budget

Want Tax Hikes? Push the Reset Button

/ L. M. Walker / 1 Comment

Cut Government Spending Back to 1996

– By: Larry Walker, Jr. –

Dialing the top income tax bracket back 15 years without a reciprocal cut in government spending does nothing to preempt the debt bubble. However, if the Golfer in Chief and his inept cohorts remain stuck on reinstating those bygone tax rates, then all taxpayers must necessarily stand as staunchly fixated on cutting the size of discretionary government spending, back to 1996 levels if necessary. Those not willing to regress on government spending really need to stop kidding themselves into believing the silly notion of resurrecting 15 year old tax brackets as a serious solution. If you are confounded, then more than likely you have never heard of inflation, don’t purchase goods and services with your own money, and lack the skills required to balance a simple checkbook. In other words, those who don’t comprehend would better serve the public by resigning from government and returning to their own ruinous private lives.

The fallacy of anointing $250,000 as the top tax bracket of the 21st Century is actually based on 20th Century income tax tables. What worked in 1996 won’t work today. What Barack Obama and fellow democratic party residue from the last shellacking are really talking about is reimposing the top income tax brackets of 1996, which applied some 15 years ago. Omitted from this quandary are two key factors: inflation and the level of discretionary government spending in 1996.

  1. Inflation – As far as personal income, $250,000 in 2011 had the same buying power as $175,085 in 1996. And $250,000.00 in 1996 has the same buying power as $356,969.06 in 2011. Annual inflation over this period was 2.40%. Thus $250,000 isn’t what it used to be.

  2. Discretionary Government Spending – Discretionary spending in 1996 was $532.7 billion compared to the 2012 budget estimate of $1,340.3 billion ($1.3 trillion). If they want us to acquiesce to 1996 tax brackets, then shouldn’t the government backtrack to 1996 discretionary spending as well?

In terms of both inflation and discretionary government spending, the budgeted 2012 discretionary spending level of $1,340.3 billion had the same buying power as $938.6 billion in 1996. And the $532.7 billion actually spent in 1996 has the same buying power as $760.6 billion today. If democrats insist on hiking taxes on those making over $250,000, then a simple compromise would be for them to agree to cut discretionary government spending by $579.7 billion in 2012 ($1,340.3 minus $760.6). This would bring both government spending and income tax rates in line with the late 20th century. But the right thing to do under Obamanomic theory is to simply return to actual 1996 discretionary spending. This requires cutting the federal budget by $807.6 billion, as shown below.
From General

This means cutting National Defense by $463.9 billion, International Affairs by $46.1 billion, General Science, Space and Technology by $15.3 billion, Energy by $10.2 billion, Natural Resources and Environment by $19.2 billion, Agriculture by $2.9 billion, Commerce and Housing Credit by $557 million, Transportation by $3.5 billion, Community and Regional Development by $14.2 billion, Education, Training, Employment and Social Services by $66.8 billion, … etc…

Don’t worry about who gets hurt or rewarded, just cut it, and then tell governmental agencies, “Here’s your budget, now you figure out how best to spend it.” Problem solved. Next question!

“Knowledge is an inherent constraint on power.” ~ Thomas Sowell

“Collecting more taxes than is absolutely necessary is legalized robbery.” ~ Calvin Coolidge

References:

http://www.dollartimes.com/calculators/inflation.htm

http://www.gpo.gov/fdsys/pkg/BUDGET-2012-TAB/xls/BUDGET-2012-TAB-8-7.xls

Blindsided | White House Fiscal Lunacy

/ L. M. Walker / 1 Comment

Back in the Ditch

2016 GDP vs. National Debt

– By: Larry Walker, Jr. –

“We will not be adding more to the national debt.” ~ Barack Obama ~

Say what? You must mean that you will not be adding more to your national debt, because I know that I certainly won’t be adding to the national debt, so you need to take the we out of that statement buddy. The real question is how are you going to pay back the trillions of dollars that you have already squandered? And here’s another riddle – What will the U.S.A.’s gross domestic product (GDP) need grow to by the year 2016 in order to keep pace with the present White House occupant’s irrationally exuberant spending spree? And based on the answer to that question, at what annual rate must our economy grow?

If we add the inexperienced CEO’s 2011 to 2016 projected annual budget deficits to fiscal year 2010’s ending national debt balance of $13.6 trillion, then the national debt will equal $19.0 trillion by the year 2016. And you call that “not adding more to the national debt”? So is this guy a pathological liar, or what?

