Wednesday, April 29, 2009

All Right Kids: Let’s Cut the Budget

Good news out of the Capitol, of the Washington, D.C. variety, last week as President Obama called for 'big cuts' in federal spending.

The President, on the 3-month anniversary of his taking office, finally got around to gathering his Cabinet for its first meeting at the White House. We’ll not take the bait and remind you that he had criticized his predecessors for not making better use of their Cabinets and instead focus on the news that he called for: budget cutting.

Yes, that is right. The President charged his Cabinet members to rush back to their respective corners and cut the budget by $100,000,000.00.

To most of us, that is a big number. But let’s look at in real terms of the U.S. Federal Budget. Mr. Obama has proposed a budget for the coming fiscal year of, now get this: $3,500,000,000,000.00. And his current request is to cut $100,000,000.00. Calculated another way, that is a cut of 0.0029%.

Keeping it real, let’s translate that into numbers the average family may comprehend. Assume the average family has a combined, before tax, income of $60,000. Because times are tough and they have been spending as if they had an income of $75,000, they decide to make a cut comparable to that proposed by the President. So, they drastically cut 0.0029% percent or $2.18 from their overspending ways and expect to see their budget come into balance.

So, that leaves them about $14,997.82 short of their goal of balancing their budget.

To give the President his due, he did not allege that the $100 million cut would balance the budget, but he did claim it was “significant”. Remember, he was the candidate who throughout the campaign said he planned to take a scalpel to the federal budget. He was going to go through the budget, “line by line”, and rid the taxpayers of all those programs that do not work, are inefficient or are just wasteful and duplicative.

All he has found so far is a measly $100 million out of $3.5 trillion?

Looks like he forgot to use the scalpel and is instead using laparoscopic surgery, aka ‘minimally invasive surgery’ (MIS).

Just remember those promises when you are told the expenditure of hundreds of millions, probably more like billions, will “save” us money on health care. Or that by imposing a tax on carbon ‘we’ll create jobs, reduce global warming and make us energy interdependent’. Get your wind generators here!

For now, why don’t you send the President, made out to the US Treasury, of course, a check for $3.18, instead of just $2.18 and let him know you are doing more to cut the federal deficit than he is willing to do on a percentage basis? By comparison to the President's recent effort, that extra buck is big bucks.


Monday, April 27, 2009

Know What Is Really Unjust About the Current Social Security System?

You know what really stinks about the current Social Security system?

If you die the day before you become eligible and sign up for the program, you (obviously), your spouse, your family and your estate get nothing, squadoosh, zippo, nada in terms of a lump-sum payment from all of those payments you made to ‘FICA” over all of those long, hard working years of your life.

Nothing! And it strikes disproportionately hard on African-Americans, Latinos and lower-income folks, people who: 1) have lower life expectancies to begin with; 2) really could use any sort of wealth accumulation techniques available to begin the process of transferring assets from one generation to the next; and 3) started working at a younger age and therefore would have otherwise had a longer period during which compounded interest could have grown.

Talk about being a truly ‘regressive’ tax! Not only does it hit the lower-income folks disproportionately harder relative to higher-income wage-earners, but when they die at a higher rate at younger ages, they basically forfeit all claims on these tax payments and these tax payments get used for any sort of unencumbered use throughout the federal government.

There are widow’s benefits for survivors of deceased Social Security recipients but for all intents and purposes, your payroll tax payments over the preceding 43 years of hard work go up in smoke with nothing to show for it rather than a bunch of discarded pay stubs with “FICA” written all over it.

It is a blatant case of the lower-income payroll tax-paying person subsidizing the general expenses of the rest of us. You work your life away, pay your payroll taxes on time each week or pay period, because you have to through the mandatory withholding process imposed upon your employer, and then boom! You die precisely the second before the full retirement age of 66 (now) when you are age 65 years, 364 days, 23 hours, 59 minutes and 59 seconds….and you and your family get nothing in the form of a lump-sum return of your life-long ‘investment’ from Social Security.

Now, it is important to understand that Social Security was not set up to become a federal pension plan, (although it has become such in the minds of many), nor was it set up to be a national insurance plan (although it has become that in the minds of many as well). There are offsets galore to Social Security payments in the corporate pension world that have been efforts to mitigate the increased costs of the program, mostly to the more well-off, wealthy, or very rich retirees (think of Bill Gates receiving Social Security benefits in a couple of years…is that really ‘necessary’ to maintain universal support for Social Security as an entitlement program?)

And, just to keep in mind, if there were no Social Security or Medicare programs, the cost burden of supporting our parents in their dotage (or us in ours) would fall squarely upon us, the pretty independent and relatively selfish Baby-Boomer generation and generations to follow. If you are up to the obligation and challenge, then God bless you…families did it before 1935 when Social Security went into effect and before 1965 when Medicare went live.

Just realize that there are two sides to every story, especially when it comes to slaying the entitlement cost giant.

But you’d think some well-meaning advocacy group such as the AARP would work to do something to help poor people build up an estate fund and find something better to do with their hard-earned money than possibly lose it all at the time of premature death.

Wouldn’t it be better to have some lump sum that was at least transferable to your spouse and then your children? At least then, the Social Security system would begin to at least resemble a defined contribution plan that many people mistakenly now think it is. Most people think, “I have put x amount of money in over 43 years of hard work; I ought to at least be able to get that amount back…and then some, assuming it had earned a reasonable rate of return.”

But it isn’t and it won’t be until we push for some major changes at the grassroots level first. Always remember this, if you don’t remember anything else from reading ‘Telemachus’: Congress always follows the public will of the people, not the other way around.

Sunday, April 26, 2009

If Stimulus Checks Worked, Wouldn’t They Have Worked in 2008?

