Thursday, July 30, 2009

The ‘Promise’ of Medicare, 1965

Here is the problem with the current proposed health care reform plan now being considered by Congress:

The costs will eventually skyrocket even further and the revenues ‘promised’ to pay for it will fall at least 50% short of projections.

That is just the nature of the beast when it comes to analyzing health care bills over the past 40 years in America. The General Accounting Office (GAO) issued a report in 1975 bemoaning the fact that Medicare costs had tripled…from its inception in 1966!

Without significant structural reform such as raising the age eligibility, allowing participation according to income-need only, and addressing such critical issues as tort reform, this current health reform bill will do just exactly what Medicare did when it was passed in 1965…expand exponentially.

(Odd, isn’t it, that no one has even brought up the cost drivers from defensive medicine caused by the lack of tort reform, from President Obama all the way down? 77% of Congress are trial lawyers or have a degree or background in the legal profession…perhaps the second oldest profession on earth behind another that will remain unnamed. President Obama is a lawyer himself)

Did you know that the original charter for Medicare specifically limited the federal taxpayer exposure cost to just 50% of the entire cost of Medicare? 50% of annual costs were going to be borne by Medicare enrollees through monthly premiums. (1)

Do you know what the ratio is today? The Medicare enrollee pays 1/4 of the cost of the Medicare program; the taxpayer (and future generations who ‘loan’ us their money to pay for current consumption) pays the other ¾’s of the cost per year.

Try to imagine what this ‘public option’ will ultimately cost if the whole plan is estimated to cost ‘only’ $1 trillion. We are betting $3 trillion, minimum by 2019 if past history is any guide.

And it is pretty well proven that, try as they might, projections for raising revenue fall far short of their goals, hopes and dreams. President Hoover fell 96% short in his 1930 failed effort to balance the budget which contributed to the further demise of the economy at that time. In 1995, Clinton’s own OMB Director said that their tax increases were not going to lead to balanced budget since they projected annual deficits of over $200 billion for as far as the eye could see….it was only the explosion in the internet economy that generated the capital gains tax revenues and taxes gained from higher employment that helped reach budget balance in 1998-2000.

So we (somewhat) confidently predict that less than 50% of the proposed tax revenues on the wealthy will ever be collected and deposited in the US Treasury to pay for this monstrous increase in spending.

And wait until the auto companies, and then the steel companies and then everyone and their brother and sister in the corporate world start dumping their employees in the ‘public option’. That is the end game here for everyone in Detroit…get the taxpayers to pay for the health care costs of their employees, past, present and future. They have already admitted as much in the past.

Don’t come crying to Telemachus in a couple of years so we can say: “We told you so in the summer of 2009! Were you not paying attention?”

The point here is not to bury Caesar, nor to praise him. Medicare, and its supportive uncle, Social Security, have done wonders to pull millions and millions of our parents and grandparents out of poverty, and for that, it has been a public policy success.

But isn’t it time to admit that both programs have succeeded in setting a floor beneath which people will not be allowed to fall back through into poverty and use them to help the people who really need the assistance due to financial or health circumstances? There is no need any longer to include every wealthy, or even partially wealthy or higher-income American in both programs in order to insure universal support for both of them. Bill Gates and Warren Buffett do not need to be ‘entitled’ to both programs in order to support them.

In fact, we at Telemachus submit that the American people are generous enough and magnanimous in charitable giving enough to support these programs if they thought that every penny was going to help lower-income people across-the-board who can not afford to do it otherwise.

A structural change in both Social Security and Medicare that establishes eligibility based on income and family household wealth would send such a shock downward on the CBO budget projections computers we are afraid they would all crash in a heap in Washington, DC.

And the Republic will have been saved after all.

Isn’t that worth it?

(1) The personal share of the premium for the Medicare enrollee was $6.70...per month in 1975.

Tuesday, July 28, 2009

Did Raising Taxes Under Clinton Really 'Work' As Claimed?

What happened the last time we raised tax rates under President Clinton?

I mean, really, did higher tax rates on the wealthy really balance the budget, bring peace to Northern Ireland, and cure cancer as the tax apologia crowd really believes?

We bring this up now because the Obama Administration (which has a ton of ex-Clinton Administration people on board) has been ‘promising’ that we can pay for at least half of his monstrous expansion of health care bill just by asking the really rich people in Hollywood and the NFL to pretty please pay much higher taxes because that is what they are asking them to do.

We don’t mind politicians having the guts to propose higher taxes if that is what they choose to do. We prefer seeing proposals from people who like to raise taxes put on the table for all to see. That is an option far greater than continuing to default to adding infinite amounts of debt for our kids to pay back. Issuing more debt is for cowards in our book.

But will it make any difference? At all?

The truth of the matter is that raising taxes really didn’t do much out of the ordinary when President Clinton and Congress did it in 1993. Had it not been for some extraordinary things that happened in the late ‘90s, plus the Republican Congress holding down the overall rate of growth in spending to below 2% annually, we would not have had even the puny 3 years of budget surplus we did enjoy…briefly, for one shining moment in history, perhaps the last in our lifetimes. Think about that for a moment and let that sink in.