At the end of 2010, the Bureau of Economic Analysis (BEA) reported that gross domestic product (GDP) for the year was $14.6 trillion. So depending on the rate of economic growth over the next 6 years, the national debt may sooner or later exceed GDP. Although even the present White House occupant once stated that the national debt is unsustainable, the question is – as juxtaposed to what? If we take a look back to the days when our debt was sustainable, when the economy was growing at roughly 5% per year with low unemployment, such as in 2003, we will discover that the debt-to-GDP ratio back then was 60.9%. So the question is what do we need to do in order to reduce our debt-to-GDP ratio from its present level of 92.8% back down to 60.9%?

In Scenario #1 (below) we will determine the rate of economic growth necessary in order for GDP to equal our projected debt by the year 2016. In Scenario #2 we will discover the rate of economic growth needed to return to a more healthy debt-to-GDP ratio of 60.9%. Finally, in Scenario #3 we reveal what the debt-to-GDP ratio will be by 2016 if GDP maintains its present growth rate of 3.2% per annum.

Scenario #1 – The budget to nowhere

Gross domestic product must grow from $14.6 to $19.0 trillion in order to equal the National Debt by 2016. In other words, GDP must maintain an average sustained growth rate of 4.5% per year, over the next 6 years, in order to achieve a debt-to-GDP ratio of 100%. This represents ‘the budget to nowhere’. Although, the Bureau of Economic Analysis reports that GDP grew at the rate of 3.2% in the 4th quarter of 2010, as you can deduce, this will not be sufficient to reach the current White House occupant’s pitiful goal of a 100% debt-to-GDP ratio.

Scenario #2 – Back to sanity

In order to return to the more prosperous 2003 debt-to-GDP ratio of 60.9%, GDP must grow at a sustained annual rate of 13.5% over the next 6 years. How likely is this? In order to achieve such a rate of growth, our economy would need to expand at the pace of an emerging market economy, a feat which is hardly doable. This is precisely why the Debt Commission recently stated that we will never grow our way out of this fiscal disaster.

Scenario #3 – Your new reality

Finally, if GDP maintains the present annual growth rate of 3.2%, then our debt-to-GDP ratio will have reached 107.4% by 2016. Welcome to reality, and to a future of bonded labor. This doesn’t look like winning the future to me, it looks more like a donkey in a quagmire.

Conclusion

The present White House occupant’s budget plan leads to disaster. What most of us wanted to hear was a plan for paying off the debt which he alone has run up over the last two years, not more debt evasion. Face it, there is only one way out of this mess. The first thing we need to do is to derail all of this administration’s reckless spending initiatives. Secondly, government spending must be cut, slashed, and cut again. And finally, we must get this fiscally bankrupt pathological liar out of the White House, by any means necessary. By any means necessary. And as far as who will be the next POTUS; throw a dart. While I am not certain about who it will be, I definitely know who will be packing up at the end of 2012, if not sooner.

Sources:

http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/hist01z1.xls

http://www.bea.gov/newsreleases/national/gdp/2011/xls/gdp4q10_adv.xls

http://www.treasurydirect.gov/NP/NPGateway

Derailed by Amtrak: The Money Drain

/ L. M. Walker / 5 Comments

Train Wreck

40 Years in the Wilderness

– By: Larry Walker, Jr. –

Since 1971, the federal government has invested a total of $32.4 billion into the National Railroad Passenger Corporation (a.k.a. “Amtrak”). In return for this lucrative investment of taxpayer’s dollars, Amtrak has accumulated total net losses of $27.1 billion. If we were to average our investment over the last 40 years, it would equal approximately $810 million per year, yet in 2009 and 2010 U.S. taxpayers have pumped in an additional $1.6 billion and $2.4 billion, respectively. Thus it appears that Amtrak’s drain on our collective pocketbook is increasing. Likewise, if we were to average Amtrak’s losses over the past 40 years they would equal approximately $677 million per year, yet in 2009 and 2010 U.S. taxpayers have incurred losses of $1.5 billion and $1.4 billion, respectively. So it appears that our losses are also accelerating.

