Sunday, June 29, 2014

The 'Lost' (sic) IRS Emails of Lois Lerner, Watergate and Howard Baker

'What did the President know...and when
did the President know it? Senator Howard Baker
We had more than few younger folks look at us quizzically this past week when we brought up the similarities between the current 'lost' (sic) emails and destroyed hard drives at the IRS and Watergate which was 'the greatest constitutional crisis since the beginning of time' according to the Washington Post and other liberal opponents of President Richard Nixon.

  • 'Do you know who 'Senator Sam' Ervin of North Carolina was and what role he played in the Watergate hearings? 
  • Do you know who Rufus Edmisten was and what role he played in the Watergate hearings? 
  • Did you know Hillary Rodham (later Clinton) was fired from her job on the investigations committee?' we asked.
'Crickets' was all we heard.

Before you pooh-pooh the comparison between Watergate and this current IRS scandal if you are a staunch defender of President Obama and his Administration, take a look at the similarities between Watergate and the facts as we know them today about the IRS:

  1.  'Watergate' started as a bungled burglary at Democratic National Headquarters located in the Watergate Hotel in Washington, D.C. when Richard Nixon's CREEP (Committee to Re-Elect The President) tried to intimidate or subvert the 1972 Presidential Campaign of Senator George McGovern.
  2. 'Loisgate' (for lack of a better name) started as an heavy-handed effort to intimidate hundreds of Tea Party organizations and deny them non-profit status after Obamacare was passed in early 2010.
  3. Both were ignored by the mainstream media when uncovered as insignificant random occurrences.
  4. Both Presidents in office at the time had very strong and insular advisors close to the President who defended him at every turn and at every cost. (Nixon had Haldeman and Erhlichman; Obama has Valerie Jarrett)
  5. Both Presidents were very secretive and protected a lot of information from becoming public.

    President Obama and his handlers have famously spent more money sealing his documents from his childhood, before college, through college and grad school than probably has been spent on sealing and storing the Kennedy Assassination records.

    President Nixon once famously broke into one of his law school professor's office at Duke University during the weekend of final exams, not to steal the test before it was given but simply to find out if he had aced the final or not before final grades were posted Monday morning.

    He just couldn't stand the suspense of not knowing he had been perfect on the exam as it turned out to be.
  6. Lois Lerner pleaded the Fifth Amendment so as to prevent her testimony from incriminating her in any wrong-doing with the IRS scandal.

    G.Gordon Liddy, perhaps the mastermind of the Watergate 'plumbers' who broke into the DNC HQ in 1972, pleaded the Fifth Amendment as well.

    Very strange to see anyone who is completely innocent of any charges against them plead the Fifth Amendment, yes?
  7. Both Presidents at the time dismissed each incident as nothing more than a trivial matter. Nixon said 'I am not a crook!'. Obama has just laughed off the IRS scandal as certain rogue agents in Ohio overstepping their bounds.

  8. Both incidents have significant 'memory loss' in the form of erasure of pertinent evidence.

    Rosemary Woods, secretary to President Nixon, somehow performed a yoga-like stretch for 18.5-minutes (!) where her foot pushed a pedal that erased those critical 18.5 (!) minutes of White House Oval Office taped sessions between Nixon and his aides.

    email between Lois Lerner and 6 of her closest aides working on these non-profit applications from Tea Party groups were lost in a complicated computer crash that just affected those 7 computers (!). EACH of those hard drives were subsequently destroyed after the House Ways and Means Committee requested both the emails and the hard drives.
We asked a computer expert last week about the chances of only these 7 computers at the IRS all crashing at the same time such that their hard drives were rendered useless and had to be destroyed. Some were in Washington D.C., the others were in Cincinnati, Ohio. The 'crashes' (sic) occurred in 2 different parts of the country at exactly the same time in two different time zones.

The computer expert explained those chances thusly:
'The chances of all of these specific 7 computers crashing at the same time in Ohio and Washington DC, all independent of a broader computer system crash that destroyed both the entire IRS system in both Ohio and Washington DC, is 100,000 times less probable than you and I both being struck by a double bolt of lightning right now out of a rogue thundercloud popping up on this bright sunny day and then both of us being swallowed up by a huge gaping hole here on Hillsborough Street in Raleigh North Carolina caused by an enormous earthquake that usually only happens on the San Andreas Fault in California
In other words: 'Not. Likely'.

And this computer expert voted for President Obama! Twice!

Just to continue on this history lesson for the younger folks but also to remind the older folks, Nixon was not forced to resign because of the bungled Watergate burglary. He was forced to resign when members of his own Republican Party in the House and the Senate began to believe he was involved in the cover-up and lied about his involvement in the cover-up.

It wasn't the idiotic burglary that did in Nixon. It was the cover-up. It is almost always the cover-up that does in politicians.

