debt

Trump’s Dynamic Tax Policy

/ L. M. Walker / 3 Comments

Lower Rates Across The Board

:: By: Larry Walker, II ::

Here’s an excerpt from Donald Trump’s Tax Plan which may be found on his official website www.donaldjtrump.com :

TAX REFORM THAT WILL MAKE AMERICA GREAT AGAIN

The Goals of Donald J. Trump’s Tax Plan

Too few Americans are working, too many jobs have been shipped overseas, and too many middle class families cannot make ends meet. This tax plan directly meets these challenges with four simple goals:

  1. Tax relief for middle class Americans: In order to achieve the American dream, let people keep more money in their pockets and increase after-tax wages.

  2. Simplify the tax code to reduce the headaches Americans face in preparing their taxes and let everyone keep more of their money.

  3. Grow the American economy by discouraging corporate inversions, adding a huge number of new jobs, and making America globally competitive again.

  4. Doesn’t add to our debt and deficit, which are already too large.

The Trump Tax Plan Achieves These Goals

  1. If you are single and earn less than $25,000, or married and jointly earn less than $50,000, you will not owe any income tax. That removes nearly 75 million households – over 50% – from the income tax rolls. They get a new one page form to send the IRS saying, “I win,” those who would otherwise owe income taxes will save an average of nearly $1,000 each.

  2. All other Americans will get a simpler tax code with four brackets – 0%, 10%, 20% and 25% – instead of the current seven. This new tax code eliminates the marriage penalty and the Alternative Minimum Tax (AMT) while providing the lowest tax rate since before World War II.

  3. No business of any size, from a Fortune 500 to a mom and pop shop to a freelancer living job to job, will pay more than 15% of their business income in taxes. This lower rate makes corporate inversions unnecessary by making America’s tax rate one of the best in the world.

  4. No family will have to pay the death tax. You earned and saved that money for your family, not the government. You paid taxes on it when you earned it.

Again, this is only an excerpt; you may read the rest of Trump’s detailed tax plan on his website: Trump – Make America Great Again!

Under the Trump Plan, those in the lowest quintile, and most in the second and third quintiles (depending on marital status) won’t pay any income taxes at all. This is brilliant, considering that as a whole it’s estimated that those making less than $50,000 currently receive back roughly $37 billion more from the government, each year, than they pay in (see table below). This is due to a series of redundant, and costly tax expenditures. Removing upwards of 75 million households from filing requirements actually amounts to savings of no less than $370 billion, in government speak.

When it comes to simplifying the tax code, eliminating the filing requirements of some 75 million households turns out to be a big money saver. It will directly reduce the processing and subsequent examination, by the Internal Revenue Service, of around half of all tax returns currently filed. Since most individuals under this threshold only file to receive refundable tax credits, or to determine that they don’t owe any taxes at all, and around 37% of all individual returns audited involve the Earned Income Credit, once Trump’s plan is implemented the size of the IRS may be reduced dramatically.

Under Trump’s plan, if you are single, the first $25,000 you earn won’t be taxable, and if you are married, the first $50,000 you earn will be exempt from taxes (see table below). This will amount to a huge tax cut for the many, at the expense of a few. Compared to Dr. Ben Carson’s idea, where the government would get up to $2,500 or $5,000 from the same, Trump’s plan is a huge windfall for the working poor and middle class. Are you for lower taxes? Will this help you?

Trump’s plan lowers the top marginal tax rate to 25%, or to the same level imposed from 1925 to 1931 under the 1924 Mellon Tax Bill. So this is not a shot in the dark, but rather a return to policies the U.S. had in place during the Roaring Twenties, back when the country truly was great. Compared to the present tax code, Trump’s plan will reduce income taxes for a married couple making $85,000 per year from around $8,800 to just $3,500 (assuming 2015 taxable income of $65,000). Does this appeal to you? Is there some part of this plan that you don’t comprehend?

According to Trump, the huge reduction in rates will make many of the current exemptions and deductions unnecessary or redundant. “Those within the 10% bracket will keep all or most of their current deductions. Those within the 20% bracket will keep more than half of their current deductions. Those within the 25% bracket will keep fewer deductions. Charitable giving and mortgage interest deductions will remain unchanged for all taxpayers.”