We have seen that no tax on the ‘wealthy’ stays solely on the wealthy…just take a look at the AMT the next time you are filing your tax returns to see what we are talking about. (see AMT)

Bill Clinton and a Democratic Congress rammed through the last tax increase in 1993 with nary a Republican vote on either side of Congress. (Seen this show before? We believe ‘Divided Government' works best)

Did these higher tax rates on the wealthy generate a ton of new revenue in and of themselves in the decade that followed?

No. Really. In fact, we submit that the collection of ‘income’ taxes actually dropped as a percentage of GDP which implies that there was something else going on back then.

Here’s the truth about the vaunted Clinton tax hikes from 1993:

1) Tax collections were swollen by between $50 billion to $150 billion per year from the so-called Social Security surplus tax payments raised in 1983. Check.

2) Capital gains tax payments were abnormally enormous and unexpected due to the explosion in stock options that were exercised during the internet boom, almost $100 billion extra during a couple of years than anticipated in the late 1990’s. Check.

3) As more people earned more money in an expanding economy in the 90’s, they were pushed into higher tax brackets which expanded the number of high-income taxpayers. ‘Bracket Creep’…Check.

4) More and more middle-income people were lopped off the bottom of the taxpaying rolls by more policies eliminating them from income taxation. Check.

The truth of the matter is that when you back out the ever-increasing Social Security surplus payments each year, and deduct the huge extra capital gains taxes that was paid in the later years of the ‘90s, and account for the fact that more and more people were relieved from having to pay any income tax at all during the ‘90s, the average rate of income tax collection for the Clinton years was just below the 18.6% of GDP that has been the average standard since 1970.

Nothing more, nothing less.

And there is absolutely no hope of ever duplicating those unusual economic circumstances now as the Obama Administration tries to ram through this health care bill and tax increase with dominant Democrat majorities in both Houses of Congress. By the way, you should realize that if you are making over $108,000 in AGI, you are in the top 10% of taxpayers in the country; over $153,000 in AGI, the top 5%. Over $380,000 in AGI (2006 figures) and you are in the top 1% category along with Bill Gates and Warren Buffet so be prepared to pay more to Washington.

Or at least be asked to…before you call your tax accountant and lawyer.

Raising taxes didn’t work then and it won’t work now. We are not going to have another explosion of capital gains payments anytime soon, ya think? And the Social Security surplus is starting to dwindle in magnitude as we speak so we can’t count on that smokescreen to continue to cover our relentless spending patterns.

Don’t let the politicians distract you from the real problem facing us square in the face: federal over-spending, especially in the growing federal health entitlement areas.

Saturday, July 25, 2009

There Are Not Enough Rich People to Pay For Everything!

Proponents of higher taxation to “pay” for universal health care, for just one example, want rich people to do it all and then pompously pronounce: "But we are only raising taxes on the wealthy and very rich people. They need to pay their fair share!”

They are already paying way more than their ‘fair share’! The top 1%, or roughly 1.4 million Americans, are paying over 42% of the income taxes that come into the US Treasury each year as it is today! If we put all of them in one concentrated area, like West Palm Beach, they might fill up 2 U.S. congressional districts out the 435 we already have. 2 of them!

Do we really want them to pay 100% of the roughly $1.4 trillion income tax bill each year? (please don’t say ‘Yes!'... see Tax)

On top of that ‘inconvenient truth’ (with apologies to Al Gore), these wealthy people are the ones who typically have the talent, education and skill that it takes to start or run a business that keeps the rest of us employed! Did you ever think about that? Not everyone has the ability or guts to start or run a business; some are better at that than the rest of us.

So the next time you see the president or owner of your place of employment, go up to him or her, give them a hug or a handshake and tell them this: “I really appreciate the fact that you have the courage and foresight to start/run this business. And if you took a second mortgage against your home, borrowed from your friends/family/credit cards or put all of your personal wealth at risk to start or keep this business going during the dark days, then I wish you all the best. You deserve some sort of Congressional Medal of Honor….For Keeping Me Employed!”

Don’t ever believe that a tax ‘only’ on the wealthy ever stays ‘only’ on the wealthy. Have you had any experience with the lovely AMT, or the Alternative Minimum Tax? That lovely bit of handiwork started out as an effort in 1969 to make (now pay very close attention to this), 155 households pay income taxes since all of their legal deductions previously drove their tax liability down to zero. 155 families filing either jointly or separately.

By 2008, 4.2 million Americans paid the AMT. And unless Congress indexes the AMT thresholds every year for inflation, another 20+ million American families will automatically fall victim to the Venus-Fly Trap tax of the AMT.

Notwithstanding the ‘bracket creep’ of the AMT, wealthy people can afford to hire the best tax and accounting firms in the universe to help limit their tax exposure through legitimate means. They can invest in tax-free municipal bonds, for one thing, except who in their right minds would invest in California bonds nowadays?

The projection for getting revenue from wealthy people in the Obama health plan is over $500 billion. If Warren Buffett and Bill Gates and all the other super-wealthy people willingly pay that amount without question, it will be the first time in history that anyone has given that much money to a governing authority that was not a King or a Caesar without a fight.

President Herbert Hoover thought he was getting $1.1 billion for his tax hike on the wealthy in 1932. He got only $43 million…96% less than official government projections.