Former Tennessee Senator Howard Baker, who passed away last week at age 88, posed the significant turning point question of the entire Watergate hearings in 1973 when he asked this one simple question:

'What did the President know and when did he know it?'

When the line of evidence kept leading up to the Oval Office in the White House, that is when leading Members in the House and Senators in the Senate went to President Nixon and told him they had lost confidence in his leadership and he should resign because they would support his impeachment.

Right now, we have not yet seen that direct line of evidence between Lois Lerner and President Obama and his advisors in the White House. In fact, if history is any pattern, President Obama will keep saying that the first time he ever heard of this IRS scandal was when he read it in the papers and heard it on the news.

If President Obama had no knowledge of anything going on wrong at the IRS; the NSA; Benghazi, in Iraq with the ISIS invasion and on and on and on, then 1 of 2 things must be true but not both:

He is either the most out of touch President we have ever had in American history or he is completely insulated so that he can claim 'plausible deniability' as they used to say in the Nixon White House. In either case, one has to wonder what good it is to have a President who is neither engaged in the serious work of running this nation's business or interested in running as clean of an operation as possible while serving as the Chief Executive.

Those lost emails and destroyed hard drives at the IRS makes it almost laughable to believe they did not contain any incriminating evidence that would implicate officials higher up in the Obama Administration.

When will Members of the Democratic Party start to lose confidence in President Obama and start to run for the hills? They have their own political futures to defend this year, you know. We have never seen an elected Member of Congress or Senate in his/her right mind in a contested district or state fall on their sword for a failing President from either party.

All it took in Watergate was one break, one direct link to connect the dots which led to the White House. Assistant FBI Director Mark Felt, otherwise known as 'Deep Throat' told intrepid Washington Post reporters Woodward and Bernstein to 'follow the money'.

Which they did.

Maybe American journalism is not totally dead  and some intrepid reporter will connect the dots in 2014 on this IRS Scandal.

Maybe a modern-day Mark Felt will step forward from the shadows and help some reporter get to the bottom of this, missing emails, destroyed hard drives and all.

Maybe Lois Lerner will turn state's evidence once it becomes clear that she may be facing some serious time in a federal penitentiary unless she cooperates with House Republicans and other prosecutors to turn over incriminating evidence.

And then again, maybe this really was the work of some seriously overzealous IRS staffers led by Lois Lerner and no one else but a bunch of Watergate burglars who are still alive and well somewhere.

Where is G. Gordon Liddy lately anyway?

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Thursday, June 19, 2014

CBO Graphics Part V: 'Guns Or Butter' In Discretionary Spending

Origins of 'Guns and Butter' by Robert Schlesinger
This is our final installment on the great CBO Infographics series, one which several of you have commented on how helpful it has been to get your head and hands around the US Federal Budget.

One of the craziest, most frustrating, slippery salamanders you will ever try to grab ahold of: The US Federal Budget.

But grab it and understand it you must. Because without a pretty good understanding of what this CBO Infographics Series has presented, we will not make a lot of progress towards solving our budget/fiscal problems.

We need you to be an active participant in this thing called participatory democracy, perhaps as a candidate yourself, perhaps as a behind-the-scenes worker but especially as a concerned registered voter who can put pressure on your elected officials to 'do the right thing' and do it regularly.

Today, we take a look at the 'Discretionary' part of the Federal Budget which is nothing more than the 'Guns versus Butter' part of the budget before there were such things as entitlements which got birthed in a big way in 1965 with the passage of the Medicare and Medicaid Acts.

We have already pretty much clearly established that the main cause of our budget imbalance over the past 30 years has been the exorbitant rise in health care costs which have driven Medicare and Medicaid from relatively minor programs in the 60's to well over 23% of entire federal budget today.

If we could curtail the cost in medical inflation and hold it to around the general rate of inflation in the general economy, we will return to balanced budgets rather quickly, assuming we ever return to any sort of 'normal' rates of growth which creates millions of new jobs one day. 

That being said, we are going to make another bold statement that some people may not like:

'Discretionary Programs are not the main problems in the federal budget!' 

We can already hear the people who hate foreign aid say: 'If we just could get rid of fereign aid, we would balance the budget.' ($47 billion, less than 1.3% of the federal budget per year)

We can already hear the people who hate the Department of Education say: 'If we could just get rid of the Department of Education, we could balance the budget!'  ($60-some odd billion dollars, about 1.6% of the federal budget per year)

We can already hear the people who hate anything in the federal budget that is not expressly enumerated in Article 1 Section 8 of the US Constitution say: 'We hate anything in the federal budget that is not expressly enumerated in Article 1 Section 8 of the US Constitution!' ($?)

We hate to disappoint those folks but nothing in the discretionary side of the budget is directly causing the fiscal imbalance between revenues and spending as much as the two main federal health care programs. That has been the case for the past 2 decades or more.