If this current Administration is really concerned about current and future deficits and the exploding national debt, why are they offering a one-time “tax cut” to 85% of workers in the first place? For at least 50% of the taxpayers receiving this refund, it is not a refund, we are sending them money that: 1) they never paid in income taxes this past year or for about the last 5 years or so; 2) which has been borrowed from your kids and grandkids; and 3) which will not stimulate the economy here in the US.

For someone who believes that tax cuts do stimulate marginal economic activity, doesn’t this opposition to any tax cut sound more than a little but confused?

The problem I have had over the years of so-called ‘supply-side economics” is that many of the proponents of such ‘easy’ political actions (who hates tax cuts?) are the same people who have avoided cutting the rate of growth in all spending in the federal government. They honestly believed, and I heard them say with their own mouths, that ‘cutting taxes will generate so much revenue growth that we will be able to out-grow the growth in federal spending, including in all entitlements’.

I would cite that as an exact quote but I would have to footnote it about 100 times and it would be a mess to do so.

Ladies and gentlemen: Those guys were right in theory but wrong in practice. Cutting tax rates or giving back stimulus tax checks work to help balance federal budgets only when coupled with strident spending rate increase controls and reforms. Cutting tax rates usually means some net increase in tax revenues to the federal government because of the new economic activity it produces, mostly in the form of higher employment. However, unless the rates of growth in spending are curtailed in everything from defense to Medicare, that increase in tax revenue has never out-run the growth rates in federal spending, mostly caused by the rampant 15%+ annual growth rates in two federal health care programs, Medicare and Medicaid. [1]

So that is the charade and shell-game that was played by many conservative politicians over the past 2 decades, as well as a few Democrats. The only time the conservatives backed up their words with some solid actions was during the 1990 Budget Act when firm PAYGO limits were enacted for the first time on federal budgets and in 1997 when the Clinton Administration compromised with the Republican Congress to produce the only 3 years of budget surpluses in most of our lifetimes.

And they were mostly guys who advocated pure tax cuts unconnected to spending reductions. So ladies, you can take pride in your elected female leaders during the 1980’s and 1990’s. In fact, one of the toughest members of the House Budget Committee in terms of deficit-control during the time Congressman Alex McMillan served as the leadership appointee to the committee was now-Senator Olympia Snowe of Maine. We all marveled at the time she took on Congressman Barney Frank of Massachusetts one day in committee during a markup and nearly handed his head to him on a silver platter.

These ‘stimulus checks’ should do a pretty good job of stimulating the economy, though….in China, that is. What will many people do with their $400 or $800 tax cut or stimulus checks? They might pay down some debt or buy some necessary items like food or clothes but will any of them buy an iPod, iPhone or 42” plasma TV set? Where are those items made? Here in the United States? Try China or some other southeast Asian country.

Isn’t this just really pandering to the nth degree? We tried a similar ‘economic stimulus’ package under President Bush in early 2008 when he and Congress decided in their infinite wisdom to send $800 checks to taxpayers. Jimmy Carter tried a similar thing. Did it work? I don’t seem to be able to recall the events of the past year for some reason….did we avoid falling into the largest economic recession since 1930?

Politicians always push the tax cut button when they are trying to confuse the public and satiate them when they are trying to get their broader agendas passed. Karl Marx was wrong; he should have said: “Tax cuts are the opiate of the masses”.

This current bribery effort by the Obama Administration will cost about $100 billion this year. On top of the maybe $100 billion we spent last year. Is this paid for by spending cuts or tax increases elsewhere in the budget? Nope. Where is it coming from? Your children and grandchildren as always in the form of debt borrowed against their future earnings.

Kiss them tonight and tell them that you love them very much. Because they simply won’t believe it in about 15 years based on what we are doing to them now.


Saturday, April 25, 2009

Did You Hear that Corporate Profits Are Down 85% This Year?

“America's 500 biggest companies earned $98.9 billion in 2008, down 85 percent from $645.2 billion in profits the previous year.

And 128 companies on the list had losses, totaling $519.3 billion. The previous year, just 57 Fortune 500 companies lost money, for a total of $116.7 billion.”[1]

If there ever was a time in our history to abolish corporate income taxes, this is the time.

When corporate profits are down that much, that can only translate into lower corporate taxes paid to the U.S. Treasury. Without the engine of a healthy, growing, risk-taking economy led by business people and entrepreneurs, not the government, there would be no corporate income taxes to be paid. If corporate taxes are down 85%, that can only mean that corporate income taxes paid to the federal treasury will be down 85% or possibly as low as $55 billion instead of the projected $370+ billion expected a year ago.

That’s not a lot of tax revenue to lose in one year, not when you are running $1.8 trillion annual deficits anyway.

The stock market and entrepreneurs are forward-thinking organisms. Sure, it has been a terrible economic time recently. However, every stock analyst and competent business person looks to evaluate future opportunities and weigh them against possible risk and profits. To do that, they utilize a discounted cash flow model for money they think will come in from a future investment, before taxes and depreciation, to determine what price makes sense to make an investment now.

If the corporate income tax were abolished, let’s say, today by Congress and the Obama Administration, the extra cash in the future could be retained by the company instead of going to the government in the form of taxes. The current net present value of that additional cash before depreciation (since there would be no corporate income tax to pay anymore under this proposal) would have an immediate impact on the stock values of virtually every stock traded on any market as well as the intrinsic value of all privately-held businesses. All of the additional cash retained by the company in the absence of corporate income taxes being paid would be discounted by the rate of inflation over the next five years to a much higher current value.

The main reason to abolish all corporate income taxes would be to ignite an investment and business expansion boom that should rival or exceed any in recent recorded history. Without the up to 38% corporate income tax in place, American businesses could take advantage of this opportunity to invest in new plant and equipment and hire new workers to be ready for the economic expansion that will occur once this recession is over.