If you are worried that too much “extreme wealth” stays in the family from generation to generation, rest assured that most of it gets squandered by the indolent scions of wealthy people through the second generation and most assuredly, by the end of the third generation. Less than 2% of all the families who build up huge reserves of wealth keep it past the third generation, or the grandchildren, of a wildly successful entrepreneur or businessperson.

These wealthy families seem to be doing a pretty good job of ‘redistributing’ their own wealth all by themselves through poor decisions, investments and partying around the globe. They don’t need the heavy hand of government to tax solely the 'profits' of their wealth away; they are giving away the whole kit-and-kaboodle without any nudge at all.

So the truth of the matter is that any effort to raise taxes on the wealthy is specious and won’t do the trick.

We need to concentrate on reducing spending and reallocating federal assets for true health care reform.

Friday, July 24, 2009

“Those Who Cannot Learn From History…"

“Those who cannot learn from history are doomed to repeat it.”—(George Santayana, 1906)

We are doomed then! The average American adult reads less than one book per year…sad but true.

We are going to lay out a few reasons why raising taxes 1) in a recession is a terrible idea (Hoover tried in 1930 and look where that got him….and our parents and grandparents!); 2) doesn’t raise the ‘projected’ tax revenues expected or hoped for; and 3) is not really a viable solution to solve all of our long-term spending problems. Our spending problem is that we are spending too much money, plain and simple, and it has to be stopped, now.

I. “Raising Taxes is a No-NO! in a Recession”

One of the cardinal rules you learn about our nation’s fiscal policy when you sit in on hundreds of economic/financial related committees in Congress is that you NEVER, EVER, EVER raise taxes in a recession!

No one I ever heard in any congressional budget, banking or Joint Economic hearing over 22 years ever encouraged Congress to raise taxes during a recession. No one! No liberal economist. No conservative economist. It was one thing they all agreed upon.

Apparently, no one in the White House or who is currently in control of Congress has listened to any of their testimony.

President Hoover and Congress at the time committed the double sins of raising taxes and cutting federal spending at the onset of the Depression. (see "Hoover") They then passed the 1930 Hawley-Smoot tariff act which helped turn the ‘Great Recession At The Time’ into the Great Depression....that lasted for 10 years.

Obama, Pelosi and Reid took a little too many notes about the lessons of priming the federal fiscal pump from Hoover….they are even better at it than the Bush/Congress people who ruled the land from 2001-2006! But they apparently forgot the ‘not-raising taxes’ part; that is just plain dumb and goes against every lesson we have learned from history, here in America and around the globe.

Raising taxes in a recession is a bad idea whose time has never come….and certainly not today as proposed in Washington for the largest expansion of federal programs ever, the Obama health care plan. We are already spending more than enough on health care across the entire system; it just needs to be reallocated and re-oriented to best effect.

Tax-raising politicians who want to ‘tax the wealthy’ do it so they can: 1) stay in office and 2) take credit for appearing to provide for everyone citizens’ needs, wants and desires.

That is the bottom line in all this folks: plain and simple political self-preservation sprinkled with a tad bit of public service altruism thrown in for good measure.

We at Telemachus strongly believe the long-term economic health of the nation is better served by forcing our elected leaders to make the choice between raising taxes or cutting spending, one or the other. We prefer spending reductions because we know from experience that holding the line of federal spending is the only way out of this fiscal mess we are now in. We will never be able to raise enough tax revenue from anywhere to pay off $12 trillion of current debt, and growing, or $57 trillion in the net present value of obligations we have built up in entitlement programs.

We like it when one side has the guts to produce a list of all the tax increases they want to hike to pay for their program expansions. We like it when the other side has the guts to produce a list of all the spending reductions and reforms they want to make and lay it all out on the table for everyone to see. And let the best arguments win.

But no more debt please; that is the coward’s way out.

We abhor and strongly object to continuous reliance on unbridled, ever-increasing public sector debt loads that have been building now for the past 10 years at exponential rates. We know of no nation or republic in known history that has continued to borrow exorbitant amounts of debt forever and survived for any extended length of time.

Just act like Santayana and read some history, any sort of history in any language from the modern era or antiquity. Show us one case where a nation has borrowed money forever and survived for any length of time, like more than 100 years, and we will post a retraction.

Wednesday, July 22, 2009

Crossing the Line on the Separation of Powers in Washington

President Barack Obama ‘called’ CBO Director Douglas Elmendorf the other day to ‘invite’ him to the White House for a ‘friendly chat’, no doubt. The reason? The President wanted to talk to Elmendorf about his CBO projections that showed the Obama health care plan running up massive amounts of more debt.

Elmendorf, the lone legislative branch appointee, was there along with the President and just a few of his closest, biggest and most prominent advisors: Assistant to the President for Legislative Affairs Phil Schiliro, Director of the White House Office of Health Reform Nancy-Ann DeParle, Office of Management and Budget director Peter Orszag (a former CBO director himself), National Economic Council Director Larry Summers, chair of the Council of Economic Advisers Christy Romer, senior adviser David Axelrod, and press secretary Robert Gibbs. Others were there as well, including Department of Health and Human Services adviser Meena Seshamani, Harvard University economist David Cutler and Alice Rivlin of the Brookings Institute, who was founding director of CBO from 1975-1983.