'Hey! What are you, an ignoramus?' we can also already hear some people say. 'What about the trillion dollars we blew in Afghanistan and Iraq on two wars that now seem to be for naught given the ISIS invasion of Iraq? We could have saved that $1 trillion in spending and not added that to our huge national debt, right?'

To some extent, that is true. We could have saved $1 trillion in spending had we not invaded both Afghanistan and Iraq. However, from 2001 to 2014, we have added on at least $8.6 trillion of new debt held by the public. $1 trillion spent on the 2 wars accounts for 11.6% of that additional debt, hardly the main reason why the debt has exploded over the past 14 years.

We endured a major recession, one far greater than anyone thought we were going to endure, which contributed to the debt buildup, that is a given. The Bush tax cuts which Obama extended forever (so now they will be forever remembered as the Bush/Obama Tax Cuts?) also took away perhaps $1 trillion of revenue stream from the federal treasury which added to the budget deficits over the years.

However, take a close look at the graphs below. Keep in mind that in budgeting circles, the mantra is:

'Control what you can which is spending. Plan ahead for ups-and-downs in the economy and tax revenues to smooth out those fluctuations. Balance the budget with prudence and foresight, not ignorance and hindsight'

Defense spending has hovered at or below 4.3% of GDP since 1993. The low for defense spending was 3.0% of GDP in 1998 after the 1st Gulf War (apparently people knew we would be going back because that is what people called it at the time)

Non-defense spending was at 3.6% of GDP in 1993; today, it clocks in at 3.5% of GDP.

Compare both to the Medicare/Medicaid programs, both of which more than doubled their size in terms of share of GDP in only 20 years. Both are expected to continue that growth over the next 20 years as well.

We can't control tax revenues; they are subject to the economy and the basic 'animal spirits' that drive people to work and invest when they see an opportunity to make a profit. They stop doing so when they don't see a favorable return on that investment and hard work.

Responsible government leaders throughout the ages have always been frugal, responsible, sober and balanced leaders. They have not been spendthrifts and they have not been irresponsible with the public fisc as we have for the past 14 years for sure.

We can fight all we want about 'fereign aid', the Department of Education and 'The Bridge to Nowhere'. Those are all legitimate debates about the proper role of government in our lives.

We happen to believe that: 1) as long as a program is open to everyone and benefits the entire nation as a whole; 2) fits into a reasonable interpretation of the Constitution which pretty clearly establishes a twin-government rule for our nation, one federal and the other state-directed, and 3) gets passed by 50%+1 of both the House and Senate and is signed into law by the President in a White House ceremony, that is a 'legitimate' federal program.

Because discretionary programs are not contributing significantly to our explosive debt, or the deficits that cause that debt, or the interest rate time bomb that will truly explode once interest rates return to 'just normal' rates in the not-too-distant future, we don't worry about them as much as we do about the federal healthcare entitlement programs.

We can control discretionary programs. We can eliminate them all if we had a Congress that wanted to do so and a public to support it. We just ask that at the end of the year, the budget is balanced and no more debt is issued to finance current consumption.

Certain public works projects we support. The Erie Canal, for example, led to a tripling! of the US GDP in the 7 years after it opened and trade from the Midwest flowed through its channels to New York and beyond. The Interstate Highway System is another. It says we can build roads in the Constitution, doesn't it?

What scares us to death is the proclivity of Congress to not only NOT control spending in our national entitlement programs but to constantly ADD ON to them! Obamacare, for one is so expensive and complicated that the CBO recently said they could not even score just how much it was going to ultimately cost!

How crazy and loony is that?

The clear and present danger to any government of any style or persuasion is its inability to restrain itself from trying to spend more of your money on government programs to attract votes and stay in office. That inability inevitably leads to imbalanced budgets and deficits which means more money has to be borrowed to pay for them.

Once the level of debt gets so high that the credit markets start to believe the government can't make their scheduled interest payments on time, the currency starts to implode...and then it is just a race between more inflation and higher interest rates to attract more money to pay off the debt.

Maybe the United States of America will never get to that point. Let's hope we won't. But just be forewarned that hundreds, if not thousands of republics, democracies, dictatorships and communist states have fallen prey to hyperinflation and depression of their currency over the past 800 years of recorded human history.

That is not a good track record. So why take a chance?

Discretionary programs will not be the prime reason why we get to that point if we do.

Entitlement programs will be.

That, hopefully, will be the main lesson of all 5 of these simply terrific CBO Infographics.

Share them all with your friends and neighbors. And people you don't even know.

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Tuesday, June 17, 2014

CBO Graphics: Part IV 'What Are 'Mandatory Programs' Anyway?'

