After raising the level of deficit spending by $4 trillion in just 2-1/2 years, Obama claims his "tax-the-rich" plan will reduce the deficit by $3 trillion over the next 10 years. He claims that it's not class warfare, it's the math. (Click here to See the CBS story: "Obama: Plan not class warfare, it's math")
Well, to me, the President's math really stinks. Over the next 10 years, we'll be spending $1.6 trillion more per year than when Obama took office. Then, against that spending level, his plan proposes to save a mere $300 billion per year. That then leaves a continuing spending deficit of $1.3 trillion, every year, over the next 10 years. Obviously, his "taxing-the-rich" scheme is only a pin prick when compared to the massive spending legacy of this Presidency. Therefore, I don't really think it "is" about the math. And, if it's not the math, then what? Class warfare, maybe?
Showing posts with label budget deficits. Show all posts
Showing posts with label budget deficits. Show all posts
Tuesday, September 27, 2011
Tuesday, July 26, 2011
You Can't Keep An Excellent Triple-A Rating By Going Deeper Into Debt
If you listen to all the arguments about raising the debt ceiling, some on the left claim that we could jeopardize our "AAA" credit rating if we don't raise the debt ceiling and, as a consequence, allow the country to default on its debt obligations. However, this is a canard, for pure political reasons, to push us to raise spending levels and not make any significant cuts to existing Federal programs.
The fact is that there are enough revenues, without raising the debt ceiling, to pay all our debts as well as support many of our current, operational obligations such as Social Security and military pay. Revenues this year will top $2.1 trillion dollars. That's about $172 billion in revenues per month while, at the same time, the interest on our debt will average about $42 billion a month; leaving $130 billion in revenue to support much of the other, essential businesses of our government. Of course, this fact does leave about $144 billion a month in other unfunded operational costs. But, we could survive, month-to-month, without default on our debt and without suffering a ratings downgrade for that very reason.
But, the real jeopardizing fact with regard to our credit rating is the amount of debt, itself. Even if we get a debt ceiling increase, the rating agencies may still lower our rating by virtue of the amount of debt that we continue to accumulate versus any real potential for revenues increases. The left would argue that simply raising taxes would solve this supposed "revenue" issue. But, as had been pointed out many times, even if you completely taxed away every penny being earned by the so-called rich, we would still fall well short of the revenues needed to make any real dent in our total debt. A debt that now sits at $14.5 trillion and rising. The only real solution is austerity through program cuts.
The real reason for the threats to downgrade America's excellent rating is that Federal spending has increased by 30% under Obama. When Bush left office, spending was at about $2.9 trillion dollars. Today, the annual Federal spending level is at $3.8 trillion; or, about $900 billion more than when Bush left. What's worse, and for all his talk of fiscal restraint, in February, Obama submitted a 10-year budget outlook whereby he would take us from the current $3.8 trillion annual spending to nearly $6 trillion in annual spending in just 10 short years. Then, through some rather generous assumptions on the economy and taxes, Obama projected that the Federal deficit would remain the same over that same 10-year period. Seen as a true fairytale, his budget submission was totally rejected by the Senate on a completely bipartisan basis; 97 to zip.
Our credit rating is in jeopardy because we can't keep raising spending levels at a rate faster than our revenues increase. In the throws of a deep recession and, subsequently, declining revenues, Obama jacked up spending by 30% in some false assumption that all that increased spending would stimulate the economy. But, the economy continues to flounder and unemployment levels continue to rise; raising the specter that revenues may continue to fall with our debt levels continuing to rise at an ever increasing rate. Our credit rating is no different than a personal credit score. If a person continues to keep spending themselves into hock, their credit score will go down; making it very difficult to borrow or obtain a loan at the best rates. And, that's exactly what will happen to the U.S. government if we continue to spend and borrow.
So, the bottom line is that we need to raise the debt ceiling in order to keep the current level of government operations running. But, in order to satisfy the rating agencies, we need to show that we, as a country, are prepared to make significant cuts in spending to reverse the massive debt accumulation. As far as raising taxes goes, this just might have to happen; but, the revenues from any tax increases should be matched at a rate twice that amount with substantial and realistic spending cuts. Only then, can we assume that we will avoid a ratings downgrade.