Trump’s tax plan also reduces corporate taxes from a top rate of 39% to just 15%, making the U.S. one of the most attractive places to do business worldwide. But then he goes a step further, by applying the same 15% cap to income earned by freelancers, sole proprietors, unincorporated small businesses and pass-through entities (i.e. partnerships and S-corporations), which are all taxed at the individual level. According to Trump, these lower rates will provide a tremendous stimulus for the economy, as in significant GDP growth, a huge number of new jobs and an increase in after-tax wages for workers.

Finally, Mr. Trump’s plan eliminates the death tax, reduces or eliminates deductions and loopholes available to the wealthy, phases out the tax exemption on life insurance interest for high-earners, ends the current treatment of carried interest for speculative partnerships, adds a one-time repatriation of corporate cash held overseas at a discounted 10% tax rate, ends the deferral of taxes on corporate income earned abroad, and reduces or eliminates corporate loopholes that cater to special interests.

Coupled with his well aired balanced trade initiative, which seeks to eliminate our ongoing trade deficits with China, Mexico, Japan and other nations, every true Conservative is forced to concede that Donald Trump has a viable, solidly conservative, plan for this economy, and is indeed a serious candidate. Like him or not, when you lay Donald Trump’s tax reduction plan next to any other candidate’s, it’s clear that his plan will have the greatest positive impact on 99% of all Americans. No other plan comes close. It’s time for the mainstream media to stop focusing on the small stuff, and begin taking Trump and his policies seriously.

Related:

2016 Conservative Tax Plans: Trump vs. Carson

Top GDP Growth Rates in U.S. History

30-Year Trade Deficit with Mexico

30-Year Trade Deficit with China

2016 Conservative Tax Plans: Trump vs. Carson

/ L. M. Walker / 3 Comments

Placing Principles before Personalities ::

Every time in this century we’ve lowered the tax rates across the board, on employment, on saving, investment and risk-taking in this economy, revenues went up, not down. ~ Jack Kemp

:: By: Larry Walker, II ::

Dr. Ben Carson doesn’t really have a tax plan at all, yet he’s number 2 in the polls among conservative Republicans. On the other hand, Donald Trump has a very detailed tax reduction plan. In a nutshell, Trump’s plan eliminates taxes on individuals making less than $25,000 and on couples making less than $50,000, lowers the top marginal rate to 25%, just as Calvin Coolidge did under the 1924 Mellon Tax Bill, and lowers the top corporate tax rate to just 15%. It’s time for conservatives to grow up and start focusing on principles rather than personalities. Do that and Trump wins easily.

Dr. Ben Carson’s Tax Theory

Here’s the entirety of Dr. Ben Carson’s Tax Plan which may be found on his official website www.bencarson.com :

The American People Deserve a Better Tax Code

The current tax code now exceeds 74,000 pages in length. That is an abomination.

It is too long, too complex, too burdensome, and too riddled with tax shelters and loopholes that benefit only a few at the direct expense of the many.

We need wholesale tax reform.

And, we won’t get that from career politicians in Washington. They’re too deeply vested in the current system to deliver the kind of bold, fresh, new reforms that the American people are demanding.

We need a fairer, simpler, and more equitable tax system. Our tax form should be able to be completed in less than 15 minutes. This will enable us to end the IRS as we know it.

Yep, that’s it. Thus far, Dr. Carson has been able to skirt by without offering more than a shallow critique of the current tax system. His overly simplistic solution fails to address landlords, freelancers, investors, owners of pass-through entities, owners of multiple entities, corporations, trusts and estates, and the death tax to name a few. A simple tax form that takes 15 minutes might work for someone who receives one or two W-2 Forms, a pension, or Social Security benefits, but it’s not going to cut it for the varied real-life complexities that many Americans face in this day and age.