The corporate income tax is just a double taxation mechanism that hits income once before it gets hit again at the personal income level when paid out in the form of dividends. That means in dividends paid to the mutual funds you own and any direct ownership in stocks that close to 60% of the American public now owns.

You are being short-changed by the corporate income tax; not the corporations themselves.

One odd example of how the corporate tax knife cuts through different classes of income was brought to mind this week when someone mentioned that a significant proportion of the funds now flowing to for-profit hospitals and doctor groups comes from the federal government in the form of Medicare and Medicaid reimbursement for services rendered.

So, let’s get this straight….there are billions of federal dollars that have already been taxed a couple of times through the food chain before being recycled through the Medicare and Medicaid health care financing system to for-profit hospitals and doctors who are serving our senior citizens and poor people, usually at a significant discount to the real value of their services. And then we tax those ‘profits’ (even though most hospitals take a loss on such services) of these for-profit health entities again at rates up to 38%.

No wonder the poor greenback is getting hammered on international exchanges! It is being laundered so many times through the US tax system that it is beginning to wilt like a piece of old lettuce.

Let’s just abolish the corporate income tax completely now when the revenue loss is minimal and release the free enterprise system, what is left of it anyways, back to doing what it should do best: evaluate risk and market opportunities, make investments, hire people, and make profits again.

All without the crushing hammer of pending corporate taxes in the equation. Let the free market once again decide what makes sense as new investments, not the tax code or any of the loopholes stuck in it to gain advantage for one industry over another.

[1] By Aaron Smith, staff writer, April 21, 2009

Tuesday, April 21, 2009

Who Was The ‘Greatest’ President in Terms of Being a Budget Hawk?

President Obama fumbled on his first budget possession when he failed to veto the earmark-laden ’continuing appropriations’ bill (stuff left over from the last session of Congress in 2008 because they did not want to vote on it right before an election). [1]

‘You never get a second chance to make a first impression’, the old saying goes, and the President unfortunately proved that it was ‘business as usual’ on Capitol Hill.

When it comes down to it, really, what can a U.S. President do when it comes to making decisions on spending and taxation policy? For a nation that rebelled against the unjust and capricious policies of a King in England over 233 years ago, the faith and reliance we put nowadays on a single person in the White House seems to be completely misplaced.

“The President proposes, the Congress disposes”, goes the old line in Washington. The Founders thought so little of giving any strong fiscal powers to the Executive that they reserved all powers to raise funds and make decisions on spending to the legislative branch or Congress. The Founders wanted the “Executive” to enact or execute all of their spending priorities. All spending and tax bills originate in House, with all tax legislation usually starting in the House Ways and Means Committee.

The President can propose a budget, which he is required to do by the Budget Act of 1974. However, this is more of a matter of convenience because up until that time, there really never had been any kind of an overall budget for the federal government. Congress just adopted myriad appropriations bills according to the whims of the leadership and the appropriations committee chairman which made him the most powerful member of the House and Senate. Congress is still under no obligation to pass any or all of any President’s budget…ever. Federal budgets are almost 99.9% exclusive territories of the U.S. Congress.

The historic budget debates you hear about each year in Congress actually focuses on maybe 10% or less of the federal budget, now totaling an astronomical $3.6 trillion and counting. The rest, 90% or so of the budget, goes through the process untouched year after year after year.

So where does the President have the most power in each year’s fiscal process? He has one, and only one, viable tool at his disposal: the presidential veto. And if he fails to use it with regularity, Congress will continue to roll through excessive spending in a variety of ways, all designed to make it even more confusing to the public to understand: budget reconciliation bills; continuing resolutions; authorization bills versus appropriations bills…the list seems endless.

Anyway, which President was the “greatest” in terms of being a friend of the taxpayer and holding down wasteful spending? It most definitely was not George W. Bush who used the veto an amazingly low 12 times in eight years, only once on any spending or appropriations matters.

Was it Ronald Reagan? Harry S (remember, the “S” didn’t stand for anything) Truman? Teddy Roosevelt? They were all tough-minded, bully-pulpit presidents.

For my money, the greatest modern president in terms of fiscal discipline was President Gerald R. Ford who ascended to the presidency the moment Richard Nixon resigned in August, 1974. President Ford had been the Republican Minority Leader in the House before being named Vice President to take over after Spiro Agnew resigned the office following revelations of a scandal.

That is an important fact to remember about President Ford, as you will soon see.

He used the veto pen 66 times over a 2.5 year period, mostly to curb wasteful spending bills that kept coming up during his term.

“Why?” he was asked one day. He replied something to the effect of: “You have to remember, I was in the US House for a long time and I know just how much junk is in those spending bills every year.”

For that, we should all raise a glass and toast President Ford on his birthday, July 14 (he was born Leslie Lynch King, Jr. believe it or not).

I would go one step further and say that a great president on fiscal issues would be the one who told Congress that he was going to use the veto pen until they could get to the magical number of 67 Senators and 290 House Members. Those are the numbers needed to override his veto on any bill. Not the 218 it takes on most bills in the House or the 60 needed in the Senate to invoke cloture or end debate….but an override majority needed on each spending bill that has been vetoed.

And then just sit at the Lincoln desk in the Oval Office and punch the veto button every time without even looking at the contents of the bill before him.


Sunday, April 19, 2009

There Is No Such Thing As A ‘Draconian’ Budget Cut in Washington!

There is absolutely nothing that makes me more crazed and reduced to tearing my hair out by the roots than to hear any politician on either side of the political spectrum scream about “draconian cuts” in national defense, Medicare, Medicaid, education funding, environmental protection or even ‘congressional earmarks’!

Do you know how many federal agencies have been completely eliminated over the past 30 years since President Ronald Reagan took office? Precisely ‘1’, and I am not sure anyone can even remember what it was since it was so tiny of an agency.