The fact is that there are enough revenues, without raising the debt ceiling, to pay all our debts as well as support many of our current, operational obligations such as Social Security and military pay. Revenues this year will top $2.1 trillion dollars. That's about $172 billion in revenues per month while, at the same time, the interest on our debt will average about $42 billion a month; leaving $130 billion in revenue to support much of the other, essential businesses of our government. Of course, this fact does leave about $144 billion a month in other unfunded operational costs. But, we could survive, month-to-month, without default on our debt and without suffering a ratings downgrade for that very reason.
But, the real jeopardizing fact with regard to our credit rating is the amount of debt, itself. Even if we get a debt ceiling increase, the rating agencies may still lower our rating by virtue of the amount of debt that we continue to accumulate versus any real potential for revenues increases. The left would argue that simply raising taxes would solve this supposed "revenue" issue. But, as had been pointed out many times, even if you completely taxed away every penny being earned by the so-called rich, we would still fall well short of the revenues needed to make any real dent in our total debt. A debt that now sits at $14.5 trillion and rising. The only real solution is austerity through program cuts.
The real reason for the threats to downgrade America's excellent rating is that Federal spending has increased by 30% under Obama. When Bush left office, spending was at about $2.9 trillion dollars. Today, the annual Federal spending level is at $3.8 trillion; or, about $900 billion more than when Bush left. What's worse, and for all his talk of fiscal restraint, in February, Obama submitted a 10-year budget outlook whereby he would take us from the current $3.8 trillion annual spending to nearly $6 trillion in annual spending in just 10 short years. Then, through some rather generous assumptions on the economy and taxes, Obama projected that the Federal deficit would remain the same over that same 10-year period. Seen as a true fairytale, his budget submission was totally rejected by the Senate on a completely bipartisan basis; 97 to zip.
Our credit rating is in jeopardy because we can't keep raising spending levels at a rate faster than our revenues increase. In the throws of a deep recession and, subsequently, declining revenues, Obama jacked up spending by 30% in some false assumption that all that increased spending would stimulate the economy. But, the economy continues to flounder and unemployment levels continue to rise; raising the specter that revenues may continue to fall with our debt levels continuing to rise at an ever increasing rate. Our credit rating is no different than a personal credit score. If a person continues to keep spending themselves into hock, their credit score will go down; making it very difficult to borrow or obtain a loan at the best rates. And, that's exactly what will happen to the U.S. government if we continue to spend and borrow.
So, the bottom line is that we need to raise the debt ceiling in order to keep the current level of government operations running. But, in order to satisfy the rating agencies, we need to show that we, as a country, are prepared to make significant cuts in spending to reverse the massive debt accumulation. As far as raising taxes goes, this just might have to happen; but, the revenues from any tax increases should be matched at a rate twice that amount with substantial and realistic spending cuts. Only then, can we assume that we will avoid a ratings downgrade.
Thursday, June 30, 2011
Obama's "Jet" Wars
Yesterday, during one of his getting-to-be-rarer press conferences, our anti-business President launched another rant/attack on corporate jets. This time he singled out the write-offs that the purchasers of corporate jets get as an incentive to buy one of these very expensive items that tend to last for decades if properly maintained. Yet, here's a guy that has no problem saddling-up Air Force One whenever he can; a plane costs $182,000/hour to operate and that is 60 times more expensive to fly than any corporate jet. In a recent "campaign trip" to Puerto Rico, Obama spent 6 hours in the air so he could spend a mere 4 hours on the ground at a cost of over a million dollars for Air Force One and all on the tax payers dime (God! I wish it only was a dime!). Last year, he ponied Air Force One around this country and the world for a total of 172 times and at a cost of around $200 million.
To me, this president has an unnatural obsession with "jets" in general; whether corporate or otherwise. I think he holds a long-harbored jealousy and hatred of the rich and those jets are representative of that wealth (a common neurosis among socialists). Or, maybe, he just sees all jet travel as hurting the environment. In fact, in my last blog entry (below) I questioned whether or not the extreme TSA pat-downs are just a means of greening America by hurting the high-carbon footprint of air travel in this country.