“It is too long, too complex, too burdensome, and too riddled with tax shelters and loopholes that benefit only a few at the direct expense of the many.” Yeah, yeah, that’s what they all say, but what’s Carson’s alternative? In an interview with FOX Business Network’s Stuart Varney, Dr. Carson elaborated on his tax proposal, stating that it would be based on the Old Testament Biblical principle of tithing. Great, just like the Israelites were commanded to do around the year 1300 B.C.

Dr. Carson stated: “You make $10 billion, you pay a billion. You make $10, you pay one [dollar]. [Of] course I would get rid of all the deductions and all of the loopholes but here’s the key, people, they look at a guy who put in a billion dollars, he’s got $9 billion left, that’s not fair — we need to take more of his money. That’s called socialism. And what made America … a great nation was we had a very different attitude. We would say he just put in a billion dollars, let’s create an environment that’s even better for him so that next year he can make $20 billion and put in $2 billion. That’s how we went from nowhere to the pinnacle of the world in record time. And it’s growth, it’s not taking what’s there and dividing it up and making it smaller.”

According to Dr. Carson’s statement above, “What made America a great nation was we had a very different attitude… That’s how we went from nowhere to the pinnacle of the world in record time,” as if to say that America once had a flat-rate tax structure. But when was that? Perhaps he’s confusing America with pre-Christian Israel, because prior to 1861, and between the years 1873 and 1912, the U.S. government was funded strictly through customs duties and tariffs levied on imported goods.

And, although a 3% flat-rate tax was proposed under the Revenue Act of 1861, as a temporary means of funding the Civil War, no revenue was ever raised under the act, and it was quickly replaced by a progressive rate structure under the Revenue Act of 1862. At no time since the Revenue Act of 1913, and at no time prior, has the U.S. ever been funded by a flat-rate income tax. So where is Dr. Carson coming from?

Okay, so if you make $10, $10,000 or $25,000 under Dr. Carson’s arrangement, you’ll pay $1, $1,000 or $2,500 in taxes. Never mind that depending on the size of your family, after your living expenses have been met, you might not have a penny left wherewith to pay it. Yet this he fathoms as fair. And, according to Dr. Carson, his program is great if you make $10 billion a year, but that’s primarily because you’ll see a 49% reduction in your effective tax rate, from where it is today. But for those less fortunate, including the entire middle class, Carson’s theory will result in a massive tax hike.

Under Dr. Carson’s 10% Deal, individuals within the lowest, second, middle and fourth quintiles, that currently pay average effective individual tax rates of -7.5%, -1.3%, 2.4% and 5.8%, respectively, will see their tax rates rise by at least 72%, and by as much as 233%. Increasing the rate to 15% only compounds the problem. What’s wrong with this picture? Well, for one, the only growth it produces is among the uber-wealthy. In fact, it appears to be just another means of benefiting “only a few at the direct expense of the many” – a direct contradiction to his stated goal.

So let me get this straight. Under Dr. Carson’s tax program, those in the highest quintile, including billionaires, who currently pay an average effective tax rate of 14.2%, will receive a 30% to 49% tax cut, while those in the lower quintiles receive a 72% to 233% tax hike. And how is this supposed to help the economy? More importantly, how does it help you and me? Well, it doesn’t. What Dr. Carson’s strategy actually does is make the rich richer and the poor soul down to his last $10 a dollar poorer.

Carson mentions nothing about corporate tax reform, disincentivizing corporate inversions, balancing trade, growing the economy, or expanding the workforce. He claims his proposal will be revenue neutral, which is at best a farce, but even if it somehow were – why would anyone care? Dr. Carson’s approach ransacks the middle class, plunders the working poor, and only profits the wealthiest among us. It’s a strategy unworthy of consideration by serious-minded conservative voters, as in my opinion is the entire Carson candidacy. Phooey!

Donald Trump’s Tax Plan

Here’s an excerpt from Donald Trump’s Tax Plan which may be found on his official website www.donaldjtrump.com :

TAX REFORM THAT WILL MAKE AMERICA GREAT AGAIN

The Goals of Donald J. Trump’s Tax Plan

Too few Americans are working, too many jobs have been shipped overseas, and too many middle class families cannot make ends meet. This tax plan directly meets these challenges with four simple goals:

  1. Tax relief for middle class Americans: In order to achieve the American dream, let people keep more money in their pockets and increase after-tax wages.