Only in Washington can the following sentence be considered as ‘true’ or mean anything to anyone so pay attention and listen carefully as you say it aloud with your own mouth:


When you experience a ‘budget cut’ in your household budget, you ‘cut back’ or reduce your spending on cable television, going out to eat or selling your new car and buying a used one. In short, you will spend less next month or year than what you spent last month or year on a comparative basis.

Simple, right? Spending cuts in the real world mean spending less next time period than in your most recent budgeting time period prior to this one, correct?

In any other part of the 800 billion galaxies in which we live, you would be correct. But not if you were a Member of the US House of Representatives, the US Senate, the President of the United States of America or any person who worked in Congress or any of the massive federal agencies spread around the country.

Only in Washington and the federal government can a ‘spending increase’ be considered a ‘draconian spending cut”. I know it sounds ludicrous, and it is, but bear with me and let me explain.

There is this ‘thing’ in Washington called ‘baseline budgeting’ and everything in a federal budget is scored against this baseline that usually runs 5-10 years into the future. It is what is assumed will happen to the federal budget if ‘nothing happens in successive Congresses to change the baseline assumptions of growth in the program'.

In many cases, it would be preferable to just put the federal budget on auto-pilot, give Congress a 5-10 year recess and see what happens. It is only when Congress is in session that we wind up spending more money…on everything. I’d bet we’d save money in the long-run if we operated on a ‘continuing resolution’ basis. (more in a later post)

A colorful former Speaker of the House, Joseph Cannon of Illinois, supposedly once made a famous statement that ‘the best Congress is one that does absolutely nothing!’ Given events of recent years, he might have been correct.

But getting back to baseline budgeting, anytime you hear a politician squealing about a “draconian cut here’ or a ‘draconian cut there’, the only melody that should be ringing in your head as your process their tantrums is this: “That program is going to have more spent on it next year than this year!”

That is right and that is the truth. When politicians in Washington squeal about their favorite program being ‘cut mercilessly’, it means that it will be‘reduced from what it would have otherwise grown to, given inflation and other expectations’ scored by the Congressional Budget Office (CBO).

I know it sounds crazy and you wish your boss would look at your budget and salary the same way, or you could run your household budget in the same la-la land manner. But that is the way politicians have crafted the language and mores of Washington to suit their political needs. Like getting re-elected every other year in the House or every 6 years in the Senate. That is what it comes down to in most cases, unfortunately.

So think about this seriously the next time you hear your elected leader bemoan the fact that their favorite program, or yours, is being sliced and diced to death like in some Ronco Veg-a-Matic.

It is simply not the truth.

Friday, April 17, 2009

Raise the Medicare Eligibility Age Right Now

Here is something Congress could do today, tomorrow or certainly as fast as they spent $1 trillion on various bailouts and stimulus packages over the past 6 months.

And it would save billions, if not trillions, of taxpayer dollars your children and grandchildren will not have to send to Washington over the next 50 years:

Equalize the eligibility age for Medicare with Social Security immediately at age 66 and then gradually raise the eligibility age by 2 months per year until it reaches age 70 by the year 2033.

The age increase might have to be more rapid, like 1 month per year, depending on the severity of this current economic crisis. The damage it has done might significantly impair our ability to reach balanced budgets and surpluses anytime soon in the near future to start to pay down the national debt again (as we did from 1998-2001). Every year we wait to do this is just another year that compounds the problem for our children and grandchildren.

The only people immediately affected by this change are the aging Baby Boomers who have not started retiring in massive numbers yet. Consider this one of our enduring ‘sacrifices’ for the good of the nation.

If you have been following this blog since inception, you would have already learned that the eligibility age to receive full Social Security benefits is now 66, not 65 as is commonly assumed. You also know that you can take early Social Security benefits at age 62, at a far lower rate, of course, but which is an age that needs to be escalated as well.

But Medicare has withstood any tinkering with its age eligibility and stayed at age 65, mostly due to the overpowering influence of the AARP and its mighty grip on the hearts and minds of over 39 million seniors who vote in every single election, primary and general, presidential and off-year congressional, it seems.

So you got to hand it to the AARP and the senior citizen coalition; they have played by the rules and won…and won big in terms of getting what they want out of Congress year after year.

But they have won by such huge margins that there will be literally nothing left in the current tax revenue cupboard to pay for the other programs we all want and need in about 15 years. Like National Defense.

Homeland Security. Environmental Protection. Space Travel. If the AARP has its way, every single dollar we need for those ‘discretionary’ programs will have to be borrowed from our children after 2024 or thereabouts. [1]

If you don’t think voting in every election makes a huge difference, look no further than the fact that close to 50% of the federal budget is soon going to be dedicated to two programs: Social Security and Medicare.

You won’t ever see 50% of the budget being dedicated to children’s issues, high school, education for college students or even assistance for young adults with families. Why? Because in the first case, children are not eligible to vote and in the last 3 cases, they are too lazy, misinformed or “too busy” to vote…working on Facebook, presumably or playing video games, I guess.

The federal budget is almost a perfect reflection of ‘who votes and who don’t’, or won’t, vote on a regular basis. And if you are not registered to vote and don’t vote in every election, you shouldn’t even be reading blogs like Telemachus because, quite frankly, in the eyes of your congressional representative and 2 U.S. Senators, you ‘just don’t count’.

I can’t tell you how many times someone called our congressional or senate office totally irate about some issue and when I asked them: “Are you registered to vote?”, they answered no. All I could tell them was: “Call us back when you are registered and then we’ll listen” and then hang up on them, politely, of course.

The magnitude of the savings that would accrue from raising the eligibility age for Medicare are simply enormous, because the rate of growth in spending for Medicare is about 5 times the annual growth rate in Social Security due to spiraling health care costs. There are no current budget estimates for immediately raising the Medicare age to 70 but consider this: by the year 2050, if the Medicare age has been raised to age 70 somewhere along the way, the savings to the federal budget would be 0.9% of GDP. That doesn’t sound like a lot until you consider that the GDP in 2050 might be between $35-$40 trillion; the national GDP is around $14 trillion today, even with this enormous recession.

