Wednesday, August 20, 2014

You Think Your Social Security Check Comes Just From Your Contributions Every Paycheck?

'Hey, Wait a minute! I thought I paid for everything
in my Social Security plan!'
Think again.

Social Security has been sold for close to 80 years now as a 'retirement plan' for senior citizens. It has been sold as a 'pay as you go' plan where you pay your payroll taxes every week and supposedly, you believe that it goes into an individual private savings account or something where it builds in value for the future.

Nothing could be further from the truth.

SS was originally conceived to be a way to pull millions of seniors out of abject poverty during the Great Depression of the 1930's which made the recent Great Recession look like a kindergarten party at the park. Get money to your grandma and grandpa or great-grandma and great-grandpa so they didn't starve to death during those terrible economic times.

It was originally sold as a 'social insurance' fund but morphed into a 'retirement plan' mode the more politicians made it sound like you had worked all your life and set aside money for your own Social Security plan.

Which you did not. Which you have not. Which you will not under current structure and operation.

Everyone you talk to who is on Social Security will swear up and down on a stack of Bibles: 'I paid all my life into Social Security every paycheck every week. Daggum it! I deserve to get it all back and then some now that I am retired!'

And elected officials in Washington have quivered at the very thought of telling them the truth ever since.

The AARP terrifies each and every one of them. However, the AARP doesn't consider themselves to be a 'political action committee' or a 527 or any sort of active political organization. It operates under a variety of 501(c)3 non-profit entities along with some for-profit divisions which make it a multi-billion dollar annual business, not just a small group of people advocating for the poor seniors.

Which they use to be the single most terrifying lobby group America has ever known. Mention one word about Social Security or Medicare reform and 44 million seniors who vote in EVERY election* will vote against you even if your opponent is Ernest T. Bass.
'I know. I was right dere in it'

According to the above chart above from the Committee for a Responsible Federal Budget, a whole lot of money comes from you, the general taxpayer, lately especially in the last 4 years or so to pay for current SS benefits. $230 billion to be exact from 2010-2014.

'What is that you say, sonny? I can't hear as good as I used to' you can already hear. 'I paid every nickel into SS and I am going to get every one of my nickels out!'

A whole lot of general revenue taxpayer money has been pumped into SS lately along with billions of dollars of taxes from SS benefits of higher-income people. This is all money that does not come from the payroll taxes any senior has paid into SS over the years.

So how can anyone really and truly say that Social Security is totally a 'self-funded' program by recipients?

Take a good look at this article 'General Revenue & The Social Security Trust Funds' and see what you think.

We have long argued that everyone would be far better off if we could truly put our SS payroll taxes into a defined contribution plan similar to what they did in Chile in 1980 and retire with far more assets and monthly income streams than the average $1700/month most people can expect to receive once they start receiving Social Security.

Having facts such as these from CFRB is helpful to start that ball rolling.

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Monday, August 18, 2014

Corporate Anthropomorphism and The Right to Assembly

'Oh No! I Am Home To A Big, Bad
'What is a corporation: A) an association of people or B) an inanimate object like a machine or a computer?'

It is always interesting when we hear people assign human qualities, emotions, virtues or faults to a company or corporation.

'Corporate Anthropomorphism' we'd like to call it.

Recently, on a relatively obscure financial issue, we have heard politicians from President Obama to Senator Dick Durbin (D-IL) and even Secretary of State John Kerry say that corporations that 'invert' their operations, or move them to somewhere overseas are 'unpatriotic' in some way.

George Will wrote a column that got us to thinking about this in more depth: 'In a Stew Over Inversion'

'Corporate Inversion' is defined as the following:
Re-incorporating a company overseas in order to reduce the tax burden on income earned abroad. Corporate inversion as a strategy is used by companies that receive a significant portion of their income from foreign sources, since that income is taxed both abroad and in the country of incorporation. Companies undertaking this strategy are likely to select a country that has lower tax rates and less stringent corporate governance requirements.*
If corporations are inanimate objects such as a machine or a computer, how can they be 'unpatriotic' or have any other human characteristic?

Think about it. If someone said: 'My computer started acting up today. It must be unpatriotic', that would be crazy. You would laugh them out of the room.

Computers are machines. People make them. When people stop using them, they are thrown away and they are recycled or torn apart for parts or junked. They have no intrinsic value other than to help us live better, more productive lives.

Is a corporation a 'machine' or a 'computer'? The legal shell of it might be in some way. But those legal shells were created by Congress and state legislatures to provide certain protections from legal liability so people would be incentivized to take risks to grow that business without putting every personal asset at risk.

At the heart of any company or corporation are people led by some executive, president or board of directors who make decisions on a daily basis designed hopefully to extend the life of that company by making more products and selling them for more than it costs to produce them.

So when it comes to calling a big, bad corporation 'unpatriotic', aren't critics basically saying that the people who run those corporations and work for them are 'unpatriotic' for making such business decisions as 'inverting' them overseas?

Here's what we think is so interesting about this:

  • 'Big bad corporations' are considered 'human' by critics and politicians when it seems as if it might be a favorable potential political issues to their side such as inversion. 
  • 'Big bad corporations' are not considered 'human' when it comes to issues such as political free speech and campaign finance when it seems as if bashing them might be a favorable potential political issue for their side.
Which is it then? Are corporations made up of human beings? Or are they just mere 'machines'?

And what about the 'right to assembly' as defined in the First Amendment?
Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.
Aren't people who work for or run any company or corporation basically 'assembling peacefully' to work together for some common purpose such as producing vaccines for the Ebola virus, finding cures for cancer or making fuel-efficient automobiles for us to drive to work every day?
If so, why should they be denied the right as an assembly of people to participate in elective politics through funding or speaking out on the issues of concerns to them collectively....just as unions can do and have done for the past century?

Are unions 'human' or not as well? Or are they just like corporations where laws passed by our duly-elected legislators protect their right to 'assemble' and 'to petition the Government for a redress of grievances' such as work-related safety and conditions?

It is just something to think about the next time you hear some politician rant on about 'corporate inversions' or some other thing they think will rile up the electorate to vote for their side this fall.


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Thursday, August 14, 2014

'Government Is Not The Solution To Our Problem; Government IS the Problem'

'We are going to begin to act, beginning today'
Every Founder of America could have said this phrase at the beginning of the Republic.

'King George and his British Empire are not the solution to our problems! They want to tax everything we use or do and they don't give us the right to vote on our own self-determination. We want freedom in America, not servitude!'

The King of England is the problem; not the solution'

The quote in the title of this post was not uttered by the Founders, at least as far as we can find in historical writings.

President Ronald Reagan spoke these words boldly and confidently in his First Inaugural Address  on January 20, 1981 as he took over control of the executive branch from President Jimmy Carter.

President Carter's single term ended in total chaos which included the foreign policy 444-day debacle in Iran; 12% inflation and 21% interest rates on the domestic front and the most lop-sided loss for any US incumbent president in American history in 1980, 49 electoral votes for Carter to 489 electoral votes for Reagan.
'We must act today in order to preserve tomorrow. And let there be no misunderstanding--we are going to begin to act, beginning today.
The economic ills we suffer have come upon us over several decades. They will not go away in days, weeks, or months--but they will go away. They will go away because we, as Americans, have the capacity now, as we have had in the past, to do whatever needs to be done to preserve this last and greatest bastion of freedom.
In this present crisis, government is not the solution to our problem. Government is the problem.' 
Notice how President Reagan inspired hope in the future at a time when millions of Americans were out of work and really suffering. He didn't waste his entire Administration blaming President Carter for screwing things up so badly in the first place. He took over the reins of government on January 20, 1981 and set about correcting the problems 'beginning today'.