  2. Simplify the tax code to reduce the headaches Americans face in preparing their taxes and let everyone keep more of their money.

  3. Grow the American economy by discouraging corporate inversions, adding a huge number of new jobs, and making America globally competitive again.

  4. Doesn’t add to our debt and deficit, which are already too large.

The Trump Tax Plan Achieves These Goals

  1. If you are single and earn less than $25,000, or married and jointly earn less than $50,000, you will not owe any income tax. That removes nearly 75 million households – over 50% – from the income tax rolls. They get a new one page form to send the IRS saying, “I win,” those who would otherwise owe income taxes will save an average of nearly $1,000 each.

  2. All other Americans will get a simpler tax code with four brackets – 0%, 10%, 20% and 25% – instead of the current seven. This new tax code eliminates the marriage penalty and the Alternative Minimum Tax (AMT) while providing the lowest tax rate since before World War II.

  3. No business of any size, from a Fortune 500 to a mom and pop shop to a freelancer living job to job, will pay more than 15% of their business income in taxes. This lower rate makes corporate inversions unnecessary by making America’s tax rate one of the best in the world.

  4. No family will have to pay the death tax. You earned and saved that money for your family, not the government. You paid taxes on it when you earned it.

Again, this is only an excerpt; you may read the rest of Trump’s detailed tax plan on his website: Trump – Make America Great Again!

Under the Trump Plan, those in the lowest quintile, and most in the second and third quintiles (depending on marital status) won’t pay any income taxes at all. This is brilliant, considering that as a whole it’s estimated that those making less than $50,000 currently receive back roughly $37 billion more from the government, each year, than they pay in (see table below). This is due to a series of redundant, and costly tax expenditures. Removing upwards of 75 million households from filing requirements actually amounts to savings of no less than $370 billion, in government speak.

When it comes to simplifying the tax code, eliminating the filing requirements of some 75 million households turns out to be a big money saver. It will directly reduce the processing and subsequent examination, by the Internal Revenue Service, of around half of all tax returns currently filed. Since most individuals under this threshold only file to receive refundable tax credits, or to determine that they don’t owe any taxes at all, and around 37% of all individual returns audited involve the Earned Income Credit, once Trump’s plan is implemented the size of the IRS may be reduced dramatically.

Under Trump’s plan, if you are single, the first $25,000 you earn won’t be taxable, and if you are married, the first $50,000 you earn will be exempt from taxes (see table below). This will amount to a huge tax cut for the many, at the expense of a few. Compared to Dr. Carson’s idea, where the government would get up to $2,500 or $5,000 from the same, Trump’s plan is a huge windfall for the working poor and middle class. Are you for lower taxes? Will this help you?

Trump’s plan lowers the top marginal tax rate to 25%, or to the same level imposed from 1925 to 1931 under the 1924 Mellon Tax Bill. So this is not a shot in the dark, but rather a return to policies the U.S. had in place during the Roaring Twenties, back when the country truly was great. Compared to the present tax code, Trump’s plan will reduce income taxes for a married couple making $85,000 per year from around $8,800 to just $1,500 (assuming taxable income of $65,000). Does this appeal to you? Is there some part of this plan that you don’t comprehend?

According to Trump, the huge reduction in rates will make many of the current exemptions and deductions unnecessary or redundant. “Those within the 10% bracket will keep all or most of their current deductions. Those within the 20% bracket will keep more than half of their current deductions. Those within the 25% bracket will keep fewer deductions. Charitable giving and mortgage interest deductions will remain unchanged for all taxpayers.”

Trump’s tax plan also reduces corporate taxes from a top rate of 39% to just 15%, making the U.S. one of the most attractive places to do business worldwide. But then he goes a step further, by applying the same 15% cap to income earned by freelancers, sole proprietors, unincorporated small businesses and pass-through entities (i.e. partnerships and s-corporations), which are all taxed at the individual level. According to Trump, these lower rates will provide a tremendous stimulus for the economy, as in significant GDP growth, a huge number of new jobs and an increase in after-tax wages for workers.

