filers and $50,000 for single filers; 25 percent on higher incomes. There would be no deductions, credits or exclusions, other than the health care tax credit (see below).

[Will isn't entirely correct about the deductions. There is a generous standard deduction totaling $39,000 for a family of four. Will doesn't mention it, probably because it's self-evident, but the AMT would also be abolished].

Ryan would eliminate taxes on interest, capital gains, dividends and death. The corporate income tax, the world's second highest (at 35%), would be replaced by an 8.5 percent business consumption tax.

[This alone would reduce the unemployment rate to below 5%. Corporate money now flushed down the bureaucratic toilet would be used to hire productive workers].

Medicare and Social Security

...preserved for those currently receiving benefits, or becoming eligible in the next 10 years (those 55 and older today). Both programs would be made permanently solvent.

...workers under 55 (would get) the choice of investing more than one-third of their current Social Security taxes in personal retirement accounts similar to the Thrift Savings Plan long available to, and immensely popular with, federal employees. This investment would be inheritable property, guaranteeing that individuals will never lose the ability to dispose every dollar they put into these accounts.

Ryan would raise the retirement age. If, when Congress created Social Security in 1935, it had indexed the retirement age (then 65) to life expectancy, today the age would be in the mid-70s.

Health care

Universal access to affordable health care would be guaranteed by refundable tax credits ($2,300 for individuals, $5,700 for families) for purchasing portable coverage in any state. As persons under 55 became Medicare eligible, they would receive payments averaging $11,000 a year, indexed to inflation and pegged to income, with low-income people receiving more support.
Ryan's plan would fund medical savings accounts from which low-income people would pay minor out-of-pocket medical expenses. All Americans, regardless of income, would be allowed to establish MSAs -- tax-preferred accounts for paying such expenses.

What we have instead is Obamanomics - massive government spending rewarding favored constituencies (unions, lawyers, bureaucrats, community organizers, etc.) and failed enterprises (New York, California, AIG, GM, etc.). Such spending is ineffective and unsustainable.
In his weekly NRO column, Mark Steyn cites director of the Congressional Budget Office Douglas Elmendorf's testimony to the House Budget Committee, “If literally nothing is done, then eventually something very, very bad happens. But I think the widespread view is that you and your colleagues will take action.” Steyn goes on to write that the likes of Pelosi, Reid, Frank and Obama are highly unlikely to "take action" (i.e. - rein in spending) and "something very, very bad" will happen.

One indication of the misdirection of the country is the employment statistics for the government relative to the private sector. For the former, the recession has been a boom time. And with the federal budget set to skyrocket over the next decade, the near term future (at least until the crash) looks even brighter for federal bureaucrats. That is unless common sense prevails and Paul Ryan-like proposals are enacted. The following statistics (USA Today) cover the period, 12/07-6/09.

Jobs gained / lost
Federal + 192,000 (+9.8%)
State, Local + 33,000 (+0.2%)
Private sector -7.3 million (-6.3%)

Federal salaries above
$100,000 - 382,758 (46% increase)
$150,000 - 66,538 (119% increase)
$170,000 - 22,157 (93% increase)

Average federal worker's pay - $71,206
State and local government - $54,101
Private sector - $40,331

When the recession started, the Transportation Department had only one person earning a salary of $170,000 or more. Eighteen months later, 1,690 employees had salaries above $170,000. (!!!! - doing the math, that's a 169,000% increase in 18 months)

Defense Department civilian employees earning $150,000 or more increased from 1,868 in December 2007 to 10,100 in June 2009, the most recent figure available.

Federal employees making salaries of $100,000 or more jumped from 14% to 19% of civil servants during the recession's first 18 months — and that's before overtime pay and bonuses are counted.

Democrats like to direct their "populist" outrage at what they call the "rich" - aka - the successful. The real scandal is the transfer of wealth from the efficient, productive private sector to the wasteful, bloated public sector.

Ryan website



USA Today

Wednesday, February 3, 2010

Canada's Broken Health Care System

A follow up to yesterday's post about Newfoundland and Labrador Premier Danny Williams heading to the U.S. for heart surgery. Investor's Business Daily has an editorial on the subject.