That was not just a friendly chat over a cup of tea, ladies and gentlemen. Anyone who has ever been in Washington recognizes that was a full-blown display of power with the hopes of intimidating the CBO Director into changing some of his economic assumptions about the pending health care plan.

The explanation was that they wanted to ask the CBO Director for some of his ideas about how to lower health care costs in the future. What do you mean, they couldn’t just read all of the CBO publications that have been published in excruciating detail about ALL of the CBO proposals for cost containment? Here is only the latest one right here: click on CBO to see for yourself. (that is just Volume 1, by the way..there's more where that came from)

One of the key tenets of our federal government since our formation has been the clear separation of powers between the legislative and executive branches of government. After all, the very last thing the Founding Fathers of the country wanted to ever see was a powerful chief executive of our nation run roughshod over a compliant Congress and the independent bodies they established to help them in their legislative efforts. The memory of an arrogant King George III was just too recent and repugnant for them to imagine allowing such as situation to ever arise in the newly birthed United States of America.

If anything, the framers preferred to see a compliant President bow down and do what our representatives in Congress told him to do through majority vote legislation.

I seriously doubt that at any time under Presidents Ford, Carter, Reagan, Bush 41, Clinton and Bush 43 did any President even know the name of the CBO Director, much less invite him over for a polite afternoon tea party.

This is a breach of protocol and procedure that should not go unnoticed by you as the voting public. We are not an attack dog post against all things Obama. Nor are we an apologist for the Bush Administration. But think about this: Had President George Bush 43 done the same thing, impeachment papers would have been served up almost immediately in the House of Representatives for violating over 220 years of tradition and courtesy if nothing else.

Sunday, July 19, 2009

More Bad News from CBO About The Obama Health Bill

“It is going in the wrong direction” CBO Director Douglas Elmendorf said, essentially, when you listen to his whole testimony which can be accessed on-line at CBO Hearing Webcast or read it at CBO Testimony.

Don’t do either unless you have some tranquilizers or a defibrillator nearby....this is some seriously disconcerting stuff this gentleman is putting out there about the future economic well-being of our nation. And he knows what he is talking about.

The following is from the newswire reports filed after the hearing: “From the beginning of the health care debate, Obama has insisted that any overhaul must "bend the curve" of rapidly rising costs that threaten to swamp the budgets of government, businesses and families. (meaning 'downward', my addition)

Asked by Senate Budget Committee Chairman Kent Conrad, D-N.D., whether the evolving legislation would bend the cost curve, Elmendorf responded that, as things stand now, "the curve is being raised." (meaning 'upward', my addition)

'In the legislation that has been reported, we do not see the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount,' he said. 'And on the contrary, the legislation significantly expands the federal responsibility for health care costs.'

Even if the legislation doesn't add to the federal deficit over the next years, Elmendorf said costs over the long run would keep rising at an unsustainable pace.”

Director Doug Elmendorf is an accomplished, well-trained and highly respected Ph.D economist with degrees from both Princeton and Harvard. He was hired in January, 2009 by the Democrat leadership in Congress to do the important job of telling Congress when they are spending too much money, which has not been difficult for either Dr. Elmendorf or his predecessor under Republican leaders during the entire Bush Administration. You and I could both tell them that.

This bill is a brazen attempt to further expand the dominion of the federal government over the American health care system and it will not arrest the soaring costs now inherent in the system. When you see and hear a respected analyst appointed by the leadership of Congress such as Director Elmendorf say that the Obama health care bill will step on the federal spending accelerator, not the brake as President Obama promised, you have got to take notice and be very concerned. He was one of their first appointees in the new Congress and could have been assumed to be sympathetic to the new Administration.

Very concerned. Concerned enough to email your congressional representatives and senators; the links are just waiting for you to do just that on the right side of this column.

Our nation can’t afford to load up another $3 trillion in unpaid bills on our children by the passage of this bill, which by all accounts, won’t even cover everyone with health care coverage anyway.

Friday, July 17, 2009

Lessons Learned From History? Maybe?

The following is not a parable or allegory; it is a true real-life account. All names were changed to protect the innocent and any reference to other political figures either currently living or dead is purely coincidental)

(“In the beginning), 'The Leader' set in motion a plan to effect a revolution and bring about constitutional change, because he could see no point or benefit in piecemeal legislation rather than a fresh start, just as in dealing with a body which was in a terrible state, riddled with all kinds of diseases, one would first eliminate and alter the current blend of the humors by means of drugs and purgatives and then begin on a new regimen.

The second, and most revolutionary of 'The Leader’s' constitutional reforms was the redistribution of (their property). In order to banish arrogance, envy, crime, luxury and those chronic and serious political afflictions, wealth and poverty, 'The Leader' persuaded the people to pool all their (property) and then redistribute it all over again so that everyone would live on equal terms and with the same amount of property to provide an income. In the future, the only ascendancy they would seek would be assessed by the criterion of excellence, on the basis that there was to be no difference or inequality between any one of them and another except as determined by criticism of shameful deeds and praise of noble ones.