Finally, Mr. Trump’s plan eliminates the death tax, reduces or eliminates deductions and loopholes available to the uber-wealthy, phases out the tax exemption on life insurance interest for high-earners, ends the current treatment of carried interest for speculative partnerships, adds a one-time repatriation of corporate cash held overseas at a discounted 10% tax rate, ends the deferral of taxes on corporate income earned abroad, and reduces or eliminates corporate loopholes that cater to special interests.

Coupled with his well aired balanced trade initiative, which seeks to eliminate our ongoing trade deficits with China, Mexico, Japan and other nations, every true Conservative is forced to concede that Donald Trump has a viable solidly conservative plan for this economy, and is indeed a serious candidate. Like him or not, when you lay Donald Trump’s tax reduction plan next to Ben Carson’s tax the poor philosophy, it’s clear that only one has a workable plan. Dr. Ben Carson may be a nice man, but it’s time to admit that there isn’t any substance behind his shallow rhetoric. It’s time for Conservatives to stop focusing on personalities, and start taking Donald Trump and his policies seriously.

Trump’s Dynamic Growth Policies

/ L. M. Walker / 4 Comments

Top GDP Growth Rates in U.S. History

:: By: Larry Walker, II ::

In an October 4, 2015 interview on Meet the Press, Donald Trump was asked which government programs he will cut so his tax reduction plan won’t blow a hole in the deficit.

Trump’s first response described how we are going to save a lot in administrative costs by exempting millions of Americans from filing income tax returns. Under his plan, single individuals making under $25,000 and couples making less than $50,000 will not owe any income tax, and will thus not be required to file tax returns. This totally makes sense to me, as I outlined a similar plan in a post entitled, Tax Simplification, Part II – Saving $1,756 Billion, Overnight. Although it’s only part of the answer, it may actually be a bigger deal than some imagine.

Next, Mr. Trump remarked that his dynamic revenue plan focuses on growth. “We’re going to grow the economy. If China grows at 7%, they’re having a terrible year. We’re saying we can’t grow at 3% or 4%.” Overriding the host’s rude interruptions, Mr. Trump continued, “If we do 6% or 7% under my plan, everybody benefits.”

Snarky host, Chuck Todd, blurted out, “We’ve never done [sic]; we’ve never had a year at 6% or 7%.”

Of course, the public should be aware of Mr. Todd’s background. Although he may sound like an economic expert to some, he actually attended George Washington University from 1990 to 1994, majoring in political science with a minor in music, but never graduated. He certainly lacks proficiency in matters involving business, economics, or finance.

Mr. Todd would have no idea that the U.S. economy has in the past grown at rates as high as follows:

  • 10.8% (1934)
  • 12.9% (1936)
  • 17.7% (1941)
  • 18.9% (1942)
  • 17.0% (1943)

He would likewise have no clue that, back in the good old days, the U.S. economy grew in the 7% to 8% range (see chart below):

  • 7.3% (1984)
  • 7.1% (1955)
  • 8.1% (1951)
  • 8.7% (1950)
  • 8.0% (1944)
  • 8.8% (1940)
  • 8.0% (1939)
  • 8.9% (1935)

In fact, Ronald Reagan was the last American president to put together a cogent pro-growth economic plan which thrust GDP above the 7.0% mark. Of course Mr. Todd could have looked this up before making a fool out of himself and NBC, but like many of his colleagues, he suffers from the recency effect. He is unable to see beyond the pathetic growth rates of -3.0% to 2.5%, which the U.S. has realized since 2009 (i.e. their new normal).

Mr. Trump continued to discuss how his tax plan will disincentivize corporate inversions (where U.S. companies move overseas to capitalize on lower tax rates and cheap labor). He described how his plan will incentivize U.S. companies to bring an estimated $2.1 trillion (or more) in profits held overseas back to the U.S. for domestic investment. Both policies work to raise GDP, expand the workforce and boost tax revenues.