That translates into close to a $400 BILLION savings in one year alone for the U.S. federal budget. For one single federal entitlement program for senior citizens. Not counting any other programs such as Social Security.

Multiply graduated savings like that per year from 2009 until then and you have a mess of savings on your hands. All money that will not have to be paid by your over-worked and over-taxed children and grandchildren for year after year after year.

And since you have probably already decided to work a couple of extra years any way due to the current economic crisis and the dent (fracture?) it has put in your retirement portfolio, you might as well stay on a company or individual plan for as long as you can afford it and go on Medicare a couple of years later than originally planned. We can not go on the current path that was laid down in 1965 with the passage of Medicare and never change the program’s structure.

[1] The AARP has succeeded in even insulating their programs from the routine annual review process by Congress by calling their programs “mandatory entitlement programs” as if they can never be changed by Congress. Every program in the federal budget should be included in the ‘on-budget’ budget and open to annual review by every successive Congress, as the Founders intended. Congress supposedly can not be ‘bound by the decisions of previous Congresses’ and removing the mandatory moniker from entitlement programs would be a step in the right direction.

Tuesday, April 14, 2009

The Entitlement ‘Ghost-Dance’

In 1890, after years of starvation and mistreatment by the American government, the Lakota Sioux under Chief Sitting Bull adopted the mystical practice of the “Ghost-Dance”. The Ghost-Dance involved dancing in circles, sometimes at such a feverish pace that they passed out from exhaustion. Such extraordinary exertions on the part of the Indian tribes were intended to somehow produce peace with the white settlers around them and protect them from the white man’s bullets.

It did neither.

Some accounts of history report that participants in the ‘Ghost-Dance’ really believed that if they danced hard enough, fast enough and long enough, they would become ‘invisible’ to the white man and could then live on their land in peace for years to come.

We have accepted the same type of delusion in 21st century America. We feel that if ‘we talk about the long-term viability of Social Security long enough’, ‘shore up Medicare with high enough taxes’ and ‘raise the states’ participation to pay for Medicaid services’, we will make the financial shortfalls in all three of these massive entitlement programs ‘just disappear’ into thin air. Just like the Lakota Sioux believed they could enact peaceful relations with the white man through some sort of spontaneous combustion.

We will be proven as wrong as they were before they were massacred at Wounded Knee.

How can any rational, sane person in their right mind not look at the mind-boggling numbers staring us right in the face on these three programs and not demand that reforms be made right now to protect us all as a nation?

Social Security is supposedly the “safest” of all of the entitlement programs due to the over-taxation of the payroll tax rates enacted in the 1983 reforms mentioned in a previous posting. [1] Prior to the most recent Trustees Report issued on March 30, the lines were expected to start to cross in about 2017 between income coming in and payments going out in benefits to current senior citizen beneficiaries. However, those lines might cross next year in 2010 and things start to really tumble downhill after that for Social Security. [2]

The cost of Medicare HI (Hospital Insurance) Part A is expected to exceed incoming payroll taxes by 2013, 4 years from now. Medicare Part B is already darn near broke in an actuarial sense according to the Trustees Report for Social Security and Medicare. Passing the Medicare Part D prescription drug package in 2003 was an attempt by the Bush Administration to curry favor with the nation’s senior citizens for the GOP. [3] That political maneuver and dream failed to carry through even to the 2008 election for Republican candidates across the board. Oh, and it also added approximately $11 trillion in unfunded net present value liabilities for our kids and grandkids. Don’t worry about it if you don’t understand net present value: $11 trillion is a very huge number and burden on future generations.

So the next time you see or hear any politician or government official opine that “all is well” with Social Security and Medicare, think about the Lakota Sioux doing their Ghost-Dance over 100 years ago. They did not survive their delusional thoughts and neither will the U.S. unless we, the public, act now to put pressure on our brave elected leaders (is that an oxymoron?) to make the tough structural changes to these programs we need today.

[1] see March 27,

[2] See March 30, 2008, "Recession Puts a Major Strain On Social Security Trust Fund; As Payroll Tax Revenue Falls, So Does Surplus" By Lori Montgomery,Washington Post Staff Writer;

[3] Seniors vote almost 90% of the time in every election, presidential, off-year and off-off year, primary and general…boomers and Millennial do not; hence the seniors “win” in the federal budget vis-à-vis every other aged cohort. SS and Medicare now account for close to 50% of our $3.6 trillion budget. The percentage is bounding up quickly so that by 2024, 100% of all available tax income revenue coming into Washington will be consumed by all entitlement programs when Social Security and Medicare are coupled with Medicaid and Net Interest on the national debt.

Sunday, April 12, 2009

“Burn Your (AARP) Draft Card!”

Boomers: remember the good old days?

When “we” were the ‘chosen ones’ who were going to ‘save the world’, ‘save the planet’, ‘save the whales’, ‘burn your bra’ and ‘burn your draft card’?

So how are we doing on each of those scores nowadays?

We still have a little time left on Planet Earth to make a difference since 60 is the ‘new 30’, or whatever the time notion is nowadays so let’s do something that will really help change things politically forever. Let’s:

“Burn Our AARP Card!”

I just got mine a couple of months ago and immediately tore it up and flushed it down the toilet. Along with it went all of my ‘benefits’ such as discounts on movie tickets, group life insurance, health insurance and discounts on travel such as in hotels and in restaurants.

Count that as part of my ‘sacrifice’ for the Millennial Generation to follow.