Noting that

...Democrats hail Canada-care as a model for the U.S. and call our system "broken."

the article goes on to say,

Now, someone like Williams, who's both an elected official and independently wealthy, ought to be able to get world-class medical care in Canada. But he couldn't. Because Canada's single-payer health care system reduces the quality and quantity of care.

A physician can't just go into business in Canada. He or she is joined at the hip to Canada's health care system as paymaster, with any private care placed under strict government price controls.

That means long lines of rationing as well as lower-quality care. It's so bad that even the premier prefers to head to the States.

He's not alone. Other premiers, including Quebec's Robert Bourassa in 1990, have sought that care, as has Member of Parliament Belinda Stronach in 2007. According to the Fraser Institute, 41,000 Canadians, or 1% of the population, were referred by their own doctors for nonemergency medical care abroad in 2009, a rise of about 10% from a year earlier.

Thousands more don't even wait for a referral, leaving the country to seek treatment on their own. Clinics in U.S. cities like Buffalo, Seattle and Detroit do a booming business with Canadian medical tourists. Canadian newspapers are filled with U.S. doctors advertising their services.

For the wealthy Williams, U.S. health care paid for out of pocket is a viable option. Not so for Canada's poor. If the U.S. moves to a Canadian-style health care model, not even the rich will be able to run from the unpleasant side effects of a socialist system.

Tuesday, February 2, 2010

Obama's Monopoly Money

The following is excerpted from Wikipedia's entry on former South Dakota senator and 1972 Democratic presidential candidate George McGovern.

In 1988, using the money he had earned from his speeches, the McGoverns bought, renovated, and began running a 150-room inn in Stratford, Connecticut, with the goal of providing a hotel, restaurant and public conference facility. It went into bankruptcy in 1990 and closed the following year. In 1992, McGovern's published reflections on the experience appeared in The Wall Street Journal and the Nation's Restaurant News. He attributed part of the failure to the early 1990s recession, but also part to the cost of dealing with federal, state and local regulations that were passed with good intentions but made life difficult for small businesses, and to the cost of dealing with frivolous lawsuits. McGovern wrote, "I ... wish that during the years I was in public office I had had this firsthand experience about the difficulties business people face every day. That knowledge would have made me a better U.S. senator and a more understanding presidential contender."

McGovern had believed that his experience as a legislator qualified him for the job of chief executive of the largest, most powerful nation on earth. It turned out he couldn't even run a hotel successfully. The American people were wise enough (much wiser than I was) to deny McGovern the chance to fail as a leader of their country. Unfortunately, such wisdom was lacking in 2008 (the ever perceptive Fouad Ajami calls it a loss of poise) and an inexperienced novice was elected president. We are now, literally, paying the price for that grievous error.

NRO runs the numbers.

According to the president’s budget, released yesterday, the federal deficit for 2010 is expected to reach nearly $1.6 trillion, a record. And that would come on top of a $1.4-trillion deficit in 2009 and before another $1.3-trillion deficit in 2011. Between 1789 and 2008, the U.S. government borrowed a total of $5.8 trillion. But in just the first three years of the Obama administration, the government is set borrow $4.4 trillion more.

And even that wouldn’t be the end of it. If the Obama budget is adopted in full, federal borrowing will top $18 trillion by 2020. Over the period 2011 to 2020, the president’s plan is to run deficits totaling an astounding $8.5 trillion.

But these are conservative estimates. The erroneous assumption is that Obama's anti-growth policies won't hinder revenue growth. They certainly will. It takes an optimist to believe that revenues will increase by $400 billion next year. Deficits will be even larger than projected. Obama's proposed budget this year is $3.72 trillion and $3.834 trillion next year. With Democrats at the helm, that 2011 number is subject to upward revision. And lurking in the background are the proposed twin boondoggles of Obamacare and cap and tax.

In an attempt to head off the anticipated charge of fiscal mismanagement, Obama recently announced a "spending freeze". The portion of the budget that will be "frozen" is roughly one-sixth of the total. Chris Edwards, blogging at the Cato Institute website notes that even that portion isn't really "frozen".

The first thing to note is that the portion of the budget to be frozen grew 60 percent between 2000 and 2008, during a period of low inflation. And since this portion of spending excludes defense, homeland security, and veterans affairs, it has nothing to do with the reponse to 9/11 or various foreign wars.