And when 'The Leader' saw that people were not prepared to tolerate the direct confiscation of their goods, he took a circuitous route to the same end and attacked their greed by political means. First 'The Leader' revoked all gold and silver coinage and made iron the only legal tender; then he gave even a considerable weight and amount of iron such a low value than ten (dollars) worth needed a large storeroom in one’s house and a (transport truck) to transport it…

Once luxury was deprived of the things that enliven it and nourish it, it gradually wasted away of its own accord, and there was no advantage in owning a great deal of property because wealth had no means of displaying itself in public, but had to stay shut up in the idleness of home….

Now, 'The Leader' intended to eradicate admiration of wealth altogether, so he increased his assault…The upshot was---and this is how everybody put it---that (His Country) was the only (nation) in the world where Wealth could be seen as truly blind, lying as lifeless and inert as a picture.”

(The preceding is a direct lift from “Lives” by Plutarch, with certain modern editions to make it relevant to today's world. It was written in the late first century A.D. about a true historical figure, Lycurgus, and who was the leader of Laconia along with his disciples between 750 to 1000 years previous. Under the Lycurgan Constitution, the community later developed into the society we now know as the Spartans)

Your 'New' National Health Care Plan...Brought to You By Rube Goldberg

If you can understand it, you are a better person than us here at Telemachus.

We saw the first version of this 'plan' (?) in 1993 when the Hillary Health Care Plan was under consideration. It appears that it just sat in some staffer's computer for the past 16 years. But they did add some more color and pretty graphics to it. Now it has a much better-than-even chance to become the law of the land here in the United States of America.

Send it to your friends, neighbors, colleagues and countrymen and see if they can understand it either.

We'll send more on this DefCon-1 situation as we get information to arm you with as concerned citizenry.

Thursday, July 16, 2009

The Senate HELP Health Care 'Reform' Bill

Breaking news out of Washington yesterday was that the Senate HELP Committee passed a bill that will establish a new ‘public option’ for health care coverage and they are going to pay for it with surtaxes on the very-wealthy and savings in Medicare and Medicaid.

They say it is needed to cover the 44 million uninsured; we know the number of long-term uninsured is more like 24 million (see 44 Million) They say it will lower costs for health care services in America in the long-run.

“In the long-run, we will all be dead!” the noted liberal Keynesian economist John Maynard Keynes once said. At least he believed in capitalism to some extent; he died a wealthy man from his work as a financier on top of being a noted economist.

Here is a bet we are willing to make with anyone: “If this health care bill does not add up to $3 trillion in new national debt over the next decade, then we will quit writing any more commentary on Telemachus!”

That might be a relief to some of you. Unfortunately, with legislation such as this health care ‘reform’ bill running through Congress at break-neck speed, we believe we will have lots to write about for the next decade since we don’t think this bill will cost less than $3 trillion.

Here are the reasons why this health care bill will NOT be ‘paid for’ as the advocates suggest:

  1. The surtax on people making over $350,000 in income each year will be easily avoided by advice from top-notch legal and accounting professionals who have been planning for this day since the new Administration took over. *
  2. The ambiguous ‘savings’ in Medicare and Medicaid are only ‘potential’ savings from the ‘baseline’ budget (see 'Baseline') that may or may not occur. Unless the insurance companies, hospitals, physicians and patients advocate groups have signed some sort of binding legal contract (please show them to us with the ink dried) with CMS, HHS or the White House that holds them to reducing their reimbursement rates by 50% or something like that, these verbal statements made in the Rose Garden after meeting with the President are nothing but that…word vapor.
  3. There has never been any health care bill passed by Congress that has not ultimately cost 3-5 times the original CBO cost estimates for the legislation when being considered by Congress.

We don’t disagree that everyone should have access to quality health care ‘insurance’. And in fact, we have shown you how existing resources can be divvied up to provide just such a health insurance plan for everyone on an income-adjusted, sliding scale basis in the Jefferson Health Plan.

But we are terrified at the prospective costs of this new health care legislation simply because we are adding so much debt onto our federal balance sheet as it is today. (there is not an ‘official’ federal balance sheet, believe it or not) We do not think we can realistically handle another $3 trillion or more in debt to be added on top of the $11 trillion we already have obligated.

If you don’t have a problem with that prospect, then don’t do anything. Go to the beach, play golf, go to the local museum and whistle ‘Don’t Worry, Be Happy’.

But if you do have a problem, call, write and email your US Senator and Representative right now and tell your friends and family to do the same…the link is on the right side of this column. They say they are going to pass this monstrous bill in both houses before recessing for their August vacation break.

This is no longer a laughing matter.

* Or, when revenues do not meet expectations, the income threshold level will be lowered to tax more and more of us. Remember, initially only a few hundred thousand citizens were initially targeted to pay income taxes; now millions upon millions of us have the same pleasure.

Saturday, July 11, 2009

What Does ‘Telemachus’ Mean Anyway?

‘Telemachus’ is a Greek name derived from two words: ‘machus’ meaning ‘thrower’ or ‘warrior’ and ‘Tele’ meaning ‘afar’.

“A long distance ‘war-thrower’”, perhaps it means then. Not a bad analogy to keep in mind for us citizenry nowadays perhaps as well. We continue to allow our very own duly-elected representatives, senators and president in Washington, DC to make misguided decisions for our future and ignore the major spending problems that must be addressed immediately…or else.