Yesterday wasn't Obama's only "jet" slap-down. Within a month after taking office, in a town hall meeting in Elkhart, Indiana, he launched a similar attack to yesterday's attack on corporate jets and added an attack on corporations that "fly-in" to Las Vegas for conventions; a comment that resulted in both conference cancellations and avoidance and which, I'm quite sure, helped Las Vegas become one of this nation's highest unemployment centers. Then, there were the attacks on the auto CEO's when they "jetted in" for a Congressional hearing on the auto company bailouts. Oh, and lastly, lets not forget how the Obama-anointed National Labor Relations Board is going after Boeing for building a non-union manufacturing facility in South Carolina in order to remain competitive with the euro-subsidized and euro-built Airbus that employs zero American workers.
The fact is that the removal of the "jet" tax breaks would only amount to about $300 million a year in debt reduction against a $14+ trillion deficit. Obama, alone, spent two-thirds of that amount in 2010 flying Air Force One around. However, more importantly, the removal of these "breaks" could result in a substantial loss of jobs in the jet-building industry. Many companies, without these incentives, will probably hold on to their existing jets longer or they won't add aircraft because it would be just too expensive; thus, resulting in an industry slowdown and the forcing of layoffs in an already horrid job's market. It just seems like the Democrats never learn. By targeting the rich, it is always the workers who get hit the hardest. In 1991, the Democrat-controlled Congress passed a Luxury Tax on yachts, furs, and luxury cars. The result was that more than 16,000 boat industry workers -- many highly-paid craftsmen -- lost their jobs. Hundreds of decades-old custom boat builders went out of business. Additionally, other workers in the luxury car and fur industries got laid off. Only 3 years after passage, the tax was "quietly" repealed by Bill Clinton. This President is a moron to ignore that history. But, that's what you get when you have a socialist ideologue as a President.
To me, this president has an unnatural obsession with "jets" in general; whether corporate or otherwise. I think he holds a long-harbored jealousy and hatred of the rich and those jets are representative of that wealth (a common neurosis among socialists). Or, maybe, he just sees all jet travel as hurting the environment. In fact, in my last blog entry (below) I questioned whether or not the extreme TSA pat-downs are just a means of greening America by hurting the high-carbon footprint of air travel in this country.
Yesterday wasn't Obama's only "jet" slap-down. Within a month after taking office, in a town hall meeting in Elkhart, Indiana, he launched a similar attack to yesterday's attack on corporate jets and added an attack on corporations that "fly-in" to Las Vegas for conventions; a comment that resulted in both conference cancellations and avoidance and which, I'm quite sure, helped Las Vegas become one of this nation's highest unemployment centers. Then, there were the attacks on the auto CEO's when they "jetted in" for a Congressional hearing on the auto company bailouts. Oh, and lastly, lets not forget how the Obama-anointed National Labor Relations Board is going after Boeing for building a non-union manufacturing facility in South Carolina in order to remain competitive with the euro-subsidized and euro-built Airbus that employs zero American workers.
The fact is that the removal of the "jet" tax breaks would only amount to about $300 million a year in debt reduction against a $14+ trillion deficit. Obama, alone, spent two-thirds of that amount in 2010 flying Air Force One around. However, more importantly, the removal of these "breaks" could result in a substantial loss of jobs in the jet-building industry. Many companies, without these incentives, will probably hold on to their existing jets longer or they won't add aircraft because it would be just too expensive; thus, resulting in an industry slowdown and the forcing of layoffs in an already horrid job's market. It just seems like the Democrats never learn. By targeting the rich, it is always the workers who get hit the hardest. In 1991, the Democrat-controlled Congress passed a Luxury Tax on yachts, furs, and luxury cars. The result was that more than 16,000 boat industry workers -- many highly-paid craftsmen -- lost their jobs. Hundreds of decades-old custom boat builders went out of business. Additionally, other workers in the luxury car and fur industries got laid off. Only 3 years after passage, the tax was "quietly" repealed by Bill Clinton. This President is a moron to ignore that history. But, that's what you get when you have a socialist ideologue as a President.