Paid In Capital

——

Comprehensive Loss

According to the latest independent auditors’ report, which was issued on December 16, 2010, “The Company has a history of substantial operating losses and is dependent upon substantial Federal government subsidies to sustain its operations…. Without such subsidies, Amtrak will not be able to continue to operate in its current form and significant operating changes, restructuring or bankruptcy may occur. Such changes or restructuring would likely result in asset impairments.” And that is exactly what needs to happen. Any entity which is run-by, backed-by, or subsidized-by the federal government and not able to sustain itself without reliance on the general fund should be either privatized, or shut down. The following excerpts are from the independent auditors’ report:

KPMG LLP
1676 International Drive
McLean, VA 22102

Independent Auditors’ Report
The Board of Directors and Stockholders
National Railroad Passenger Corporation:

{….} The Company has a history of substantial operating losses and is dependent upon substantial Federal government subsidies to sustain its operations. The Company is operating under continuing resolutions through December 18, 2010 as discussed in Note 2 to the consolidated financial statements. The Company expects to receive additional interim Federal government funding under continuing resolutions until the fiscal year 2011 funding is approved. There are currently no Federal government subsidies appropriated for the fiscal year ending September 30, 2012 (“fiscal year 2012”). Without such subsidies, Amtrak will not be able to continue to operate in its current form and significant operating changes, restructuring or bankruptcy may occur. Such changes or restructuring would likely result in asset impairments. {….}

December 16, 2010

{….}

NOTE 1: NATURE OF OPERATIONS

The National Railroad Passenger Corporation (“Amtrak” or the “Company”) is a passenger railroad. The United States government (the “Federal Government”) through the United States Department of Transportation (the “DOT”) owns all issued and outstanding preferred stock. Amtrak’s principal business is to provide rail passenger transportation service in the major intercity travel markets of the United States. The Company also operates commuter rail operations on behalf of several states and transit agencies, provides equipment and right-of-way maintenance services, and has leasing operations.

NOTE 2: BUSINESS CONDITION AND LIQUIDITY
Operations and Liquidity

Amtrak was incorporated in 1971 pursuant to the Rail Passenger Service Act of 1970 and is authorized to operate a nationwide system of passenger rail transportation. The Company has a history of recurring operating losses and is dependent on subsidies from the Federal Government to operate the national passenger rail system and maintain the underlying infrastructure. These subsidies are usually received through annual appropriations. In recent fiscal years appropriated funds for Amtrak have been provided to the DOT, which through its agency the Federal Railroad Administration (the “FRA”), provides those funds to Amtrak pursuant to operating funds and capital funds grant agreements, respectively. Amtrak’s ability to continue operating in its current form is dependent upon the continued receipt of subsidies from the Federal Government.

{….}

Audited Consolidated Financial Statements – Fiscal Year 2010

I love traveling by Amtrak but, to be honest, I have only ridden with them two or three times in the last 40 years. Amtrak, we love you, but you’ve got to go. If Amtrak is not able to make a profit, and thus return money to its investors, namely us, then what good is it? I could have flown to Cleveland for half the price that I paid for a sleeper car, and in a couple of hours versus the twenty-four that it took Amtrak. I literally can’t believe that having paid over $1,500 to ride from Atlanta to Cleveland, and back, that these guys can’t make a profit. I mean come on. Investing more public money into new rails and high speed trains is not the answer. Do you really believe that more people will ride trains if they were just a little bit faster? One can only imagine how much higher the fares (and losses) would be after such nonsense.

Capitalization (click to enlarge)

It’s time to fish, or cut bait. If the private sector can’t make Amtrak profitable, then it can’t be done. Private investors are not dumb enough to continue investing in something month-after-month, year-after-year which has never and will never return a profit, nor are taxpayers. If Amtrak were owned by the private sector, it would be no more. That’s just the way it is in the real-world. At the same time, if there is any hope at all, it lies within the private sector. It’s easy for the government to keep flushing good money down the drain, because it’s not their money. It’s our money, so let us make the choice. No one said it was going to be easy. It’s time to dump Amtrak.

The mandate: Amtrak will make the necessary structural changes to become profitable without additional governmental subsidies, and will return the taxpayers investment to the U.S. Treasury by the end of this fiscal year. If Amtrak continues to incur losses over the current fiscal year, then at close of business on September 30, 2011, its assets shall be sold and all proceeds returned to the Treasury.

Photo: http://media.photobucket.com/image/trainwreck+/rcoiteux/TrainWreck01.jpg

Source: Audited Consolidated Financial Statements – Fiscal Year 2010