10 million or more Americans had been thrown out of work by the convulsions in the economy caused by the oil price spikes in the Middle East plus the bungling of both fiscal and monetary policy under President Reagan and the Democrat-controlled House and Senate at the time.

10 million people were unemployed when the population of America was 226 million. 30 years later, 13.6 million people were unemployed out of a population of 310 million people which was a very similar percentage of people out of work.

Reagan promised that the 'economic ills' would go away because 'Americans have the capacity to do whatever needs to be done to preserve this last and greatest bastion of freedom'

That we do. We just haven't the leadership out of Washington to deal with these issue forcefully or factually.

We have been consistent in our critique of the Bush 43 Administration and the GOP Congress that lost its way from 2002-2006. They spent too much money on too many things and expansions of programs and they let the debt genie out of the bag by not balancing the budgets.

We thought that was bad enough until President Obama took over the White House in 2009 and Democrats controlled both chambers of Congress from 2009-2011. He has only proceeded to preside over a doubling of our national debt with no plans to ever reduce it in any way, shape, fashion or form before he leaves office in 2017.

We have no problem with having a government that is run in an adult manner. In fact, we love it. We love the idea of having a military force that can and will defend us against any and all terrorists and nations that seek to do Americans harm.

President Obama not only seems intent on being known as the American President who lost the Middle East by future historians, he doesn't even seem interested in protecting the borders which is clearly a federal executive issue.

We want to have the best roads possible so we don't keep hitting potholes that knock our cars out of alignment.

We want our public school systems (which are primarily the responsibility of state and local governments, not the federal government) to produce smart, productive and respectful citizens of the United States of America so they can keep it going long into the future.

We have major problems with elected officials from the White House on down who don't understand the simple concepts of balanced budgets; being frugal with scarce taxpayer dollars and the dangers of explosive national debt and fictitious monetary policy on our nation's future.

In short, we need a Ronald Reagan to come in after President Obama and help restore us to some sort of national sanity about the role of the federal government in our lives vis-a-vis the correlated roles of state and local governments to do the jobs we ask them to do on a daily basis.

President Reagan said it best: 

Now, so there will be no misunderstanding, it's not my intention to do away with government. It is rather to make it work--work with us, not over us; to stand by our side, not ride on our back. Government can and must provide opportunity, not smother it; foster productivity, not stifle it.
When done right, 'self-government is great'. Best the world has ever seen.

It has been a long, long time since any of us can say we are happy as clams about who is leading us in the White House or in Congress.

As President Reagan said, we Americans have the 'capacity to do whatever needs to be done to preserve this last and greatest bastion of freedom.'

 The best way to do it is to vote people out of office this fall in the November elections who don't have the capacity to lead and make us whole again. And the best way going forward is to vote for new great leaders to replace the ones who simply have failed to get the job done on both sides of the aisle.

Exercise your right to vote carefully on November 4. It is your best chance to change things for the better in America.

* Complete text of Reagan's First Inaugural Address below)
Senator Hatfield, Mr. Chief Justice, Mr. President, Vice President Bush, Vice President Mondale, Senator Baker, Speaker O'Neill, Reverend Moomaw, and my fellow citizens:
To a few of us here today this is a solemn and most momentous occasion, and yet in the history of our nation it is a commonplace occurrence. The orderly transfer of authority as called for in the Constitution routinely takes place, as it has for almost two centuries, and few of us stop to think how unique we really are. In the eyes of many in the world, this every 4-year ceremony we accept as normal is nothing less than a miracle.

Mr. President, I want our fellow citizens to know how much you did to carry on this tradition. By your gracious cooperation in the transition process, you have shown a watching world that we are a united people pledged to maintaining a political system which guarantees individual liberty to a greater degree than any other, and I thank you and your people for all your help in maintaining the continuity which is the bulwark of our Republic.

The business of our nation goes forward. These United States are confronted with an economic affliction of great proportions. We suffer from the longest and one of the worst sustained inflations in our national history. It distorts our economic decisions, penalizes thrift, and crushes the struggling young and the fixed-income elderly alike. It threatens to shatter the lives of millions of our people.

Idle industries have cast workers into unemployment, human misery, and personal indignity. Those who do work are denied a fair return for their labor by a tax system which penalizes successful achievement and keeps us from maintaining full productivity.

But great as our tax burden is, it has not kept pace with public spending. For decades we have piled deficit upon deficit, mortgaging our future and our children's future for the temporary convenience of the present. To continue this long trend is to guarantee tremendous social, cultural, political, and economic upheavals.

You and I, as individuals, can, by borrowing, live beyond our means, but for only a limited period of time. Why, then, should we think that collectively, as a nation, we're not bound by that same limitation? We must act today in order to preserve tomorrow. And let there be no misunderstanding: We are going to begin to act, beginning today.

The economic ills we suffer have come upon us over several decades. They will not go away in days, weeks, or months, but they will go away. They will go away because we as Americans have the capacity now, as we've had in the past, to do whatever needs to be done to preserve this last and greatest bastion of freedom.

In this present crisis, government is not the solution to our problem; government is the problem.
From time to time we've been tempted to believe that society has become too complex to be managed by self-rule, that government by an elite group is superior to government for, by, and of the people. Well, if no one among us is capable of governing himself, then who among us has the capacity to govern someone else? All of us together, in and out of government, must bear the burden. The solutions we seek must be equitable, with no one group singled out to pay a higher price.

We hear much of special interest groups. Well, our concern must be for a special interest group that has been too long neglected. It knows no sectional boundaries or ethnic and racial divisions, and it crosses political party lines. It is made up of men and women who raise our food, patrol our streets, man our mines and factories, teach our children, keep our homes, and heal us when we're sick—professionals, industrialists, shopkeepers, clerks, cabbies, and truck drivers. They are, in short, "We the people," this breed called Americans.

Well, this administration's objective will be a healthy, vigorous, growing economy that provides equal opportunities for all Americans, with no barriers born of bigotry or discrimination. Putting America back to work means putting all Americans back to work. Ending inflation means freeing all Americans from the terror of runaway living costs. All must share in the productive work of this "new beginning," and all must share in the bounty of a revived economy. With the idealism and fair play which are the core of our system and our strength, we can have a strong and prosperous America, at peace with itself and the world.

So, as we begin, let us take inventory. We are a nation that has a government—not the other way around. And this makes us special among the nations of the Earth. Our government has no power except that granted it by the people. It is time to check and reverse the growth of government, which shows signs of having grown beyond the consent of the governed.

It is my intention to curb the size and influence of the Federal establishment and to demand recognition of the distinction between the powers granted to the Federal Government and those reserved to the States or to the people. All of us need to be reminded that the Federal Government did not create the States; the States created the Federal Government.

Now, so there will be no misunderstanding, it's not my intention to do away with government. It is rather to make it work--work with us, not over us; to stand by our side, not ride on our back. Government can and must provide opportunity, not smother it; foster productivity, not stifle it.

If we look to the answer as to why for so many years we achieved so much, prospered as no other people on Earth, it was because here in this land we unleashed the energy and individual genius of man to a greater extent than has ever been done before. Freedom and the dignity of the individual have been more available and assured here than in any other place on Earth. The price for this freedom at times has been high, but we have never been unwilling to pay that price.

It is no coincidence that our present troubles parallel and are proportionate to the intervention and intrusion in our lives that result from unnecessary and excessive growth of government. It is time for us to realize that we're too great a nation to limit ourselves to small dreams. We're not, as some would have us believe, doomed to an inevitable decline. I do not believe in a fate that will fall on us no matter what we do. I do believe in a fate that will fall on us if we do nothing. So, with all the creative energy at our command, let us begin an era of national renewal. Let us renew our determination, our courage, and our strength. And let us renew our faith and our hope.