'I propose a lockbox for Social Security'
'Mandatory programs in the federal budget are an easy way for politicians to avoid making tough decisions'

What politicians are saying when they say they won't touch mandatory programs is this:

'They are too tough politically for me to do anything about them! The AARP, the NAACP, the ACLU...they'll kill me in the next election if I say we have to reform Social Security, Medicare and Medicaid!

When politicians say a program is an 'entitlement' or 'mandatory' and they 'can't touch them', they are flat-out lying through their teeth.

They are the US Congress and US Senate, for gosh sakes! The US Constitution gives them massive power to do just about whatever they want, assuming they can get to 50%+1 in each chamber, that is, including reforming, cutting, changing, adding to or subtracting from any entitlement program now in force in America.

We participated in such a process dozens of times. It is called 'budget reconciliation' and it is a term you have rarely heard during the Obama Administration except for one glaring example: when they used budget reconciliation to cram Obamacare down the over-matched GOP minority's throats.

'Mandatory' programs are considered 'benefit' programs based on formulas and meeting such thresholds as age 66 (for SS); 65 (Medicaid) or living at or below federal poverty levels (Medicaid).

There is no other consideration other than meeting these standards to be eligible to receive benefits.

The one glaring truth of the matter is that if we would just arrest the rate of inflation in health care delivery in America to around the general rate of inflation in the rest of the economy, we could balance the federal budget in no time flat.

No kidding. We have written about this in great depth in past posts but the bottom line is that the upward explosive growth in Medicare and Medicaid, as well as the military health programs and the VA to some smaller extent, are the most prominent upwards cost-drivers in the federal budget and have been for much of the past 4 decades.

Take a close look at the infographics below detailing the growth in entitlements from 1993-2013.

Mandatory spending account for 67% of ALL federal spending in 2013 or about 5.2% of GDP. 20 years ago, mandatory spending account for 2.6% of GDP in 1993. Mandatory spending has doubled as a share of GDP in 20 years.

Medicare alone has grown 66% relative to its share of GDP during that time. Medicaid has expanded about 45% as a share of GDP during the same period of time, from around 1.3% to 1.8% of GDP.

SS has expanded about 10% in terms of its percentage of GDP consumed during that time, mostly because so many Boomers got older and started retiring. It would have gone up faster expect for the steady increase in the retirement age set into motion in the 1983 SS Reform Act where the retirement age went up from age 65 to age 66 in small increments from 1984 to now.

You didn't even notice it didja? We think it should go up on the same scale to age 67 in the next 5 years and then eventually to 70 since we are living so much longer lifespans.

But other than those health care-related programs and to a lesser extent, SS, entitlements are relatively tame by comparison. Sure, they are still huge programs but they are not the factors driving up the federal deficits and therefore the debt.

Forget the 'trust' (sic) funds cause they don't exist.

Forget the 'Social Security Surplus' cause that is just a made-up moniker to disguise the fact that the 1983 SS Act raised payroll taxes WAY over what was needed to fund the retirees from 1984 to about 2007 before the surplus started drying up.

Forget any sort of 'lockbox' despite what VP Al Gore said in 2000:

Entitlement programs are just like any other federal program in history: The IRS takes taxpayer money which is used to pay for the programs Congress authorizes. Politicians can't hide behind the 'mandatory' facade any more and we as voters shouldn't let them.

There is no way the American people are going to tolerate a major hike in their payroll taxes, are they? The only way to deal with the rate of growth in spending in SS, Medicare and Medicaid is to deal with the rate of growth in spending!

Senior Boomers had better hope that the foreign credit lines stay open through their retirement because without it, benefits will start to be pared back and in some cases, quite substantially.

We believe there are a million ways to restrain the growth of Medicare. For example, we just heard that a senior we know who is about 70 years old is going to have 1) knee replacement surgery followed by 2) hip replacement surgery later this year.

All paid for by Medicare.

We don't know exactly what the costs of each surgery will be but we have heard that knee replacement surgery can cost upwards of $65,000 and hip replacement surgery can cost over $85,000.

This 70-year old guy is going to have $150,000 of your taxpayer money (and what we can borrow overseas) put into his right leg this year!

All we can say is: 'He better win the Boston Marathon next year! Cause we sure are investing a heckuva lot of American taxpayer resources into his right leg to do so!'

Study these charts below. They are important to understand. Show them to all your friends of all ages.

We are all in this together. We better figure out how to fix it all together before paying interest on the debt/deficit bomb does it for us.

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Sunday, June 15, 2014

What Does 'As Far As Practicable' Mean Anyway?

Where does UNC get its funding?
 prac·ti·ca·ble  [prak-ti-kuh-buhl] adjective
1. capable of being done, effected, or put into practice, with the available means; feasible: a practicable solution.
This one word in the North Carolina Constitution is always brought up when the issue of higher education is discussed and the method and means of how to pay for it are considered.