Then comes 2009 and the massive “stimulus” bill, which pushed up spending on this part of the budget to $699 billion. Finally, the figure shows the freeze at $447 billion, which is 71 percent higher than the level of authorized spending in 2000.

Here’s the important point: a very large part of the 2009 spending spike of $699 billion will be sloshing forward into 2010 and later years. (As illustrated by my fancy arrow in the chart). The new CBO budget estimates show that only 18 percent of authorized stimulus funding will be spent in 2009, with the rest sloshing forward.

Obama is ”freezing” the budget only because he already has a large amount of cash floating around from the stimulus bill that he can spend on all his favorite big government projects in 2010 and beyond. In budget-speak, federal spending measured in “outlays” will be far from frozen.

Unlike McGovern's hotel, the U.S. won't declare bankruptcy. The printing presses will continue to churn out dollars, feeding inflation. Taxes will soar, impeding growth. Resources that could have been used to generate innovative products and services, improving our quality of life, will instead be suctioned into a vast wasteful government bureaucracy. Or move elsewhere.

The Wall Street Journal notes that now that voters in Oregon have approved income and corporate tax increases, its business community has become a target rich environment for other states. Even the Democratic mayor of Chicago, Richard Daley plans to " out in Oregon enticing corporations to relocate to Chicago." More enticing than Illinois (3% income tax) are states like Tennessee and Texas which have no income tax. And then there's just about any country outside the U.S. Our 35% corporate tax rate is higher than any free market nation's except for Japan. The Democrats' spending binge guarantees that this won't be coming down anytime soon. Obama wants to further punish U.S. multinational corporations by taxing their overseas profits. Now that would be a generous gift to their foreign based competitors. Hello Toyota. Goodbye Ford.

As George McGovern admitted, his business experience gave him a perspective that was lacking when he was a politician. He opposes the proposed "card check" legislation that would remove the right to a secret ballot in union elections. And he opposes compulsory arbitration giving the government the power to dictate the terms of labor contracts. Both of these positions are anathemas to knee-jerk, big government liberals.

Barack Obama is squandering an entire generation's worth of wealth simply because he has no McGovern-like, hard earned, real world experience. The victims of his ignorance are the American people and more importantly, their descendants. Our entrepreneurial spirit is famously resilient, but in Obama it may have met its match.

Where Does He Go If We Get Obamacare?

CBC News reports today :

"Newfoundland and Labrador Premier Danny Williams is set to undergo heart surgery this week in the United States.

CBC News confirmed Monday that Williams, 60, left the province earlier in the day and will have surgery later in the week.

The premier's office provided few details, beyond confirming that he would have heart surgery and saying that it was not necessarily a routine procedure."

Monday, February 1, 2010

The Integrity Of Tony Blair

A WSJ editorial today extols former British PM Tony Blair for comments he made during an appearance before a British Iraq war inquiry commission Friday. Those hoping that Blair would provide a mea culpa for his bringing Britain into the war were sorely disappointed. Instead, Blair gave a ringing defense of his decision. It's perverse that such a defense is even necessary.

"This isn't about a lie, or a conspiracy, or a deceit, or a deception. It is a decision," Mr. Blair told a packed room that included relatives of soldiers killed in Iraq. "And the decision I had to take was, given [Saddam's] history, given his use of chemical weapons, given the over one million people whose deaths he had caused, given 10 years of breaking U.N. resolutions, could we take the risk of this man reconstituting his weapons program?"

"What we now know is that he [Saddam] retained the intent and the intellectual know-how to restart a nuclear and a chemical weapons program when the inspectors were out and the sanctions changed, which they were going to do. . . .

"Today we would be facing a situation where Iraq was competing with Iran, competing both on nuclear weapons capability and competing more importantly perhaps than anything else . . . in respect of support of terrorist groups. . . . If I am asked whether I believe we are safer, more secure, that Iraq is better, that our own security is better, with Saddam and his two sons out of office and out of power, I believe indeed we are."

"The decision I took—and frankly would take again—was, if there was any possibility that he [Saddam] could develop weapons of mass destruction, we would stop him."

The WSJ adds,

Listening to him (Blair), we are reminded why he ranks with Margaret Thatcher as a pre-eminent statesman of postwar British politics, an achievement unlikely to be matched by the Lilliputians who seek to embarrass him.