We have every right to dream heroic dreams. Those who say that we're in a time when there are not heroes, they just don't know where to look. You can see heroes every day going in and out of factory gates. Others, a handful in number, produce enough food to feed all of us and then the world beyond. You meet heroes across a counter, and they're on both sides of that counter. There are entrepreneurs with faith in themselves and faith in an idea who create new jobs, new wealth and opportunity. They're individuals and families whose taxes support the government and whose voluntary gifts support church, charity, culture, art, and education. Their patriotism is quiet, but deep. Their values sustain our national life.

Now, I have used the words "they" and "their" in speaking of these heroes. I could say "you" and "your," because I'm addressing the heroes of whom I speak—you, the citizens of this blessed land. Your dreams, your hopes, your goals are going to be the dreams, the hopes, and the goals of this administration, so help me God.

We shall reflect the compassion that is so much a part of your makeup. How can we love our country and not love our countrymen; and loving them, reach out a hand when they fall, heal them when they're sick, and provide opportunity to make them self-sufficient so they will be equal in fact and not just in theory?

Can we solve the problems confronting us? Well, the answer is an unequivocal and emphatic "yes." To paraphrase Winston Churchill, I did not take the oath I've just taken with the intention of presiding over the dissolution of the world's strongest economy.

In the days ahead I will propose removing the roadblocks that have slowed our economy and reduced productivity. Steps will be taken aimed at restoring the balance between the various levels of government. Progress may be slow, measured in inches and feet, not miles, but we will progress. It is time to reawaken this industrial giant, to get government back within its means, and to lighten our punitive tax burden. And these will be our first priorities, and on these principles there will be no compromise.

On the eve of our struggle for independence a man who might have been one of the greatest among the Founding Fathers, Dr. Joseph Warren, president of the Massachusetts Congress, said to his fellow Americans, "Our country is in danger, but not to be despaired of . . . . On you depend the fortunes of America. You are to decide the important questions upon which rests the happiness and the liberty of millions yet unborn. Act worthy of yourselves."

Well, I believe we, the Americans of today, are ready to act worthy of ourselves, ready to do what must be done to ensure happiness and liberty for ourselves, our children, and our children's children. And as we renew ourselves here in our own land, we will be seen as having greater strength throughout the world. We will again be the exemplar of freedom and a beacon of hope for those who do not now have freedom.

To those neighbors and allies who share our freedom, we will strengthen our historic ties and assure them of our support and firm commitment. We will match loyalty with loyalty. We will strive for mutually beneficial relations. We will not use our friendship to impose on their sovereignty, for our own sovereignty is not for sale.

As for the enemies of freedom, those who are potential adversaries, they will be reminded that peace is the highest aspiration of the American people. We will negotiate for it, sacrifice for it; we will not surrender for it, now or ever.

Our forbearance should never be misunderstood. Our reluctance for conflict should not be misjudged as a failure of will. When action is required to preserve our national security, we will act. We will maintain sufficient strength to prevail if need be, knowing that if we do so we have the best chance of never having to use that strength.

Above all, we must realize that no arsenal or no weapon in the arsenals of the world is so formidable as the will and moral courage of free men and women. It is a weapon our adversaries in today's world do not have. It is a weapon that we as Americans do have. Let that be understood by those who practice terrorism and prey upon their neighbors.

I'm told that tens of thousands of prayer meetings are being held on this day, and for that I'm deeply grateful. We are a nation under God, and I believe God intended for us to be free. It would be fitting and good, I think, if on each Inaugural Day in future years it should be declared a day of prayer.

This is the first time in our history that this ceremony has been held, as you've been told, on this West Front of the Capitol. Standing here, one faces a magnificent vista, opening up on this city's special beauty and history. At the end of this open mall are those shrines to the giants on whose shoulders we stand.

Directly in front of me, the monument to a monumental man, George Washington, father of our country. A man of humility who came to greatness reluctantly. He led America out of revolutionary victory into infant nationhood. Off to one side, the stately memorial to Thomas Jefferson. The Declaration of Independence flames with his eloquence. And then, beyond the Reflecting Pool, the dignified columns of the Lincoln Memorial. Whoever would understand in his heart the meaning of America will find it in the life of Abraham Lincoln.

Beyond those monuments to heroism is the Potomac River, and on the far shore the sloping hills of Arlington National Cemetery, with its row upon row of simple white markers bearing crosses or Stars of David. They add up to only a tiny fraction of the price that has been paid for our freedom.

Each one of those markers is a monument to the kind of hero I spoke of earlier. Their lives ended in places called Belleau Wood, The Argonne, Omaha Beach, Salerno, and halfway around the world on Guadalcanal, Tarawa, Pork Chop Hill, the Chosin Reservoir, and in a hundred rice paddies and jungles of a place called Vietnam.

Under one such marker lies a young man, Martin Treptow, who left his job in a small town barbershop in 1917 to go to France with the famed Rainbow Division. There, on the western front, he was killed trying to carry a message between battalions under heavy artillery fire.

We're told that on his body was found a diary. On the flyleaf under the heading, "My Pledge," he had written these words: "America must win this war. Therefore I will work, I will save, I will sacrifice, I will endure, I will fight cheerfully and do my utmost, as if the issue of the whole struggle depended on me alone."

The crisis we are facing today does not require of us the kind of sacrifice that Martin Treptow and so many thousands of others were called upon to make. It does require, however, our best effort and our willingness to believe in ourselves and to believe in our capacity to perform great deeds, to believe that together with God's help we can and will resolve the problems which now confront us.

And after all, why shouldn't we believe that? We are Americans.
God bless you, and thank you.

Note: The President spoke at 12 noon from a platform erected at the West Front of the Capitol. Immediately before the address, the oath of office was administered by Chief Justice Warren E. Burger.
In his opening remarks, the President referred to Rev. Donn D. Moomaw, senior pastor, Bel Air Presbyterian Church, Los Angeles, California.

The address was broadcast live on radio and television.

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Saturday, August 9, 2014

'Leading From Behind' Doesn't Make Any Sense When It Comes to US Foreign Policy

The Obama Foreign Policy Explained
One thing we learned from President Ronald Reagan during our time on Capitol Hill was this:

'Peace Through Strength'

The Berlin Wall came down soon after Reagan left office. The Soviet Union fell apart after that. The 1990's were generally a time of peace and democracy spreading throughout the globe

One thing we have learned watching President Obama's foreign policy for the past 5.5 years now is this:

'Leading from Behind' doesn't work.

Look at all of the hotspots around the globe today. Ukraine. Israel-Gaza. ISIS all over Iraq building a caliphate to end all caliphates. We have a flood of illegal immigrants coming over the southern border of the United States and still this Administration does nothing to stem the flow.

The closest thing we have seen to this period of waning US influence overseas were the last years of the presidency of Jimmy Carter 1979-80. Ayatollah Khomeini first focused American and worldwide attention on the fundamentalist Muslim movement when they ousted the Shah of Iran and established the Islamic Republic of Iran.

They held 52 American hostages at the US embassy for 444 days which spawned the advent of such late night news shows as 'Nightline' with Ted Koppel who covered every day of this ordeal. Round the clock cable news followed soon thereafter.

Guess when the Ayatollah released these 52 brave hostages? About 30 minutes before Ronald Reagan was sworn in as President of the United States on January 20, 1981.

Why would the radical Islamists of 1981 release these hostages after thumbing their nose at the previous President Carter for 444 days? They were afraid of the new President for his comments about restoring American military might and prestige around the globe. They knew he meant business and they didn't want to take the chance or the risk that Tehran would be Ground Zero for one of the new Cowboy President's displays of American confidence and might.