Article IX, Section 9 of the North Carolina Constitution which was rewritten and clarified in 1971 reads as follows:

'Benefits of public institutions of higher education.
The General Assembly shall provide that the benefits of The University of North Carolina and other public institutions of higher education, as far as practicable, be extended to the people of the State free of expense'

That is not the only place in North Carolina constitutional history where the word 'practicable' is used. In the 1868 version, there also reads this:

'As soon as practicable after the adoption of this Constitution, the General Assembly shall establish and maintain, in conjunction with the University, a Department of Agriculture, of Mechanics, of Mining and of Normal Instruction'

Notice which words accompany 'practicable' in both cases: 'as far as' and 'as soon as'.

Neither clause conveys the sense of 'absolute' or 'now', do they?

Both clauses convey the sense of 'if at all possible' or 'when it is possible', do these things.

Proponents of freezing in-state tuition in North Carolina often seem to misunderstand or mis-read these clauses. They would have you believe that the Founders of the North Carolina Constitution 'demanded' that in-state tuition would 'always be free'.

Nothing could be further from the truth. They knew that money did not fall from the long-leaf pine tree indigenous to North Carolina like pine cones or pine needles.

They knew there would come a time when there would be more than one student, Hinton James who walked all the way to Chapel Hill from Wilmington to enter the first class in 1795. Or at least they should have known.

It was far easier to teach one student at Chapel Hill and give him a 'free' education in 1795 than it is today for the 18,430 undergrads who are there, 15,112 of which come from within North Carolina state borders.

All that being said, what does that have to do with anything?

It has to do with everything that is going on in the North Carolina state legislature right now and at the Board of Governors of the entire system and the Board of Trustees at every state institution. In-state tuitions have risen a lot in the last several years and there has been a hue and cry to freeze them or at least decelerate the rate of growth in future increases.

This is all done in the vacuum bracketed by the 'as far as practicable' clause of the state constitution and the pressing fiscal budget realities of 2014, not 1795 or 1868.

Let's get some of the basics out of the way that you never read in the papers or hear on the evening news:
  1. It costs, on average, roughly $21,000/year to teach every undergrad in the UNC System, from Elizabeth City State University to Western Carolina.
  2. For 2010-11, the latest year for official figures, in-state students in the UNC system paid 33% of the cost of their degrees on average which includes all the tuition and fees they pay.
  3. The percent ranged from 19% at UNC School of the Arts to 43% at App State.
  4. That means that the in-state tuition of roughly $8000 at UNC-Chapel Hill and NC State leaves about $13,000 per year to be covered by other sources.
  5. The University of North Carolina at Chapel Hill receives about 20% of their funding from the state legislature which means the balance comes from sources including federal and state research contracts and grants, hospital-generated revenues, athletics, and private funding from endowments and annual gifts. 
We can remember a time when the state legislature was able to fund 39% of the entire university budget in the 1980's.

What has happened since then to cause the shift?

For one thing, academic cost-inflation has been second only to health care cost inflation during that time span. University presidents and administrators embarked on a massive spending, building and investment spree since 1980 that could rival the arms race between the US and the now-defunct Soviet Union.

Some of that can be attributed to the massive influx of the Baby Boomer 'echo' generation (our sons and daughters) entering our nation's colleges and universities. However, the peak of that boomlet entering college was in 2010. It is downhill from now on and many colleges will see declining enrollments and many will be forced to close.

The main culprit, however, as we have noted before is the unabated growth of state Medicaid programs. Medicaid is an 'entitlement'. University education is not an entitlement. Medicaid bills have to be paid every year in cold hard cash by the states or else they have to declare bankruptcy much as Detroit had to declare bankruptcy. States do not have to pay for higher educational support each year as they do in Medicaid.

That is the choice most states have to make nowadays: fund higher education or pay for more Medicaid services. It is pretty much that simple.

We believe moving to Managed Care Organizations (MCOs) for Medicaid is the prudent and responsible way to not only provide better health care at a lower cost for our fellow Medicaid-eligible North Carolinians but also to lance the boil on limited funding for our state's higher education institutions.

You want to see more funding for UNC, NC State and other universities in the state system? You should be for MCOs as well.

And while we are at it, perhaps we should amend the NC Constitution while we are at it to use a more modern word than 'practicable'. No one ever uses that word anymore, do they?

The new clause should read:

'The General Assembly shall provide that the benefits of The University of North Carolina and other public institutions of higher education be extended to the people of the State at an in-state tuition rate that is no more than 90% of the in-state tuition rate in Virginia ($13,400+/year in 2014-15) or South Carolina ($11,000) adjusted for inflation each academic year.'

The University of North Carolina at Chapel Hill and NC State and the other universities in the system would still be a 'better value' than either of our neighbors to the north and the south. In-state tuition to UNC will be about $8200 for the 2014-15 academic year and about $8000 for NC State. Both are about a 38% discount to UVA and 27% discount to USC.