We, the registered voting public, are as much, and probably more, at fault than they are. They are only doing what they think we want them to do. To date, they have not felt any raging animosity towards their votes, speechifying and actions.

Telemachus was also the name of the son of Penelope and Odysseus who was the central character in the ‘Odyssey’. He was named for his father's expertise in shooting arrows in a variety of ways.

The patron saint of this blog, however, Saint Telemachus himself, helped end the gladiatorial games in Rome forever by his brave example of non-violent protest, the spirit of which we honor and obey. But perhaps we would do well to adopt some of the militancy embodied in the Greek derivation of the word described above.

We could become more of a “war-thrower’ from each congressional district by doing two things: 1) Run against the incumbent in every congressional and legislative office across the land; or 2) Urge a nationwide whole-scale vote against every incumbent regardless of whether you like them or not. That is enough of a “bomb-throwing’ gesture that will terrify every incumbent elected public servant, I can promise you that.

Friday, July 10, 2009

Cut Social Security Payroll Taxes by 10%...Today!

Now that we have proven beyond a shadow of a doubt that the Social Security ‘Trust Fund’ is fictional through and through (see Ponzi 1; Ponzi 2; and Ponzi 3), here is our proposal that should be passed immediately:

Cut all Social Security (OASDI) payroll taxes by 10% across-the-board tomorrow!

Why not? We are ‘over-collecting’ nowadays from the mandatory payroll tax side of the ledger more than we need to meet current Social Security obligations. That means more is being collected from both employees and corporations than necessary. And from sole proprietors, the generating nuclear core of small business and jobs, the percentage being pilfered is doubled.

We are not using those ‘surpluses’ to pay down the national debt as originally intended as a result of the 1983 Social Security Act. So why not return the excess amount of payroll taxes paid to their rightful ‘owners’ in the first place, the people and corporations who have been paying ‘too much’ since 1984?

Cutting OASDI payroll taxes by 10% would be an economic stimulus plan that would have an immediate positive impact on the economy. The first $1.7 trillion Obama stimulus package, soon to be followed by another inept second economic stimulus plan along the same order of magnitude, will take years, if ever, to make a difference.

Cutting the payroll tax by 10% on every worker will roughly eliminate the entire Social Security surplus between now and 2017. It will allow between $68 billion to $80 billion annually to be left in the pockets of workers and business to spend as they see fit, not the government. The five-year totals could be over $350 billion and the ten-year totals would approach the magical $1 trillion mark.

The 10-year figure is close to the Bush tax cuts of 2001 in magnitude. The only reason why this makes sense nowadays is because when compared to the monstrous Obama stimulus package(s) on the order of double trillions of dollars per year, cutting the payroll tax by 10% looks positively puny by comparison. Plus it would go to work immediately to inject some confidence and money back into the private sector.

It is a “fair” tax cut since everyone would receive something back based on their payroll tax participation. Such a payroll tax cut would be considered “progressive” since higher income wage-earners would receive the same percentage cut but would be limited in the actual amount since their payroll tax contribution is capped each year once they earn over $100,000 in income. No more speechifying or pontification by Robin Hood defenders on the left screaming about the ‘injustice’ of higher-income people getting big tax cuts while the poor underclass gets ‘nothing’.

But the main reason to cut payroll taxes by 10% is to eliminate whatever vestige is left over from the well-intentioned but flawed execution of the 1983 Social Security Act. The ‘surplus’ was part of a deal to get conservatives to support the acceleration of higher payroll taxes in the prospects of paying down the national debt in full by around the year 2000.

“The road to hell is paved with good intentions”. Never has this been more true than with the 1983 Social Security Act. Social Security was “saved” for a few more decades from insolvency, which “was a good thing” as Martha Stewart might say. But the national debt was supposed to have been paid down to zero, and it was not and that is a darned shame. This is a colossal collective failure on the part of Congress, the White House, the AARP and the American people that will be analyzed in abject horror and disgust by future historians and Americans.

So, the time has come to admit that it was a Capitol failure and return to the days when Social Security payroll tax income equaled Social Security payment outgo on an annual basis and leave it at that.

No one who is over the age of 66 today and currently receiving benefits will be affected by any future changes in Social Security taxes or spending that will be necessary to save the system around the year 2017, only 8 years from now (so this will not be your fight and you can please stay out of it). 2017 is the Doomsday when the ‘surplus’ completely evaporates and payments exceed payroll tax income once again, just as in 1983.

So hold onto your hats and wallets, ladies and gentleman…here comes the massive “Save Social Security Act of 2016!”….unless the “Save America First! Act of 2010” doesn’t have to happen first.

Wednesday, July 8, 2009

More ‘Proof’ that Social Security is A Ponzi Scheme, Exhibit B

Exhibit A pointed out that Social Security is a Ponzi scheme of Brodignagian proportions because its underlying “trust fund’ is not a tangible corpus of funds, only future IOU claims on higher taxation of future worker’s (i.e. your kids’) earnings. (See “SS Is A Ponzi Scheme”)

Exhibit B is the real nail in the coffin, however: ‘Imputed interest’ on the underlying fictional Social Security trust funds.