Aren't we almost exactly in the same position today in international affairs? Hardly anyone seems to worry about what President Obama might do on the world stage if they invade another country, domestic or foreign. Not even the death of Osama bin Laden has magnified President Obama on the world stage.

He and Secretary of State John Kerry have drawn so many lines in the sand in Syria, Ukraine, Gaza, the Texas border and other places around the world and not enforced them that the bad guys see this time as their chance to expand their power while the getting is good.

We recently had the chance to visit with some missionary friends of ours who were relocated from Ukraine (it is most definitely not 'The Ukraine) to another nation in Europe where they continue their work.

The husband told us an interesting story that we have not seen on the evening news or the cable stations yet.
'There are no Russian separatists still left in Ukraine', he began saying. 'What you see now in Ukraine are almost totally mercenary armies hired by the former President of Ukraine, Viktor Yushchenko, who fled to Russia with about $2 billion in funds he absconded with, most likely skimmed from US aid accounts we had been sending them.
Their strategy is to destabilize Ukraine to the point where Russian thug and president, Vladimir Putin, can make a calculation as to whether he can send in Russian troops not only to secure Crimea, as they have done, but the entirety of Ukraine. If he thinks America and the Allies will not make a strategic move to stop them, he will do it'
'What could have been done to send a signal to Putin to back off?' I asked him.
'President Obama sending in a few SEAL Team VI or Ranger units would have been enough for Putin to back away. All he wanted to see was whether western nations were going to let him move into Ukraine unimpeded, in which case he would go, or put up even a small fight, in which case he wouldn't.
'It is that simple' he concluded.
Foreign affairs is never simple we have found over these past 30+ years of being around it. There is almost always some complication that the general public doesn't know about nor do they need to know about.

However, brutish dictators, thugs, terrorists and overall 'bad guys' do fear one thing and one thing only: A nation with the military might and expertise to turn their lives into a living terror or their deserts into sheets of glass.

Ever since President Obama embarked on his world-wide tour from the beginning of his presidency in 2009 where he bowed to foreign leaders (something no US President has ever done anywhere, not even to the Queen of England) and apologized for every sin under the sun whether America committed them or not, bad guys like the Muslim Brotherhood and Putin have chosen to expand their spheres of influence, not reduce it.

US foreign policy can not be dictated by other nations. We have to be able to project US military might and protection around the globe or else we will rue the day when we retreated to our home borders and let the bad actors run free across the globe.

Know what the only nation in recorded human history is that has repeatedly gone into foreign nations to free them from oppression...and then willingly gone home soon thereafter?

Correct. The United States of America.

The Roman Empire never went into a nation, freed it from oppression and then left. Neither did Alexander the Great, the British Empire or the Soviet Union, just to name a very few conquering superpowers of the past.

Our great-grandfathers and grandfathers help rescue the French and other European nations during WWI; our grandfathers and fathers rescued the entire world from the monomaniacal plans of Hitler, Mussolini and the Emperor of Japan.

We kept troops in Europe long enough to secure the peace but the majority of troops were home almost immediately after both World Wars to End All World Wars. We still have troops in Korea and Japan and other places but that is more because those countries want the protection of American military might to keep them free from any aggressive action from the Chinese.

Even in Iraq and Afghanistan, the plan was to keep troops there as long as necessary to secure the peace and allow both nations to covert to democratic principles and practice.

At this rate under the Obama 'Lead from Behind' policy, ISIS will have overrun Iraq and Afghanistan in about 1 month after the targeted withdrawal of troops by President Obama and all of those lives lost and taxpayer funds spent will be for naught.

President Obama's foreign policy and domestic border strategies of 'Leading from Behind' have clearly failed.

'Speak softly and carry no stick' clearly doesn't work.

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Tuesday, August 5, 2014

Legislative Supremacy and Suing the Executive in the White House

You should read this book.
We are not constitutional scholars.

But we have been around enough of them to know what they are and what they might say from time to time.

We are not big fans of President Obama. We thought there was a slight glimmer of hope the more we watched re-runs of his truly great speech at the 2004 Democratic National Convention where he declared:

'There is not a Black America and a White America and Latino America and Asian America—there's the United States of America.'

Alas, we may be more divided now than at any time in modern history. George W. Bush wanted to be a 'uniter, not a divider'. President Obama said the right things in 2004 but he has not been very uniting, has he, as a President?

Oh well. Another two-term presidency almost down the drain. Why we allow Presidents to run for re-election is almost getting ridiculous. Most, if not all, second terms of Presidents turn out to be disasters in one way or another.

Regardless of how you feel about President Obama, should the US GOP House sue him for not performing his executive duty as President?

That's a loaded question. It brings in so many constitutional questions and basic gray areas in our representative democracy form of government that we are not sure anyone has a clear answer to it just yet.

However, that has not stopped us before from thinking out loud. Maybe you can help us figure it out as well.

From our constitutional scholars, we do know 2 things are certain:
  1. There is a real question of 'standing' as in 'does the US House have the legal standing or authority to be able to sue another branch of our tripartite government'?
  2. The Supreme Court has shied away from getting involved in such disputes between the executive and the legislative branch in the past.
One law professor we know might put it this way: 'The Supreme Court of America has not come within a 10-foot pole of ruling on the War Powers Act and the Executive power as commander-in-chief after 225 years of our shared history. You think they are going to be dumb enough to wade into this minefield?'

We think there is some real danger in President Obama playing foot-loose and fancy-free with not enforcing certain provisions of the law with which he disagrees. More on that later.

We think Congress has one 'nuclear option' that they can always play and it happens to be fully 100% bonafide and guaranteed by the US Constitution. That is the 'power of the purse'.

All bills to spend money and all bills to raise revenues must originate in the US House of Representatives. That is enormous power in and of itself. If Congress doesn't authorize the payment of appropriations, the government-sponsored activity will cease, plain and simple.

If Congress doesn't like the fact that the President of the United States is not performing his executive duties to enact the bills that Congress has passed, they can withhold funding. For anything in the budget.

For example, if President Obama delays the implementation of Obamacare because he and the Democrats are fearful of the backlash they will suffer at the polls (which he has done twice now, to extend beyond the 2012 and now the 2014 elections), Congress can strip funding for the federal employees who were supposed to implement and enforce Obamacare once it is allowed to take place after this fall's elections.

'But hey!' you might say. 'The Democrat Senate under Harry Reid won't agree to that and won't pass the same bill in the Senate!'

That is very true. However, guess what happens if the House and the Senate can't agree on a budget (which is hard to do given that Harry Reid and the US Senate has never passed a budget yet under Obama) or any of the 13 appropriations bills in any given year?

That is right. Congress will be forced to pass a Continuing Resolution which will fund government at last year's levels, not a new higher level.

Given that Medicare and Medicaid are entitlement programs that operate outside of the annual appropriations process*, the savings will only be in the domestic discretionary side of the budget which includes defense, education, welfare, foreign aid and environmental protection.

But over time, these annual savings would build up, yes? We don't have the figures handy but funding these domestic programs at FY 2014 levels until 2020 might come darn close to balancing the budget all on its own.

'Is that fair?' you may ask.

'Is it 'fair'  that the President can and will take unilateral action to implement those parts of the ACA that he likes for political advantage and not the parts that a Democrat Congress passed and sent to him to sign that he doesn't like or will cause him and the Democrats electoral pain at the polls?' you can ask back.

Neither is a great way to run a railroad or a nation as great as the United States of America, truth be told. In fact, it is childish as heck. But it is a powerful tool Congress can and should use to assert its authority, its 'legislative supremacy', if you will, that Henry Clay spoke of so often in the early days of the Republic.

None of us should pray for the day when one person, no matter how much you may love him or her or agree with their political philosophy, can exact their will on a nation of 310 million people with a pen or a cell phone, as President Obama so prominently promised (threatened) to do in his State of the Union speech.