I actually believe in my heart of hearts that the American Association of Retired People (AARP) started with the right intent and sense of purpose. Started in 1958, the AARP was formed to help senior retired people find affordable health insurance. (does that issue ever go away?) It then morphed into being an “advocate’ for seniors in Washington to make sure that their interests were being heard and heeded by elected officials. Many seniors needed their advocacy efforts and many still do.

But as well-intentioned as those initial efforts were, if you put a gun to my head and asked me: “What is the one main reason why we have not been able to balance the budget over all these years?”, I would have to answer honestly with one hand on a stack of Bibles and say: “The AARP”.

“What?”, you might say. “It is not the incompetence, cowardice or complicity of Congress or the lack of true leadership from the White House?”

Oh, it is all of those things combined and magnified to the nth degree; that is a given. The AARP would not be the main culprit if they were simply a nice public advocacy group that strictly adhered to its motto, "To serve, not to be served." We are dedicated to service and committed to making the world a better place, not just for ourselves, but for future generations. [1]

If the AARP were dedicated truly to the words written in their own slogan, they would not be part of the echo chamber perpetuating the myth about the Social Security Trust Fund. They claim the ‘Trust Fund’ will keep the current Social Security program liquid until around 2045. What they don’t tell their members or admit to Members of Congress is that they know the Trust Fund is empty, just as many serious budgeteers have been saying for the past 30 years.

THERE IS NO “TRUST FUND” OR ‘LOCKBOX’ OR ANYTHING LIKE THAT IN THE SOCIAL SECURITY SYSTEM! Never has been, never will be. (more in a future posting)

Surplus payroll taxes paid for OASDI or Social Security tax reasons have been used for other federal programs since 1983. [2] Instead of having cash on hand in a drawer earning interest just waiting for you to retire at age 66, the SS Administration only has a bucket full of IOUs in it waiting to be paid for by your children and grandchildren. The only ‘trust’ in “Trust Fund” is that we ‘trust’ that our kids will pay for all of the benefits we consume in our lifetimes.

“And that’s all I have to say about that!” as Forrest Gump would say.

In 2017, 8 short years from today, those IOUs are going to have to start being redeemed. The only two ways to pay for those redemptions are a) cut federal programs overall to free up funds to pay for them or b) raise taxes on younger, working stiffs – the “real people” doing the serving in this case. Some economists have calculated that payroll taxes might have to increase by up to 45% to pay these IOUs. If real spending cuts are the way the Congress decides to go, we’d need to get rid of close to 30% of all education, road-building and defense programs as a start.

At a minimum, AARP can “serve” our nation by being honest with their membership and the public at large.

Admit that the current Social Security program, compounded by Medicare, is not sustainable and then join in finding real solutions without tearing the heads off of anyone who offers reasonable dissent to their dictates.

The lie here is that they do not give one whit what happens to future generations. If they did, the AARP would have allowed some reasonable compromises already on entitlement reform. Any time any congressperson, senator or President even breathes the words “Social Security reform”, ‘Medicare reform’ or “entitlement reform’, the mighty public relations blitzkrieg of the AARP arsenal goes into the heretic’s state or district and pounds them to death for even daring to bring the subject up.

‘Entitlement Reform’ is the third-rail of American politics that kills by electoral shock. The long-range missiles and mortar shells hurled by the nice folks at AARP, under the guise of a being a ‘sweet little ole non-profit charity protecting the interests of all little old ladies and men’, routinely destroy the careers of serious, but in their minds, truculent politicians who dare to point out that the ‘Emperor Has No Clothes’.

The AARP is a massive money-making operation that hides underneath the guise of being a non-profit charity yet it ‘profits’ from being one of the largest insurance, travel and product marketing organizations in the country. They have used these resources to block any meaningful reform in our entitlement programs for decades.

So let’s all “Burn Our AARP Card!” Every time you use your AARP card or send them membership dues, you are driving another nail in the already debt-ridden coffins we are creating for our kids.

Don’t do it anymore.

[1] Taken directly from the AARP website

[2] see for more
information on the 1983 SS Reform Act

Wednesday, April 8, 2009

Stop the Debt: How You Can Make a BIG Difference in Congress ….NOW!

Several readers have asked what can be done by them as an average citizen, today, that will make any sort of a difference when it comes to changing the direction Congress and the White House is taking us as a nation.

That is a very good question and one that has been asked and answered many times in our history over issues that have divided us, such as slavery, woman’s suffrage, civil rights and states rights.

Big things always start with a small number of committed, idealistic people who want to “do the right thing for the country”.

The issue we have to fix right now is the crushing amount of debt we are piling on to our children and grandchildren’s heads. It is no laughing matter. Nations, republics and empires have succumbed to the pressures of debt over recorded time, perhaps even more so than the numbers which have succumbed to invading forces and conquerors.

The internet/telecommunications technology of today is perfectly suited to conduct a massive political action/outreach program. Information can be transmitted instantly around the nation via email, internet, blogs, text message, IM, Twitter, Facebook and God only knows what other means of communications younger people of today have already mastered and have up their sleeves.

You may have seen the grassroots campaign building through the internet to send a tea bag to Washington on April 15 to protest the higher taxes that have been proposed by the Obama Administration.

I hope it works….it has great “eye appeal” and symbolism with the Boston Tea Party of 1773.

But after serving on Capitol Hill for close to 12 years and being around Washington for 22 years in total, I know that there is nothing more terrifying to any elected official and their staff in the House or the Senate than to be swamped by letters or emails suddenly on an unexpected issue in numbers way above the ordinary volume. They take notice and say to themselves: “Something unusual is going on ‘out there’ in the real-world and I’d better pay attention to it or else I might not be here after the next election!”

And when the American public gets their elected officials knocked back on their heels like that, they respond and they respond very quickly.