Each year, CBO and other budget authorities in Washington add a number to the ‘trust fund’ account balance of Social Security that ‘approximates’ what the imputed interest payment to Social Security would have been…assuming, of course, that there actually was a ‘true’ Social Security Trust Fund in existence in the first place replete with bonds, money and investment…that sort of thing.

They pick a number out of thin air and call it the ‘right’ interest rate figure. Then they ‘guesstimate’ what the underlying corpus of funds would have been in the Social Security ‘Trust Fund’ had the so-called ‘surplus’ not been spent completely on other programs the moment payroll taxes came in the IRS door. They then calculate the ‘imputed’ or assumed amount of interest in round dollar amounts. Finally, they add that humongous amount of vaporous interest ‘payments’ to the underlying fictional trust fund amount.

This year, the interest rate was 5% and ‘yielded’ over $128 BILLION in assumed interest payments to the Social Security ‘Trust Fund’. $128 billion….in fictional, non-cash accrual credit entries on a computer program somewhere in Washington.

So there you have it: Your American government is calculating higher-than-market rates of interest and crediting fictional amounts of interest payments to a trust fund that doesn’t exist and telling everyone: “Don’t worry about it! All is well!”

Good Lord! Where is the SEC when you really need a watchdog? Or the FBI…talk about white collar crimes! Is there any more of an underhanded accounting of finances anywhere in this country of ours?

$2.3 trillion of falsehoods. Can Sarbanes-Oxley be applied to the accounting methods of the Social Security Administration, the White House and the U.S. Congress?

So Exhibit B should be enough proof to convince you that the Social Security ‘Trust Fund’ is a fraud and a hoax on the scale like we have never ever seen before, correct? We have one more installment to blow your mind but this one actually is positive and will lead to more economic prosperity so stay tuned.

(for those of you who really secretly love this sort of stuff and want to be a ‘closet’ budget wonk nebbish so you can mystify and amaze your friends and co-workers, here are two blogsites that go beyond the pale and get into the weeds deeper than ticks if you want to learn more…. see Andrew Biggs and Angry Bear )

Monday, July 6, 2009

How Do We Know Social Security Is A Ponzi Scheme?

“How do you know it is not a Ponzi scheme?”is the better question in my mind nowadays.

Do you trust anything anyone says about financial or government matters anymore? Why should you?

The ‘proof’ we are willing to submit to you as judge and jury is highlighted in Exhibit A, the so-called Social Security “Trust Fund”. The ‘Trust Fund’ was immortalized in Darrell Hammond’s SNL portrayal of VP Al Gore in the 2000 election when he defined his campaign in one word, “Lockbox’. The ‘lockbox’ was supposed to be building up large reserves since 1983 and is now ‘estimated’ to be over $2.3 trillion according to reputable sources such as OMB, CBO and the Social Security Trust Fund board members.

Wait a minute! How can $2.3 trillion in ‘reserves’ be ‘estimated’? It either ‘is’ or it ‘isn’t’.

There are no bond holdings in Social Security in the fiduciary sense where we can go redeem $2.3 trillion today if we wanted to and get cash in return. None, nada, zero. There are no trading floors dealing in Social Security bond offerings. There are no investment houses underwriting “SS Trust Fund Bonds Series XYZ”. You can’t buy one anywhere and see what its true value is on the open market.

You can go to Washington yourself, march up to the US Treasury building and ask to see the trust fund but they can’t show it to you. Nor can they open up the drawers in the vault where $2.3 trillion in crisp $100,000 Woodrow Wilson bills rest in peace. (We used to have such denominations in our US currency, believe it or not.) All they can do is point to a computer screen where you will see the electronic digits “$2.3 trillion in Trust Fund Balance” appear on the screen. And the bureaucrat will then announce: “That, ladies and gentlemen, is your vaunted “Social Security Trust Fund!”

The Social Security Trust Funds are identified in a special type of ‘treasury designation’ on paper and in a computer program, that is for sure, but they can not be redeemed until and unless taxes are raised on your kids when they mature and start working. Or we cut out all spending in virtually every other program of the budget other than Medicare, Medicaid and interest on the national debt. The ‘trust’ in 'trust funds' means ‘we hope your kids will be dumb and docile enough just to accept the higher taxes and pay them when the majority of the Boomers will be retiring’.

Sorry to be so blunt but that is the truth about the way your federal government looks at you when it comes to dancing around the issue of Social Security and retirement security.

So if Bernie Madoff Got 125 Years for His $50 Billion Ponzi Scheme…

What sort of sentence does every Member of Congress and the Social Security Trustee Board deserve for squandering at least $1 trillion in so-called “surplus’ trust funds in Social Security since 1983?

2500 years in prison? (you do the math)

‘Ladies and gentlemen of the jury, we submit to you that the fraud and financial malfeasance perpetrated upon you and this great Republic of ours by everyone in authority over the administration of the Social Security system since its inception is far, far greater than anything Mr. Bernard Madoff ever did or contemplated doing to his investors!”