Wednesday, June 30, 2010
John Maynard Keynes' Multiplier Effect
Those who follow the Keynesian economic theory firmly believe in the "multiplier effect" as was originally espoused by Mr. Keynes. The multiplier effect is a demand-side economic theory that assumes that, for every dollar that is spent by any government, the economy will actually be stimulated by 1.5 times that amount as that dollar of spending ripples through the system. Simply said, a dollar spent returns $1.50 in economic activity.
But, for me, and many in the economic community, Keynes ignores the supply-side effect in promoting this demand-side economic philosophy. That's because government spending, through higher deficits, additional taxes, and inflation that is ultimately caused by the printing of more and more money, will have a more negative effect, in the long run, because too much disposable income (supply) is being removed from the economy in that government's quest to spend the country back into economic health.
Additionally, there is an immediate "carrying cost" associated with all government spending. By this, I mean, that, for every dollar spent by any government, more than one dollar had to have been collected in taxes and/or penalties. That's because any dollar of government spending is only a dollar after all the administrative costs and interest on that money has been paid. In our country, that carrying cost can be as much as 30% as any dollar of collected taxes tries to make its way through our massive bureaucracy for final distribution. Further, that distribution, especially in the case of the Stimulus Package, is typically to State governments who, in turn, deplete the value of that dollar with their own handling costs before any final distribution to the private sector.
Lastly, Keynes does not take into consideration what ultimately happens to every dollar of spending; once it makes it's way to the private sector. It's taxed! And, because a lot of stimulus money is given to small businesses and contractors for government-let projects, the tax rates are some of the highest in the country. Then, after the contractor pays his taxes on his/her portion of the stimulus money that remains as profits, any stimulus that was distributed to their employees in the form of pay is also taxed.
To me, there is no multiplier effect. If anything, a dollar of government spending was probably more than a buck and a half before the government got its hands on it, completely negating that supposed $1.50 multiplier effect. That's why the Stimulus Package hasn't worked and that is why Keynesian economics has never worked in the past. Further, as governments continue to grow in size, the false theory of the multiplier effect gets even weaker as more and more of any collected tax money yields less and less value after being digested by the government.
This is why lowering taxes is the best mechanism to stimulate the economy. Lower taxes means that any dollar of stimulative spending is a real dollar in spending; long before the government gets its value-shredding hands on it. Then and only then, is there any true multiplier effect!
Capiche, all you Keynesians out there!
But, for me, and many in the economic community, Keynes ignores the supply-side effect in promoting this demand-side economic philosophy. That's because government spending, through higher deficits, additional taxes, and inflation that is ultimately caused by the printing of more and more money, will have a more negative effect, in the long run, because too much disposable income (supply) is being removed from the economy in that government's quest to spend the country back into economic health.
Additionally, there is an immediate "carrying cost" associated with all government spending. By this, I mean, that, for every dollar spent by any government, more than one dollar had to have been collected in taxes and/or penalties. That's because any dollar of government spending is only a dollar after all the administrative costs and interest on that money has been paid. In our country, that carrying cost can be as much as 30% as any dollar of collected taxes tries to make its way through our massive bureaucracy for final distribution. Further, that distribution, especially in the case of the Stimulus Package, is typically to State governments who, in turn, deplete the value of that dollar with their own handling costs before any final distribution to the private sector.
Lastly, Keynes does not take into consideration what ultimately happens to every dollar of spending; once it makes it's way to the private sector. It's taxed! And, because a lot of stimulus money is given to small businesses and contractors for government-let projects, the tax rates are some of the highest in the country. Then, after the contractor pays his taxes on his/her portion of the stimulus money that remains as profits, any stimulus that was distributed to their employees in the form of pay is also taxed.
To me, there is no multiplier effect. If anything, a dollar of government spending was probably more than a buck and a half before the government got its hands on it, completely negating that supposed $1.50 multiplier effect. That's why the Stimulus Package hasn't worked and that is why Keynesian economics has never worked in the past. Further, as governments continue to grow in size, the false theory of the multiplier effect gets even weaker as more and more of any collected tax money yields less and less value after being digested by the government.
This is why lowering taxes is the best mechanism to stimulate the economy. Lower taxes means that any dollar of stimulative spending is a real dollar in spending; long before the government gets its value-shredding hands on it. Then and only then, is there any true multiplier effect!