The new clause would be a more 'practical' realization of the immutable laws of economics and political reality nowadays.

Not 'practicable'.

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Wednesday, June 11, 2014

CBO Graphics-Part 3: Tax Revenues to the Federal Government

'Death and Taxes'. Soon to be a great
restaurant in Downtown Raleigh
'In this world, there is nothing that can be said to be certain except Death and Taxes!'- Benjamin Franklin

We don't like to talk about death so let's talk about taxes for awhile today, shall we?

The first bill on the floor of the US Congress when it convened for the first time in 1789 was a bill to debate import duties.


Because now that the Framers and Founders of this country had achieved what they wanted, they had to figure out how to pay for it. Having a national central government with an army and navy to support and roads to tend to and post offices to build cost money, right? It just wasn't going to spontaneously combust and happen all of its own accord, now was it?

The US Congress set up the first committee and called it 'The Ways and Means Committee'. For the simple reason that those guys were tasked with the job of finding the 'ways' and the 'means' to collect taxes without inciting a riot post-Revolution to be able to pay the bills of the new consolidated national government.

'Don't tax you. Don't tax me. Tax the guy behind that tree' became a famous saying from one of the more colorful Chairmen of the Senate Finance Committee in our history, Senator Russell B. Long of Louisiana.

Mainly because it points out the truth of tax-writing legislatin'.  We have to find the revenues to fund the basic essentials of our government...or else we are right back to the weak-kneed Articles of Confederation where each state has to defend for itself.

And no really wants to be taxed do they? Even some liberal wealthy people such as Warren Buffett say they think 'tax rates should be higher on the wealthy!' and then they hire armies of tax attorneys and accountants to make sure they don't pay those higher rates!

The point of raising taxes to pay for what we want out of our government is solely that; raising money to pay for services. The tax code should not be set up to provide special benefits for any person or any business. The tax code should not be set up to conduct 'class warfare' for political purposes. The tax code should not be set up to try to engineer social policy.

Raising taxes should be only to do one thing: pay for what we ask our legislators to pay for collectively that benefit the nation at large.

With that core concept in mind, let's look at where the current American tax system has deviated far from that mark. And why it needs to be completely replaced.
  1. Look at the graph below to see how much of our tax revenue actually comes from gift and estate (death) taxes. $19 billion a year. 0.76% of all revenues we take in in taxes.

    Believe it or not, that is decimal dust in the grand scope of things. It should be scrapped immediately.

    The time and effort to fight over death taxes, pay expensive tax attorneys and accountants to figure out complicated ways to avoid paying estate taxes and then collect any left over the threshold with IRS agents probably costs more than $20 billion per year to do so.
  2. Check out the amount of payroll taxes we collect each year. $948 billion in 2013, close to $1 trillion. These technically go to the Social Security and Medicare Part A 'Trust Funds' (sic) but don't come anywhere near to covering all the expenses. Medicare Part B is 25% covered by senior-paid premiums; the rest of it, 75%, is paid for by you, the general taxpayer every year.

    God only knows how much Obamacare, which is Medicare Parts E-Z apparently, will wind up costing the American taxpayer.

    Payroll taxes are the single most prominent example of a flat-rate tax we have ever seen in American politics. Everyone pays them when they have a paying job. Everyone pays the same rate; except for the self-employed who pay both sides of the employee/employer payroll tax or double what everyone else pays each year.

    Maybe it should become the basis for a true flat-rate tax in America and wipe out all the hundreds of thousands of special tax provisions, exemptions and deductions. It is already in place.
  3. Corporate income taxes bring in close to 10% of tax revenues each year; in 2013, that was $274 billion.

    Guess who really pays those 'corporate income taxes', class? You do, the American consumer.

    Every single thing you buy each and every day has some corporation's or company's income taxes baked right into the pie, cake or tofu burger that you pay for when you eat it.

    Without corporate income taxes to pay, every item in America would cost that much less proportionally. The cost of those income taxes are now built into every tofu burger. Instead of it costing $5, it may only cost $4.50 or so.

    Corporate income taxes are just another form of double-taxation that nobody really realizes. Thomas Jefferson once said the first principle of taxation should be that every dollar gets taxed only once.

    We agree.
  4. The level of tax revenue collection has hovered around the average of 16.7% of US GDP for the last 40 years at least. No matter how may times we have cut taxes or raised taxes or created new taxes, the American public is willing to let go of about 16.7% of GDP in tax revenue to Washington.

    So let's just stop messing with the level of income taxation and beefing about the marginal rates that the average person really doesn't understand anyway.
The 'answer', it seems to us is to move to a consumption-based tax to collect national tax revenue. It would replace the income, corporate, estate and excise tax system now in place which accounts for about 66% of the tax stream flowing to DC today.