Because if it can be done by someone you 'agree with', it can also be done by someone you 'disagree with' and that will be a very dark day for American democracy.

Speaking of which, let's get back to the dangerous precedents President Obama may be laying down right now that could come back to haunt him and you if you agree with his unilateral executive actions today.

What would prevent a Republican President in 2017 from assuming office and saying this:
'You know, I have never really liked the corporate income tax, or the capital gains tax, or the estate tax for that matter. Therefore, I am instructing the Treasury Department and the IRS to not prosecute or persecute any corporations or persons who decide not to file any of them on their tax returns for the next 4 years'.
'While I am at it, I think the environmental protection laws are too restrictive and onerous for the private sector in America to compete on a fair basis with China and other nations across the globe. Therefore, I am instructing the EPA to stand-down in their on-site inspections of companies who may be violating environmental laws in favor of adding more jobs to this moribund economy I have inherited from my predecessor'.
And so on....
You may scoff at such a suggestion but be aware that Thomas Jefferson asked Congress to zero out the federal budget for the judicial branch as President because he thought the courts 'had become too political'.

Imagine that. Politics in the courtroom. Sakes alive.

We will be as shocked as these constitutional scholars we know if this congressional lawsuit makes it to the Supreme Court.  We will be electrocuted throughout our entire being if the Supreme Court actually takes up the case and then rules in favor of Congress against the executive powers of the President.

Until then, just know that the Founders of the Constitution did everything in their power to write a template for government that made darned sure that one person, one tyrant, and even one small faction of representatives or senators could not run roughshod over the rest of us and government just because they wanted to.

One mighty way to check any abuse of power in the White House would be for the US House to use their constitutional power of the purse to surgically neuter the power of President Obama in the White House.

If the Republicans pick up the 6 seats necessary this fall in the Senate (even though recent polls show a total of 12-14 seats are now in play as potential Republican pickups), this lawsuit would become moot because a Republican House and Senate should be able to force President Obama to do what they tell him to do by the money they allow in the various parts of the federal budget.

Or the money they deny him to use. It all comes from Congress. Not the White House.

*(although we think both Medicare and Medicaid should be dealt with each year either in the appropriations process or through annual budget reconciliation procedures...but that is too Inside-The-Beltway talk to go over again right now)
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Sunday, July 27, 2014

How Exactly Does A Rich Person Making All That Money Affect You On A Daily Basis, Again?

We have been struck by the number of people we have run into lately who have espoused the following sentiment:

'The filthy really well-off rich people in America have totally ripped the rest of us off! They have totally gamed the system where they win all the time and the rest of us don't win anything!'

One guy called them all 'Plutocrats'.

We know what he meant. He meant it as a pejorative term slamming all the rich people 'who have all the money', 'all the luck' and 'all the (fill in the blank)'.

Without being completely disrespectful of his sincere opinion, we couldn't help but wonder if he meant someone from Planet Pluto or perhaps even 'Pluto', the lovable dog from Disney World.

The label 'Plutocrats' just doesn't fit anymore. Not in such a wealth-democratized civilization as the United States of America, that is.

We believe all of this 'class warfare' is pretty over-blown, merely for political purposes. It used to be a real tangible problem at the turn of the 20th Century when the Robber Barons ruled the roost in America and the labor laws were virtually non-existent or non-enforceable for the most part.

Let's take just two of the most wealthy individuals the world has ever known, Bill Gates and Warren Buffett and see just how, if any way possible, they could be 'ripping us off' in any way, shape or form on a daily basis:

Bill Gates made his fortune writing software for personal computers. He started out with nothing and struggled for years before hitting the mother lode and founding Microsoft.

We are pretty sure he and his intrepid band of software pioneers must have been close to bankruptcy many times in the early stages of working together. Nobody would have ever noticed had they crashed and burned like the founders of Atari or Commodore or any of the other early tech companies.

It still had years and years to go before it became 'MICROSOFT' and he was off to making billions of dollars.

Did he personally 'rob' you to make you buy his software? Did he hold a gun to your head and threaten you within an inch of your life if you don't buy his software? Is there any direct way he has ever influenced you or any of your personal decision-making over the past 34 years?

Think about it. The only way Bill Gates has ever directly affected your life is probably in this device you are using right now to read this blog about him. He invented a new way of delivering information in digital form and you bought it either directly or embedded in any PC, laptop or handheld device you have purchased or your company purchased for you to use at work.

Those were 'free transactions'. Meaning 'freely committed and mutually agreed-to deals where you received a service, his software, and he received your money'.

The fact that he has amassed a fortune of over $80 billion is immaterial to you and me on a daily basis except for this unassailable fact:

Microsoft has helped unleash more creativity and democracy in the workplace than at any time in previously recorded mankind history.

Think about that the next time you send an email from the beach to a colleague in Timbuktu.

How about Warren Buffett? What has he done to 'steal' from the likes of you and me to amass his fortune, valued at almost $63 billion?

He has been a shrewd investor along the lines of Benjamin Graham, the legendary value investor.

Some could assert that he has really not made any single product or service himself that has benefitted mankind save one important thing: He has created wealth for hundreds of thousands, if not millions of workers in his portfolio companies and shareholders around the globe.

Warren Buffett is a 'wealth creator'.

Not solely for himself but for millions of other people fortunate enough to work for one of the companies in which he owns a majority share. Or for the people and investment managers who were foresighted enough to buy 1 of his Berkshire Hathaway shares in 1990 for $7700 which is now worth north of $190,000. Per share.

Millions of people have an indirect share of that wealth generation through their 401k plans and IRAs simply because they own a mutual fund that has Berkshire Hathaway as one of the holdings.

Is that a 'good thing' or a 'bad thing'? We think that is a good thing by a country mile.

We readily admit there are some real jerks in private business. Just like there are some 'real jerks' in every aspect of life: athletics, law, government, politicians and even the clergy, sad to say.

And Wall Street! The fact that most of the men and women who were at the upper echelons of high finance pre-2008 when the meltdown occurred are not behind bars after being forced into bankruptcy for their role in the over-speculation and irresponsible leveraging of assets is simply beyond the boundaries of fair play and justice in America.

If you are a 'true capitalist pig', you should want to emulate true golfers who play by the rules of the game and don't try to make things up to their advantage as things play out. You make bad investments that go sour, you lose: you lose your net worth, you lose your assets, you lose your job and prestige.

If you win, you get to keep it all.

Stop privatizing the upside solely because of your 'genius' as you say and socializing the downside on the rest of us for your imbecilic behavior when things go wrong.

American free enterprise and capitalism will be far better off and healthier if we adopt that as the Golden Rule of financial activity in America going forward.

For the most part, however, American 'rich' people have done nothing but help make out lives much more enjoyable, easy and prosperous. Simply because of the way our system is set up to share such bounties through employment in the private sector and the American stock market which somehow seems to keep chugging along despite it all.

Think about that the next time you hear anyone rail about the Big, Bad Boogeymen of the Wealthy in America as if they are some sort of Michael Myers or Jason waiting to slit your throat and take all your possessions.

You might become a wealthy person one day too, you know. You can give away all your wealth if you want to. or you can re-invest it and keep producing new jobs and opportunities for the rest of us in a never-ending cycle of win-win-win for all of us.

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Wednesday, July 23, 2014

What Is Good For The President Goose Is Also Good For The Governor Gander

'You Got A Job! Good For You!
Rob Christensen, political observer and commentator for the Raleigh News and Observer, wrote a column on Sunday, July 20 downplaying the efforts of Governor Pat McCrory and the North Carolina General Assembly to reduce unemployment in the state.