Here are some other disturbing truths we ‘find to be self-evident’ about the entire Social Security system; perhaps we should emulate Martin Luther and post them as the ‘99 Theses’ on the front door of Congress:

  1. Social Security was set up as a ‘temporary’ income replacement program in the Great Depression.
  2. Social Security was never intended to be a permanent retirement system for every aging American
  3. We (our forefathers, mothers and grandparents who came before us) created a ‘social safety net’ to help poor, indigent or physically disabled fellow Americans meet their needs in their dotage, and we have absolutely no problem with that noble goal.
  4. Those founders never intended to create a federally-mandated transfer program-shifting from those currently working to subsidize the incomes of those who are retired.
  5. If we really want a retirement program, we should stop trying to force a square peg of a welfare program into the round hole of a retirement program and create a new program that will meet the actuarial needs of every American because it is based on sound and true financial investing principles.
  6. And the first step is to expose the myth that the current Social Security system is a ‘trust fund’ when it is not. The so-called “trust fund” is a federal accounting gimmick that depends on future taxpayers redeeming the IOUs that have been issued.
There are only two ways to redeem those IOUs; raise taxes or divert funds from all other federal spending into retirement programs as we shall soon see in subsequent posts.

Friday, July 3, 2009

The ‘Second’ Obama Stimulus Plan That Could Possibly Have A Chance To Succeed

You’d think that with close to $1.7 trillion of stimulus pumped into the veins of a beleaguered $14 trillion American economy, something would be accelerating along the way by now, wouldn’t you?

The President announced this week in our previous hometown of Annandale, Virginia that the first stimulus package was “working”.

Really? The Labor Department announced today that over 475,000 more jobs were lost in the month of June and the unemployment rate jumped up to 9.6% heading towards 10% by the fall.

How can that be if the stimulus package is 'working'?

A lot of the problem is that much of the first stimulus package was geared towards plugging the leaks in the dikes of the state governments, the financial institutions and Detroit automakers that were hemorrhaging cash all over the place in the spring. (How does that $35 billion in bailout assistance going into GM and Chrysler in March look now that they have both filed bankruptcy?) The difficult spending cuts that have to be made in states such as California and North Carolina were sidestepped with the hopes that somehow, someway, the Tooth Fairy would come through and deliver the increased tax revenues everyone was hoping for to cover these yawning budget gaps across the nation.

It did not happen.

(By the way, how come a state like Texas can be running a $11 billion budget surplus nowadays with no personal or corporate income tax while California is running a $24 billion deficit? Could it be that Texas did not embark on a break-the-bank spending spree since 2000? I wonder….)

The first stimulus package was predicated upon the old fiscal notions from over 80 years ago in the 1930’s that all we have to do is build more roads and bridges and pump up public sector spending and all will be well. Make no mistake about it: the first stimulus Obama package was written to satisfy the unions who helped him win the presidency. Now it is time to pass a second stimulus package that will benefit the entire country.

The 21st century American economy has a backbone built primarily on technology and services instead of unskilled labor so very little of the first stimulus package went to stimulating the economic ‘animal spirits’ of investment and risk-taking on the part of entrepreneurs and businesspeople as Adam Smith said in 1776.

Since we are in uncharted economic territory water anyways, why don’t we try something radically different for a change for the second stimulus package that is sure to come soon? American business is dying to see some sort of positive shock to their economic projections and forecasts that will entice them to hire people and expand their investment in plant, equipment and technology upgrades.

Now is the one golden opportunity in our modern history to do something so shocking that it will send our economy into an unprecedented economic expansion for decades, and bring back jobs from overseas. It would generally repair the economic growth model in America that has led to our nation being the most prosperous economy that has benefited the widest range of people across all income levels that the world has ever known.

“Abolish the corporate income tax code now!”

We have made this argument several times before and unless we want to see a reprise of the extended decade of economic malaise from 1930-1939, then we strongly suggest that the corporate income tax be abolished and see what happens. We can’t afford to do another $1.7 trillion WPA-style jobs program like the first one, can we? And based on current projections of lowered corporate profits for 2009 and 2010, abolishing corporate taxes will only ‘cost’ the Treasury maybe $55 billion this year and maybe less than $100 billion next year.

That is not a lot of money to re-energize the American dream of prosperity, now is it?

In PAYGO terms, $155 billion in forfeited tax revenue is a heckuva lot better than blowing another $1.7 trillion in federal spending and loading it all up as more debt on the backs of our children who will have to pay it back one day. I even feel sorry for the poor Chinese who have no idea of what to do when it comes to loading up on American debt nowadays in return for having our ravenous consumers to whom they sell their low-cost products. They are floating the idea of coming up with a new ‘reserve currency’ of some sort in the hopes that something magical will appear to save them from the losses they will surely incur when inflation rears its ugly head soon again and rips the value out of their dollar-denominated debt holdings well in excess of $1 trillion now.

We have one other proposal to make to get this economy moving again and it has to do with cutting the Social Security payroll tax for everyone by at least 10% and possibly as high as 23%...forever. Reducing Social Security payroll taxes to equal outflow would ‘cost’ the Treasury about $80 billion in this fiscal year but we would be relieved from living the hoax of raising more payroll tax than we need to meet current obligations. (see "On Way To Zero Debt") Since we are not using the so-called Social Security surplus of close to $200 billion this year for its intended purpose of paying down the national debt anyway, it is useless and counterproductive to be collecting it anyway.

We will save that for the next posting and wish you a Happy 4th of July with all the attendant fireworks, hot dogs and baseball games. Remember this one because it might be the turning point either one way or the other in our nation’s history.