The payroll tax part of our revenue stream should then be aimed at filling personal individual retirement and medical savings accounts for every person who works and pays payroll taxes. This should have been done decades ago. It would take about a 20-year transition period but it can and should be done starting today if we can.

Minimum-wage earners over the course of their lives could build up assets of close to $350,000 even under conservative investing methods going this route. Millions of Chilean citizens started to do so in 1980 and are now retiring with substantial nest eggs when compared to the rather meager $1300/month SS benefits most US seniors receive, assuming they reach the retirement age of 66 and don't die beforehand and not have anything to pass onto their families.

Take a look at the chart below. Study it. Memorize it. And then use it in your discussions with other people today and later in the week, month and this year.

You may teach some people some valuable things.

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Sunday, June 8, 2014

CBO Graphics-Part 2: Federal Budget Overall, Deficits and Debt

Perceptive words for our PC Times, from
Man vs. Liver, Raleigh, NC
Whenever you start talking about cutting the federal budget, you inevitably get called 'insensitive'; a 'racist' or someone who 'hates women, old people and children and wants to throw them all into the street!'

Nothing could be further from the truth.

In fact, the argument can and should be made that the adults who want to make the tough decisions about how your tax dollars are spent each year are trying to make sure that 'women and children and old people are not the first ones thrown out into the streets along with millions of men when rampant hyperinflation takes root one day if we don't contain our deficits today!'

The old, the infirm, single poor women, the poor and the poor young are the first people to be adversely affected when inflation rears its ugly head. Rich people and people who are still working in a high inflation environment can find ways to make do and survive in such harsh times as recently experienced in American circa 1979-1982. Poor people, old people, single poor women and poor children can not.

We saw a poster recently that read, in essence: 'We don't want to pay for your (Sandra Fluke contraceptives, school loans, other Occupy issues) not because we are conservatives. It is because we are adults'

It is time for the adults in our society to take control of the federal government and return it to the sane, 'conservative', in the sense it is responsible and balanced, way it has been managed for most of American history. It has only been in the last 40 years or so that not balancing the federal budget was not seen as a horrendous public policy outcome.

Take a look at the second CBO graphic in our series below. (You may have to click on it and copy to a word document to see the full graphic. Or click on this link and find the screen titled 'The Federal Budget in 2013') 

In it, you will find some nuggets such as this pithy comment:
'The large budget deficits recorded in recent years substantially increased federal debt, and the amount of debt relative to the size of the economy is now very high by historical standards.
In 2013, federal debt reached 72% of GDP, the highest level in more than 60 years.
Such debt could have serious negative consequences, including restraining long-term economic growth, giving policymakers less flexibility to respond to unexpected challenges, and eventually increasing the risk of a fiscal crisis.'
See? Don't you feel better knowing that someone at least is looking out for your future like the guys and ladies at CBO? They have been saying virtually the same thing for the past 4 years...and yet no one in Washington from President Obama on down seems to be listening.

Here's a way to think about this if you are a global warming advocate: 'Ignoring the threat of burgeoning deficits and exploding national debts on our nation's economy and well-being is worse than ignoring global warming and we will all burn up one day!'

Here's a way to think about this if you are an education advocate: 'Ignoring the threat of burgeoning deficits and exploding national debts on our nation's economy and well-being is worse than not spending more on teachers and giving every school the resources they need because we will not have educated our future citizens!'

Here's a way to think about this if you are a defense hawk: 'Ignoring the threat of burgeoning deficits and exploding national debts on our nation's economy and well-being is worse than President Obama cutting back on defense spending and opening us up to more terrorist attacks in the future!'

Why is uncontrolled deficit spending and excessive national debt more dangerous to our future in the United States of America than any of these other major problems?

Because it is like carbon monoxide do not know the precise moment when it is becomes just too much. Thousands of prior republics, democracies, kingdoms, plutocracies, oligarchies, monarchies, dictatorships and even communist totalitarian rule have been done in by the collapse of their currency, rampant inflation and their inability to pay the interest on their national debt in a timely way, all of which was caused by reckless, irresponsible, and profligate national government spending.

And absolutely none of them saw it coming. Not the Roman Empire. Not the Ming Dynasty. Not the Soviet Union. Insolvency got every one of them before invaders did. The second followed the first in almost every case in history.

Federal Reserve Chairman Alan Greenspan once testified before the House Budget Committee and had this to say in response to a question about when would we know we had spent too much in deficit-spending and accumulated too much debt in the US:
'We will not know that point until it is too late to reverse it. Once we recognize it, there will not be anything we can do at the time to reverse it.'
That is why the prudential politician on both the left and the right and in the middle should put as their #1 priority the balancing of our budget and, #2, the steady retirement of our national debt over a reasonable amount of time, say the next 50 years.