We have written about this before because it is one of our extreme pet-peeves: 'Gilding the lily' when it comes to describing what one political person has done versus another depending solely on whether the writer agrees with the politician philosophically or not.

Or flat-out 'lying' so the already confused American voter can be further confused by being told so many times by so many politicians: 'Vote for me and I will set you free!'

Especially in the confusing world of unemployment statistics.

Question: 'What is the most important thing about any debate on 'unemployment'?'

Answer: 'How we can enact policies that will allow the private sector to employ the highest number of people without igniting inflation'

The key thing to keep in mind is the difference between the 'official unemployment rate' and the number of people who are working at any snapshot in time.

The official unemployment rate put out by the Bureau of Labor Statistics measures the number of able-bodied people who are not working relative to the number of able-bodied people who are actively looking for work.

It does NOT count the number of people who have stopped looking for work.  And it is all based on a monthly statistical survey so there is some variance up-or-down from the stated monthly rate.

The 'labor participation rate' DOES count the number of people who are actively looking for work.

We think a better way would be to buy a super-duper Jumbotron scoreboard the size of any scoreboard in any NFL stadium and put it over the Commerce Department with the following tally every day:

'How many people are working today?'

We need to focus on the number of people who are actually employed, not on the number unemployed. That number can more easily be manipulated than an absolute number declaring how many people are actually working.

Today the scoreboard would read: 146,221,000 PEOPLE ARE WORKING TODAY!

Tomorrow, hopefully it would read: 146,222,000 and so on.

At least it would be more easily understood by an American public which understands who wins and who loses by looking at a scoreboard.

Below is a re-write of Mr. Christensen's column with our edits in red to show where he could have just as easily applied the same line of reasoning and facts to President Obama when the White House touts the reduction in the unemployment rate lately.

You hardly ever see such a distinction in the major newspaper and media outlets, yes? The main reason is that journalists and people in the media tend to be supportive of President Obama and they tend not to be enamored of Republican Governors and policies country-wide. It is almost 100% predictable each time the new unemployment numbers come out each month.

(To his credit, Mr. Christensen did write back to me soon after I sent him an email Sunday pointing out this discrepancy and said I had a 'valid point'. The only problem with that is that only one person saw those words, 'You have a valid point' whereas thousands of others just bought what Mr. Christensen had to say hook, line and sinker)
Rob Christensen's column of July 20, 2014

'Before we get too far down the road of the McCrory presidential boomlet, we should perhaps take a closer look at the claims.

Varney noted that North Carolina’s unemployment rate, which was 8.8 percent when McCrory took office in January 2013, had dropped to 6.4 percent in May. The rate remained the same when June data was released on Friday.

McCrory touts the sweeping reforms in North Carolina’s unemployment laws that went into effect last July as a major reason why the state’s unemployment rate is declining.

President Obama touts his economic policies as the major reason why North Carolina’s unemployment rate is declining.

The cuts lowered the maximum benefit checks from $535 a week to $350 a week, while the maximum length of benefits was cut from 26 weeks to a sliding scale that is now 14 weeks – the lowest in the nation.

To put that in historical perspective, Gov. Kerr Scott signed a bill lengthening unemployment insurance from 20 weeks to 26 weeks in 1951. So we are essentially back to an era when men wore caps and denim bibs to work as far as the laws trying to provide some cushion for the average working person who loses a job through no fault of his or her own.

Labor force declining

The number of North Carolina workers who receive unemployment benefits has dropped from 90,858 in May 2013 to 42,382 this May. Now this means one of two things: Either there are thousands of people suffering, or there are thousands of people who have found employment.

McCrory thinks it’s the latter. So does President Obama.

“People are taking jobs that are being offered, whereas in the past, employers were telling us people were not taking, especially, entry-level jobs because they were waiting for the unemployment to be extended,” McCrory told Varney.

I asked Patrick Conway, the Princeton-educated economist who is chairman of the economics department at UNC-Chapel Hill, about what the numbers show.

Conway said the evidence suggests that the sharp drop in the unemployment rate is being driven, in part, by people no longer looking for work, and therefore no longer counted as among the unemployed. Only those who apply for unemployment insurance are counted in the unemployment rate, Conway said.

The labor participation rate has dropped steadily every year since President Obama took office in January 2009 from 66% to 62.8% today. Part of it can be explained by demographics and Baby Boomer retirements. Most of it can not be explained away by demographics. (see

North Carolina’s unemployment rate has dropped since the law was changed, but there has been no sharp increase in people in the labor force. In fact, Conway produced a graphic, showing a rapid decline in the size of the North Carolina labor force relative to the U.S. labor force.

“The (North Carolina) labor force has been falling throughout that period,” he said. “The only explanation that makes sense is that people who were unemployed stopped looking for work. When that happens, what we call the unemployment rate is picking up that fact and registering that as a fall in unemployment.”

No better than neighbors

North Carolina was particularly hard hit by the recession, as were other Southeastern states. During that time, North Carolina saw its unemployment rate rise from 4.6 percent in February 1996 to 11.1 percent in April 2010.

It had declined from 11.1 percent to 8.8 percent by the time McCrory took office as governor in January 2013. By the time the changes in the unemployment insurance laws had taken effect in July 2013, the unemployment rate had fallen to 8.1 percent.

Even if the drop in the unemployment rate was real – that is people who were formerly unemployed are now holding down jobs – North Carolina’s experience is hardly extraordinary. It fits into what has been going on in the region.

I looked at what was happening during the same period in three states, in part because the U.S. Bureau of Labor Statistics has an interactive chart comparing North Carolina, South Carolina and Georgia over time.

If the unemployment law changes were spurring people to go back to work, you would expect a major difference between North Carolina and its neighbors. But that wasn’t so.

If the policies of President Obama were spurring people to go back to work, you would expect to see a major increase in the number of people actively looking for work.

As North Carolina’s unemployment rate dropped from last July’s 8.1 percent to June’s 6.4 percent, South Carolina’s rate dropped from 7.7 percent to 5.3 percent. Georgia’s declined from 8.3 percent to 7.4 percent.

So North Carolina’s unemployment picture has been pretty much performing like that of its neighbors, rising and falling as the recession came and went.

So before we move from Mayor Pat to Governor Pat to President Pat, we need to make sure the unemployment improvements are both real and something special – and not just another case of the crowing rooster claiming he made the sun rise.

So before we move to the coronation of President Obama as the ‘Jobs President’, we need to make sure the unemployment improvements are both real and something special – and not just another case of the crowing rooster in the White House claiming he made the sun rise.

Christensen: 919-829-4532 or rchristensen@

Read more here:

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Friday, July 18, 2014

If You Are A Gen-Xer, Millennial or Anyone Under The Age of 40, You Better Read This. Now.

We read this stuff so you won't have to.

But we hope you will anyway.

If you click on the title below, that will take you to the full 134 pages of the CBO Long-Term Budget Outlook document. Go ahead; we dare you to tell anyone that you actually have read every word in this report by next Friday. You will deserve a Congressional Gold Star for your forehead for being such a good student and patriot.

If you are just a visual learner and don't want to read all these words and budget jargon, take a look at this slide show and see 26 slides that if they were a Disney Ride, they would probably be called the 'Tower of Terror' because they are so scary.

If you just want to breeze through and read the highlights of the highlights (or the 'lowlights of the lowlights'), just skim through the document below we have highlighted in red or blue and be on your merry way.

There is a lot of work to do. We need serious citizen-politicians to run and get elected and make these important decisions for the rest of us before it is too late. According to CBO, we just don't know when it may happen but if we let the Debt Hounds from Hades loose, it may be sooner than you would think.