Here is something that you can do right now that might have the same impact as the “tea party” campaign but with more of a punch to the solar plexus and a baseball bat-to-the-head kind of impact on your elected leaders:

  1. Click on the US House and US Senate links to the right of this column and find your elected Senators and Congressional Representative.
  2. Type in your contact information in the appropriate form.
  3. Type in this very simple but powerful message that even the dimmest bulb in Congress will understand and appreciate, as soon as a critical mass of registered voters say the same thing:

“I will not vote for you in the next election unless you have voted to stop increasing the national debt on me and my children and grandchildren.”

And then forward this to all your friends and tell them to do the same thing. (you can use the "Email to a Friend" feature at the end of this article below)

Let’s aim to get 100,000 emails per congressional office and 1 million per US Senate office. That oughta just about do the trick.

This message is a pretty blunt instrument to use but it captures everything everyone is upset about right now: the lack of fiscal responsibility, forbearance of responsible oversight; lack of contingency planning and outright ignorance, or worse, deliberate neglect of pending problems that escalated way out of control.

Will this idea change things overnight? Nope. It won’t change things if only 10 or 100 people per
congressional district do it. But when the numbers start reaching 10,000 or 25,000 or 100,000 per district and, let’s say, 1 million emails per US Senate office, you will start to see and hear your elected leaders start to say and do things differently.

And that is what we all want, right?

After all, they are all the ‘geniuses’ who wanted those jobs in the first place and convinced 50%+1 of the registered voters in each race that they were “up to the job” and “could solve all of our problems”.

So just ‘tell them’ you want them to solve the national debt crisis and leave it up to them to figure out how best to do it. That is why we sent them to Washington, isn’t it?

I don’t need to know who you send it to. I’ll be able to see the results for myself in about a month if everyone forwards this message in the most important cyber-petition you will ever participate in.

Tuesday, April 7, 2009

What Do You Think is More Important… ‘American Idol’ or the Future of the United States?

America has decided....(uncomfortable pause).... and it is ‘American Idol’…by a landslide!

We live in a ‘democratic republic’, always have and hopefully, always will.

But this past week, over 35 million ‘votes’ were cast by text message for their candidate to survive the next round of “American Idol”. Millions were crushed when Megan Joy was voted off the show. And millions more were thrilled beyond belief that Anoop Desai of Chapel Hill made it through to the next round.

You know how many people probably contacted the U.S. Congress on Thursday, April 2, 2009, all day long, in 100 US Senate offices and 438 Congressional offices combined, including DC, and the protectorates of Puerto Rico and Guam?

Which happened to be, by the way, the same day that the US House of Representatives passed a historically huge $3.6 trillion budget with a $1.2 trillion (with a capital ‘T’) budget deficit for FY2010 that starts September 1.

Probably less than a million by email, and maybe another million or so by fax or snail mail. (Don’t ever send a mailed letter to Congress anymore; they all get sent to Cleveland, Ohio where they get scanned and probed for anthrax threats, get torn up or destroyed…and then reach the Washington office you aimed it at about a month later than you thought it would get there)

36 million ‘votes’ on AI; less than 2 million on issues like the budget, Social Security, global warming, the War in Iraq and nuclear disarmament all combined.

Who says democracy ain’t great? We freedom-loving, independence worshipers have decided that entertainment is more important than having a free-market, capitalism-based democracy.

We have a government run by representatives (republic) elected by the people (democracy). ‘Democracy’ means, in a Greek sense: power (‘kratos’) of the people (‘demos’). The word, ‘Republic’ means, in a Roman sense: property (‘res’ in Latin can mean "thing;" but also property, affair, inheritance or circumstance. Cicero defines it as property in his De Re Publica (On the Republic)). Democracy literally
means “people rule” in the Greek and the Romans used “Res Publica”, to covey the sense of the “public thing”.[1]

Whatever the word derivation is, there is no guarantee that it will last forever either. In fact, democratic republics are among the most fragile of all government entities. We are not “entitled” to be free and prosperous just because we say so. Freedom under democratic republic governance takes a lot of work and personal sacrifice to keep it that way.

That is why Benjamin Franklin answered Mrs. Powel at the end of the Constitutional Convention in 1787 when she asked: “Well, Dr. Franklin, what do we have?” by saying: “A Republic, if you can keep it”.

He was talking to us, not just Mrs. Powel.

In America today, we are almost perfectly situated to execute a true democratic republic more than ever before in recorded human history due to all of the technology and information we have at our disposal through the internet and other gadgets we all have.

Try it today…it is very easy. Click on the “US Senate” or “US House” buttons on the right side of this column, find your 2 Senators and 1 Member of Congress (you do know who they are…don’t you?), click on their website and then their “Contact XYZ” button and you are in their system. Tell them you hate/love the Obama budget; the stimulus plan; the banking bailout plan but for God’s sake, and your kids, do something..right now!

We consciously choose not to contact our elected representatives and senators in Washington on daily basis on the big issues that are killing us as a nation. But we deliberately choose to repeatedly pay ATT 10 cents for every call to make sure our favorite ‘American Idol’ singer makes it all the way to stardom.

I hope whoever wins ‘American Idol’ this year can sing, dance, play the piano AND balance the federal budget. No one in Washington seems to want to do that last song-and-dance routine anymore.

[1] Nod of the head to Classics/Latin Scholar Tristram Thomas of the University of North Carolina at Chapel Hill for setting me straight on the word derivations and history of Greek and Roman government

Monday, April 6, 2009

Pay for Performance

The AIG bonuses may have united the country in ways not conceived just weeks ago. Everyone thinks it absurd that people who contributed mightily to creations of the global financial meltdown are now getting retention bonuses to entice them to stay and clean up the mess.

But what to do about the bonuses is another question. The US House of Representatives in its infinite wisdom has rushed to judgment and adopted a 90% tax on the bonuses. And at the same time, they have established indirectly, and in an understated manner, a standard that says there should be a relationship between performance and pay. Strikes me that the Congress has crawled out on a very tenuous limb.