Why take the chance that we go right up to the limit in our capacity to service our national debt in the first place? It is so dangerous that only a fool would tempt fate by doing so.

Which is what we have done as a nation for the past 14 years at least. Both President Bush 43 and President Obama and every Member of the US House and Senate are culpable for not taking stronger action to restrain the growth of spending, mostly in the entitlement areas.

In fact, President Obama and the Democrats who controlled Congress and the Senate from 2009-2010 deserve special mention because they added on another unpaid-for entitlement, Obamacare, on top of spending close to $5 trillion more than we took in in revenues since Obama took office in 2009.

Here's the skunk in the woodpile that no one wants to get close enough to smell or be sprayed by:
The US is about to enter a 'normalized' interest rate environment someday in the hopefully near future when we have an economy that starts expanding rapidly and hiring more workers hand-over-fist.
When that happens, interest rates on government t-bills and bonds will return to their 'normal' level of 5-6% per year instead of the abnormal absurdly low levels of 1-2% as they have been for the past 5 years.
When interest on the national debt triples or goes up five-fold, what will then happen to net interest costs on the national debt in the federal budget, class?

Correct. Annual actual net interest costs will rise from around $250 billion per year to $750 billion or perhaps $1 trillion per year. And that assumes that we don't keep adding on $500 billion+ per year deficits to the already historically very high national debt relative to GDP.

(Our current national debt levels are the highest ever in peace-time. The US National Debt has exceeded the GDP in amount and percentage in every major war since the Revolution including the Civil War and WWII)

Our budget in 2014 is expected to be around $3.7 trillion. Just try to imagine the squealing you will hear from everyone when 1/3rd of the federal budget starts to go towards servicing the interest one the national debt. 30% versus roughly 5% today.

That is almost 100% totally crazy and insane, yes?  Yet, it is totally avoidable. But you need to put pressure on your elected representatives and senators in Washington to get busy on reducing spending across-the-board in every line item but especially in entitlement spending.

It has got to be done. Soon.

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Saturday, June 7, 2014

CBO Graphics

We were listening to the radio this past week when CBO Director Douglas Elmendorf was being interviewed by a PBS business reporter.

'We write our reports for the benefit of Members of the US Congress and US Senate and their staff.'

Sadly, most Members of Congress, Senate and their staff do not read any of the CBO reports. They rely on the press clips from the journalists who don't read the CBO reports cover-to-cover either and just report the highlights of the synopsis handed out to them by the CBO press office.

A few think tanks have young staffers who are hired to do what the older guys and gals are tired of doing, that is, plow through the CBO reports to come up with some nugget that will support their opinion or their slant on political life in America.

So the only people in the United States of America who are regularly told to read CBO reports are you, the loyal Telemachus Reader, now in our fifth year, as hard as that is for everyone to believe, us included.

We will share 5 more CBO nuggets with you this week, one after the other, so we apologize in advance for you getting an email every day of the upcoming week.

We think these infographics outline the particulars of the federal budget in as simple of a way as is humanly possible without ignoring the complexities and nuances of having to deal with a $3.5 trillion annual budget in the first place, the largest budget of any human endeavor in history on this planet.

We will provide some commentary to accompany each slide but we trust that you will study them and get back to us with any questions or comments you might have after your in-depth review of each.

In the aftermath of the rollout of Obamacare, the VA hospital scandal and now the Bergdahl trade for Taliban terrorists, we think it is a good time to re-orient ourselves to what is really the most important thing we elect people to do, besides keeping us safe from the very killers President Obama has just released back into the wild, that is:
Spend our tax money wisely, prudently and in a conservative manner to keep us from going into financial and fiscal ruin as perhaps thousands of past civilizations have done in history.

(These infographics can all be downloaded directly from the CBO website

There can be nothing more simple than this graphic to explain where we are in our federal budget today.

No matter how much we try to tax everyone and every activity known to mankind, we just can't seem to raise enough money to cover all the commitments that past and present politicians have made to various constituent groups in America, the largest of which are the retired seniors.

'Mandatory' spending mostly consists of Social Security, Medicare and Medicaid.

As Obamacare takes full root in the American political and governmental landscape, it too will take its place beside these 3 Giants of American Federal Taxpayer Spending.  Obamacare will help drive mandatory spending up to the point where mandatory spending plus defense spending plus spending on net interest on the national debt will exceed 100% of all the available incoming revenue to the US Treasury and then some.

Those lines should cross not long after 2020, a short 6 years from now.

Whenever you hear anyone, including candidates from your district and state this year running for Congress and the US Senate, talk about 'balancing the budget', ask them this one simple question:

'What are you gonna do about the growth in spending in entitlements?'

If they say 'Nothing!' or sound like Elwood Blues singing nonsense like he did on 'Rubber Biscuit', then don't vote for them. And then run for that seat the next time around yourself.

Cause they really don't know what the heck is going on.

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