July 15, 2014

Between 2009 and 2012, the federal government recorded the largest budget deficits relative to the size of the economy since 1946, (because of WWII) causing its debt to soar. The total amount of federal debt held by the public is now equivalent to about 74 percent of the economy’s annual output, or gross domestic product (GDP)—a higher percentage than at any point in U.S. history except a brief period around World War II and almost twice the percentage at the end of 2008.

If current laws remained generally unchanged in the future, federal debt held by the public would decline slightly relative to GDP over the next few years, CBO projects. After that, however, growing budget deficits would push debt back to and above its current high level. Twenty-five years from now, in 2039, federal debt held by the public would exceed 100 percent of GDP, CBO projects. Moreover, debt would be on an upward path relative to the size of the economy, a trend that could not be sustained indefinitely.

What Is the Outlook for the Budget in the Next 10 Years?

The economy’s gradual recovery from the 2007–2009 recession, the waning budgetary effects of policies enacted in response to the weak economy, and other changes to tax and spending laws have caused the deficit to shrink this year to its smallest size since 2007: roughly 3 percent of GDP, compared with a peak of almost 10 percent in 2009. If current laws governing taxes and spending stayed generally the same—an assumption that underlies CBO’s 10-year baseline budget projections—the anticipated further strengthening of the economy and constraints on federal spending built into law would keep deficits between 2½ percent and 3 percent of GDP from 2015 through 2018, CBO estimates.

In succeeding years, however, deficits would become notably larger under current law. The pressures stemming from an aging population, rising health care costs, and an expansion of federal subsidies for health insurance (Obamacare) would cause spending for some of the largest federal programs to increase relative to GDP.

Moreover, CBO expects interest rates to rebound in coming years from their current unusually low levels, raising the government’s interest payments. That additional spending would contribute to larger budget deficits—equaling close to 4 percent of GDP—toward the end of the 10-year period spanned by the baseline, CBO anticipates. Altogether, deficits during that 2015–2024 period would total about $7.6 trillion.

With deficits expected to remain close to their current percentage of GDP for the next few years, federal debt held by the public is projected to stay between 72 percent and 74 percent of GDP from 2015 through 2020. Thereafter, larger deficits would boost debt to 78 percent of GDP by the end of 2024.

What Is the Outlook for the Budget in the Long Term?

CBO has extrapolated its baseline projections through 2039 (and, with even greater uncertainty, through later decades) by producing an extended baseline that generally reflects current law. The extended baseline projections show a substantial imbalance in the federal budget over the long term, with revenues falling well short of spending (see the figure below). As a result, budget deficits are projected to rise steadily and, by 2039, to push federal debt held by the public up to a percentage of GDP seen only once before in U.S. history (just after World War II). The harm that such growing debt would cause to the economy is not factored into CBO’s detailed long-term projections but is considered in further analysis presented in this report.

Components of Total Spending

Federal spending would increase to 26 percent of GDP by 2039 under the assumptions of the extended baseline, CBO projects, compared with 21 percent in 2013 and an average of 20½ percent over the past 40 years. That increase reflects the following projected paths for various types of federal spending if current laws remained generally unchanged (see the figure above):

Federal spending for Social Security and the government’s major health care programs—Medicare, Medicaid, the Children’s Health Insurance Program, and subsidies for health insurance purchased through the exchanges created under the Affordable Care Act—would rise sharply, to a total of 14 percent of GDP by 2039, twice the 7 percent average seen over the past 40 years. That boost in spending is expected to occur because of the aging of the population, growth in per capita spending on health care, and an expansion of federal health care programs. (Baby Boomers will say that the younger generations will have been 'berry, berry good to me!' during that whole period of time as 'Chico Escuela' would say on SNL) 

The government’s net interest payments would grow to 4½ percent of GDP by 2039, compared with an average of 2 percent over the past four decades. Net interest payments would be larger than that average mainly because federal debt would be much larger.

In contrast, total spending on everything other than Social Security, the major health care programs, and net interest payments would decline to 7 percent of GDP by 2039—well below the 11 percent average of the past 40 years and a smaller share of the economy than at any time since the late 1930s. (Domestic programs will take it on the chin)

Components of Total Revenues

Federal revenues would also increase relative to GDP under current law, but much more slowly than federal spending (see the figure above). (Why? Because of 'bracket creep' where people are pushed into higher tax brackets solely by inflation. Not real increases in real earnings from real wages)

Revenues would equal 19½ percent of GDP by 2039, CBO projects, compared with an average of 17½ percent over the past four decades. In the next 10 years, revenues are projected to rise to 18½ percent of GDP, from 16½ percent last year, reflecting structural features of the tax system and the ongoing economic recovery. (AND EVEN THEN WITH MUCH HIGHER REVENUES, WE WILL STILL NOT BE ABLE TO BALANCE THE BUDGET!!! (Our emphasis added)

((parenthetically speaking, us talking again) you can never balance the budget counting on higher tax revenues, mainly because people will find ways to avoid paying the higher taxes either legally with tax shelters or illegally in the black market. You can always find ways to balance the budget by controlling spending. It is the only surefire way to save us from fiscal disaster later. (see Budget Act of 1990 and the Balanced Budget Act of 1997 or any year under President Calving Coolidge referenced in other posts))

After 2024, revenues would increase gradually relative to GDP under the assumptions of the extended baseline, mainly because people’s income is expected to grow faster than the rate of inflation, pushing more income into higher tax brackets over time.

The gap between federal spending and revenues would widen after 2015 under the assumptions of the extended baseline, CBO projects. By 2039, the deficit would equal 6½ percent of GDP, larger than in any year between 1947 and 2008, and federal debt held by the public would reach 106 percent of GDP, more than in any year except 1946—even without factoring in the economic effects of growing debt.

Moreover, the harmful effects that such large debt would have on the economy would worsen the budget outlook. Under current law, the increase in debt relative to the size of the economy, combined with a gradual increase in marginal tax rates (the rates that would apply to an additional dollar of income), would reduce economic output and raise interest rates, compared with the benchmark economic projections that CBO used in producing the extended baseline. Those economic effects in turn would lead to lower federal revenues and higher interest payments on the debt. With those effects included, federal debt held by the public under the extended baseline would rise to 111 percent of GDP in 2039.

Beyond the next 25 years, the pressures caused by rising budget deficits and debt would become even greater unless laws governing taxes and spending were changed. With deficits as big as the ones that CBO projects, federal debt would be growing faster than GDP, a path that would ultimately be unsustainable.

What Consequences Would a Large and Growing Federal Debt Have?

How long the nation could sustain such growth in federal debt is impossible to predict with any confidence.

At some point, investors would begin to doubt the government’s willingness or ability to pay its debt obligations, which would require the government to pay much higher interest costs to borrow money. Such a fiscal crisis would present policymakers with extremely difficult choices and would probably have a substantial negative impact on the country. (duh!)

Even before that point was reached, the high and rising amount of federal debt that CBO projects under the extended baseline would have significant negative consequences for both the economy and the federal budget:

The large amount of federal borrowing would draw money away from private investment in productive capital in the long term, because the portion of people’s savings used to buy government securities would not be available to finance private investment. The result would be a smaller stock of capital and lower output and income than would otherwise be the case, all else being equal. (Despite those reductions, the continued growth of productivity would make output and income per person, adjusted for inflation, higher in the future than they are now.)

Federal spending on interest payments would rise, thus requiring higher taxes, lower spending for benefits and services, or both to achieve any chosen targets for budget deficits and debt.