Let’s see now. Over the past several years Congress has:

  1. Adopted budget after budget that relied on deficit-spending to try to buy guns and butter simultaneously
  2. Refused, under both party’s leadership, to rein in Fannie Mae and Freddie Mac and in fact, even prodded them to expand the nonsensical home loans that created the current economic problem;
  3. Refused to seriously confront the gigantic problems inherent in the Social Security and Medicare
  4. programs that will soon dwarf the little mind-boggling problem now before us;
  5. Elevated tilting at windmills to a new high art by simultaneously calling for energy independence knowing such a status is not attainable.
  6. Especially if, at the same time you are refusing to facilitate the development of new nuclear generating capacity, environmentally sound exploitation of Alaskan oil, expansion of natural gas import facilities and the like
  7. Constantly undermined the one education reform that has produced meaningful improvement in the educational attainment level of millions of children so as to protect their education lobby friends
  8. Done nothing to put an end to the partisan bickering and get serious about developing strategies for resolving our national problems using sound factual analysis and decision- making, not populistic-sounding rhetoric.

In light of congressional performance and in the model established by the House for the AIG bonus recipients, it seems like it is time to either tax away the salaries of Congressmen and Congresswomen or cut them back to a level more in keeping with what real people are paid in this country.

That recommendation is only half-tongue–in-cheek. Seriously, can you think of anything worse than Congress setting, directly or indirectly, the salaries or bonuses of private-sector employees? Right now, the AIG crowd is a popular target; what about those overpaid lawyers who might be next, or the fat-cat doctors, the Hollywood movie and music makers, or maybe the Silicon Valley boys and girls who’ve made a killing inventing such stuff as cell phones and advanced medical tools? Do they really deserve six or seven or 10-figure incomes?

Oddly, those people, including the AIG culprits, are paid for performance. The Congress is not. They get their pay regardless of how well the country is doing. Maybe it is time to revisit the implementation of pay-for-performance in both the public and private sectors. Let’s give Members of Congress a bonus when the federal budget is balanced and when the debt is going down, not up.


Saturday, April 4, 2009

“Divided We Stand, United We Fall!”

Can we get a 'do-over'?

Remember how in your youth there always seemed to be one person in a game who wanted a “second chance”, a “do-over”, or in golfing parlance, a "mulligan” to make things right?

If you don’t recall who that annoying person was, chances are it probably was you.

It was usually after something ‘disastrous’ had happened like missing a short putt on the golf course or making an “F” on a test…..there was just something that seemed so fair and American to ask for a second chance.

Can we do that with the election of 2008?

And no, this request is not because of the policies of the Obama Administration or the Democratic-controlled Congress in and of themselves.

The reason why this was ‘disastrous” is because we do much, much better as a nation with ‘divided’ government than we do with monolithic control of Washington. Divided government means no one party controls the White House and both Houses of Congress by substantial margins.

We have already proven the axiom of Lord Acton as true several times over: “Power corrupts and absolute power corrupts absolutely”. From 2001 to 2006, Republicans held the 3 keys to the kingdom of American politics for much of the time; President Bush in the White House and significant but not total domination of both the House and the Senate. During the Carter Administration years from 1977-1981, even though the Democrats controlled everything in DC, those years might have been as close to being as dysfunctional as this latest period has seemed to be. The first two Clinton years from 1993-94 were so terrible that it ushered in the first Republican-controlled Congress since the election of 1952.

Patrick Henry used the issue of unity in his last public speech on the Kentucky and Virginia Resolutions in 1799. His original spin of the phrase, “United we stand, divided we fall”, is derived from the biblical passage Matthew 12:25 and served a rallying point for the new young Republic; it was only 12 years old at that time. It was a theme Abraham Lincoln ran with in his 1858 “house divided” speech in a failed Senate campaign against Stephen Douglas of Illinois.

But I can’t for the life of me find a time in our lifetimes when total control of the federal government by one party of the other actually worked well for the nation.

The best Divided Government combinations I can think of are the Reagan years from 1981 to about 1986 before his administration began to stumble over the Iran-contra scandal and the Clinton years from 1995-2001. Reagan had the support of a Republican-controlled Senate a couple of times during his presidency but never the House. After the ill-fated “Hillary Health Care, Part I” was crushed in 1994, Bill Clinton was forced to work with (fight?) new big R majorities in both the House and Senate.

Hillary Health Care Part II, “The Sequel” is coming to a movie theatre near you this summer so get your check books out.

But the truly amazing thing about divided government is that it works. Idealists on both sides stake out positions but then the pragmatists in the middle on both sides compromise and work together to get things done. Our nation was founded on the principles of freedom and liberty but the mortar that built the walls of our republic consisted of compromise and negotiation.

We have lost that sense of “compromise is a good thing” ideal that our forefathers cherished.

In 1993, a pack of 15 'idiotic' Republican Members of Congress and their staffs on the House Budget Committee, still then deep in the minority, put forth a budget spending package that consisted of $500 billion of spending reductions (from the ‘baseline’ projections…more on that later) over only a 5-year period (now it is typically a ten-year window you read about). It didn’t pass that year, or the next or the next or even the next.

But when Erskine Bowles became chief of staff in the Clinton White House, magical things started to happen: Trust was developed and nurtured; bills were introduced in bi-partisan ways and the crème-de-la-crème for budget aficionados, at least, came when the Balanced Budget Act of 1997 was passed and signed into law. Three years of budget surpluses ensued, $800 billion of debt was retired and paid off and the national debt at the end of the Clinton regime in 2001 was only $3.2 trillion.

Doesn’t that sound nice, safe and comforting nowadays?

Our chance for an electoral ‘do-over” comes in about 19 months so get ready for it. Hopefully, it won’t be too late to make a difference.