Capiche, all you Keynesians out there!
Sunday, August 23, 2009
Obama Deficit Projection: Missed It By That Much!
On the 60's TV Program "Get Smart" (and in the 2008 movie), agent Maxwell Smart always attempted to try and minimize his failures by saying "Missed it by that much!" while holding his thumb and index finger up in the air so that only an inch or so separates them.
In that same vein, I guess the Obama Administration can, too, claim to have "missed it by that much" when it comes to talking about their projections for the 10-year budget deficit.
While it might seem like years ago, it was just in March when the Obama Administration predicted that the 10-year deficit would "only" reach $7.1 trillion dollars (Click to See A Very Pertinent Commentary on this Subject). The nay-sayers of that time, the Congressional Budget Office (CBO) and others (like myself), were all saying that this projection was just too rosy. In fact, the CBO said that the 10-year deficit would be more in the range of $9.3 trillion dollars.
Well, as of today, it is being reported by Reuters News that the Obama Administration will project the 10-year deficit to be $9 trillion dollars by the end of 2019; and, not the "rosy" $7.4 trillion projection of only 5 months ago (Click to See Full Story: "New deficit projections pose risks to Obama's agenda").
Statistically, that's an error rate of 12% in just 5 months. One can only wonder how far off they will be in a year's time! Maybe, double that with another 1-1/2 to 2 trillion dollars added to the $9 trillion? God help us if that's the case!
From all appearances, the Congressional Budget Office (CBO) had it right; but, then, their $9.3 trillion might also be understated when the impact of other spending is taken into consideration like the Cash for Clunkers program and the new, higher projections for Health Care reform and Cap and Trade.
Throughout the Health Care debate, the Congressional Budget Office has said that Obama-Care won't lower health care costs in this country; but, raise them. They have also said the impact on the budget deficits would be substantially higher than what is being projected by either the Congressional Democrats or the Obama Administration. Yet, Obama has steadfastly and vehemently denied that to be true.
Well, I think the CBO has proven itself to be closer to the truth than Obama and the Democrats with this latest 10-year budget shortfall. It just seems like a day doesn't go by where this Administration isn't being proven wrong.
Either they are totally incompetent or they are intentionally deceiving us; or, both. In any event, it is not good for America!
In that same vein, I guess the Obama Administration can, too, claim to have "missed it by that much" when it comes to talking about their projections for the 10-year budget deficit.
While it might seem like years ago, it was just in March when the Obama Administration predicted that the 10-year deficit would "only" reach $7.1 trillion dollars (Click to See A Very Pertinent Commentary on this Subject). The nay-sayers of that time, the Congressional Budget Office (CBO) and others (like myself), were all saying that this projection was just too rosy. In fact, the CBO said that the 10-year deficit would be more in the range of $9.3 trillion dollars.
Well, as of today, it is being reported by Reuters News that the Obama Administration will project the 10-year deficit to be $9 trillion dollars by the end of 2019; and, not the "rosy" $7.4 trillion projection of only 5 months ago (Click to See Full Story: "New deficit projections pose risks to Obama's agenda").
Statistically, that's an error rate of 12% in just 5 months. One can only wonder how far off they will be in a year's time! Maybe, double that with another 1-1/2 to 2 trillion dollars added to the $9 trillion? God help us if that's the case!
From all appearances, the Congressional Budget Office (CBO) had it right; but, then, their $9.3 trillion might also be understated when the impact of other spending is taken into consideration like the Cash for Clunkers program and the new, higher projections for Health Care reform and Cap and Trade.
Throughout the Health Care debate, the Congressional Budget Office has said that Obama-Care won't lower health care costs in this country; but, raise them. They have also said the impact on the budget deficits would be substantially higher than what is being projected by either the Congressional Democrats or the Obama Administration. Yet, Obama has steadfastly and vehemently denied that to be true.
Well, I think the CBO has proven itself to be closer to the truth than Obama and the Democrats with this latest 10-year budget shortfall. It just seems like a day doesn't go by where this Administration isn't being proven wrong.
Either they are totally incompetent or they are intentionally deceiving us; or, both. In any event, it is not good for America!
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