The large amount of debt would restrict policymakers’ ability to use tax and spending policies to respond to unexpected challenges, such as economic downturns or financial crises. As a result, those challenges would tend to have larger negative effects on the economy and on people’s well-being than they would otherwise. The large amount of debt could also compromise national security by constraining defense spending in times of international crisis or by limiting the country’s ability to prepare for such a crisis (such as today in Russia and the Middle East)

What Effects Would Alternative Fiscal Policies Have?
Most of the projections in this report are based on the assumption that laws governing federal taxes and spending will remain generally the same over time—not because CBO expects that to occur but because the budgetary and economic implications of current law are a useful benchmark for policymakers when they consider changing laws. If tax and spending policies differed significantly from those specified in current law, budgetary and economic outcomes could differ substantially as well. To illustrate some possible differences, CBO analyzed the effects of three additional sets of fiscal policies.

Under one set of alternative policies (1)—referred to as the extended alternative fiscal scenario—certain policies that are now in place but are scheduled to change under current law would be continued, and some provisions of law that might be difficult to sustain for a long period would be modified. With those changes to current law, deficits excluding interest payments would be about $2 trillion higher over the next decade than in CBO’s baseline; in subsequent years, such deficits would exceed those projected in the extended baseline by rapidly growing amounts. The harmful effects on the economy from the resulting increase in federal debt would be partly offset by the lower marginal tax rates that would be in place under that scenario. Nevertheless, in the long term, economic output would be lower and interest rates would be higher under that set of policies than under the extended baseline. With those economic changes incorporated, federal debt held by the public would exceed 180 percent of GDP in 2039, CBO projects.

Under a different scenario (2), budget deficits would be smaller than those projected under current law: Deficit reduction would be phased in such that deficits excluding interest payments would be a total of $2 trillion lower through 2024 than in CBO’s baseline, and the amount of deficit reduction as a percentage of GDP in 2024 would be continued in later years. In that case, output would be higher and interest rates would be lower in the long term than under the extended baseline. Factoring in the effects of those economic changes on the budget, CBO projects that federal debt held by the public would equal about 75 percent of GDP in 2039, close to its percentage in 2013.

Under yet another scenario (3), with twice as much deficit reduction—a total decrease of $4 trillion in deficits excluding interest payments through 2024—CBO projects that federal debt held by the public would fall to 42 percent of GDP in 2039. That percentage would be slightly above the ratio of debt to GDP in 2008 and the average ratio over the past 40 years (both 39 percent). As in the preceding scenario, output would be higher and interest rates would be lower in the long term than under the extended baseline.

Such alternative fiscal policies would have differing effects on the economy in the short term as well as in the long term, reflecting the short-term impact of tax and spending policies on the demand for goods and services. The spending increases and tax reductions in the alternative fiscal scenario (relative to what would happen under current law) would increase the demand for goods and services and thereby raise output and employment in the next few years. The deficit reduction under the other scenarios, by contrast, would decrease the demand for goods and services and thus reduce output and employment in the next few years.

How Uncertain Are the Long-Term Budget Projections?

Even if future tax and spending policies match what is specified in current law, budgetary outcomes will undoubtedly differ from CBO’s projections because of unexpected changes in the economy, demographics, and other factors. To illustrate the uncertainty of its projections, CBO examined how altering its estimates of future mortality rates, productivity, interest rates on federal debt, and federal spending on health care would affect the projections in the extended baseline. For that purpose, CBO projected budgetary outcomes with those factors varying by amounts that are based on their past variation as well as on CBO’s consideration of possible future developments. Those estimates show the following:

1) In cases in which only one of those factors varies from the values used for the extended baseline, CBO’s projections of federal debt held by the public in 2039 range from about 90 percent of GDP to 135 percent, compared with 111 percent under the extended baseline including the economic effects of future fiscal policies.

2) In a case in which all four factors vary simultaneously in a way that raises projected deficits, but they vary only half as much as in the individual cases, federal debt is projected to reach about 160 percent of GDP in 2039. 3) Conversely, in a case in which all four factors vary in a way that lowers deficits but, again, vary by only half as much as in the individual cases, debt in 2039 is projected to equal 75 percent of GDP, about what it is now.

Those calculations do not cover the full range of possible outcomes, nor do they address other sources of uncertainty in the budget projections, such as the risk of an economic depression or major war or the possibility of unexpected changes in birth rates, immigration, or labor force participation. Nonetheless, CBO’s analysis shows that the main implication of the central estimates in this report applies under a wide range of possible values for some key factors that influence federal spending and revenues. That implication is that if current laws remained generally unchanged, federal debt, which is already high by historical standards, would be at least as high and probably much higher 25 years from now.

What Choices Do Policymakers Have?

The unsustainable nature of the federal tax and spending policies specified in current law presents lawmakers and the public with difficult choices. Unless substantial changes are made to the major health care programs and Social Security, spending for those programs will equal a much larger percentage of GDP in the future than it has in the past. At the same time, under current law, spending for all other federal benefits and services would be on track to make up a smaller percentage of GDP by 2024 than at any point in more than 70 years.

Federal revenues would also represent a larger percentage of GDP in the future than they have, on average, in the past few decades. Even so, spending would soon start to outpace revenues by increasing amounts (relative to GDP), generating rising budget deficits. As a result, federal debt held by the public is projected to grow faster than the economy starting a few years from now, and because debt is already unusually high relative to GDP, further increases could be especially harmful.

To put the federal budget on a sustainable path for the long term, lawmakers would have to make significant changes to tax and spending policies: reducing spending for large benefit programs below the projected levels, letting revenues rise more than they would under current law, or adopting some combination of those approaches.

The size of such changes would depend on the amount of federal debt that lawmakers considered appropriate. For example, lawmakers might set a goal of bringing debt held by the public back down to the average percentage of GDP seen over the past 40 years—39 percent. Meeting that goal by 2039 would require a combination of increases in revenues and cuts in noninterest spending, relative to current law, totaling 2.6 percent of GDP in each year beginning in 2015 (without accounting for the economic effects of the reduction in debt or of the policy changes that might be used to achieve it); in 2015, 2.6 percent of GDP would equal about $465 billion. If those changes came entirely from revenues, they would represent an increase of 14 percent from the revenues projected for the 2015–2039 period under the extended baseline.

If the changes came entirely from noninterest spending, they would represent a cut of 13 percent from the amount of noninterest spending projected for that period. A similar level of debt in 2039 would result under the third scenario discussed above (a $4 trillion total reduction in deficits excluding interest payments through 2024, with the amount of deficit reduction in 2024 as a percentage of GDP continuing in later years).

In deciding how quickly to carry out policies to put federal debt on a sustainable path, lawmakers face trade-offs:

  • The sooner significant deficit reduction was implemented, the smaller the government’s accumulated debt would be, the smaller policy changes would need to be to achieve a particular long-term outcome, and the less uncertainty there would be about what policies would be adopted. However, if lawmakers implemented spending cuts or tax increases quickly, people would have little time to plan and adjust to the policy changes, and those changes would weaken the economic expansion during the next few years.
  • Reductions in federal spending or increases in taxes that were implemented several years from now would have a smaller effect on output and employment in the short term. However, waiting for some time before reducing federal spending or increasing taxes would result in a greater accumulation of debt, which would represent a greater drag on output and income in the long term and would increase the size of the policy changes needed to reach any chosen target for debt.
  • If lawmakers wanted to minimize both the short-term economic costs of reducing deficits quickly and the longer-term costs of running large deficits, they could enact a combination of changes in tax and spending policies that increased the deficit in the next few years relative to what it would be under current law but reduced the deficit thereafter.

Even if policy changes to shrink deficits in the long term were not implemented for several years, making decisions about them sooner rather than later would offer significant advantages. If decisions were reached sooner, people would have more time to alter their behavior to be prepared for the time when the changes would be carried out. In addition, decisions about policy changes that would reduce future debt relative to the amounts projected under current law would tend to increase output and employment in the next few years by holding down longer-term interest rates, reducing uncertainty, and enhancing businesses’ and consumers’ confidence.

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