Trump also discussed his plan to balance our longstanding trade deficits with China, Mexico, Japan and other nations through imposing a scaled tariff. Since over the last decade, trade deficits with the three named countries alone amount to $2.7 trillion, $602.6 billion, and $716.5 billion, respectively, Trump’s balanced trade initiative could add another $4.1 trillion to the national economy.

Mr. Todd continued to interrupt, “We still have a hole in the deficit that this tax plan blows open; unless you tell us what you’re cutting.” Of course this is a classic gotcha question, since most liberals view cutting anything, even waste, fraud and abuse, as a negative.

Given the anemic growth rates he and other liberals are accustomed to, failing to account for the $1.8 trillion saved by exempting millions from income tax filing requirements, and gains realized through disincentivizing corporate inversions, recovering overseas profits, and balancing trade, Chuck Todd concluded that Donald Trump’s tax plan may add as much as $10 trillion to the debt over 10 years.

To this, Mr. Trump simply reiterated, “If we can get it (i.e. the growth rate) up to 5% or 6% it’s a huge difference.”

Mr. Todd again interrupted, “Okay, 6% is something we have not done.”

Trump refuted, “Well, we used to do it in the old days.”

It turns out that Mr. Todd is wrong, and that Mr. Trump, who has the kind of thinking America needs to solve its trade, growth, and debt problems, is correct. The chart here shows U.S. GDP growth rates from 1930 through 2014. Growth of 6% or more has been achieved numerous times in the past and is entirely possible in the future. The first step in getting there is to stop listening to know-nothing media pundits. The second step is to elect a president with notable acumen in financial matters.

“Solving a multi-trillion dollar problem just may require the mind of a billionaire.”

References:

Data Worksheet

Bureau of Economic Analysis – Interactive Data

30-Year Trade Deficit with Mexico

30-Year Trade Deficit with China

Tax Simplification, Part II – Saving $1,756 Billion, Overnight

Big U.S. firms hold $2.1 trillion overseas to avoid taxes: Study

An Economic Program for Stimulating U.S. Economic Growth

The Third Conception: Growing the Debt

/ L. M. Walker / Leave a comment

From an Extreme Radical Independent Centrist

– By: Larry Walker II –

In his 1943 study entitled, The New Philosophy of Public Debt, U.S. economist, founder and 1st president of Brookings Institution (1927-1952), Harold G. Moulton expounded on the two conflicting debt philosophies of that era. First was the traditional view, that “a continuously unbalanced budget and rapidly rising public debt imperil the financial stability of the nation.” And, second, the new conception of the day, that “a huge public debt is a national asset rather than a liability and continuous deficit spending is essential to economic prosperity of the nation.”

At the conclusion of Moulton’s study, it was determined that under the latter theory, continuous deficit spending would lead to constant money printing, and thus runaway inflation, culminating in a depression. And, the only way such inflation could be curbed would be through the use of totalitarian methods of control.

“We should have to control wage rates and farm incomes; we should have to regulate corporate earnings; we should have to control investment; we should have to ration commodities; we should have to control rents; we should have to license foreign trade; we should have to supervise, and possibly close the security and commodity markets. Given regimentation of virtually every phase of economic life, the process of inflation might be held in leash.”

However, even advocates of continuous deficit spending rejected such totalitarian control policies, as did the entire nation. Thus following World War II the new philosophy was cast aside, and the United States’ Debt-to-GDP ratio, which had increased from a modest 45.4% in 1941, to a peak of 122.0% in 1946 at the close of the Second World War, was eventually reduced to just 31.8% by 1981 (see chart above).

Jumping forward to today, we find the nation’s debt-to-GDP ratio once again above 100%, currently resting at around 106.5%, as we are lectured by Potus 44 on a completely new conception of public debt. At an Oct. 8, 2013 press conference, Potus 44 broke away from the two prevailing philosophies, debated in Washington D.C. for more than 70 years.

He proffered that there really is no such thing as a debt ceiling, and that even if there were, raising it would not increase the national debt. He declared, “Raising the debt ceiling is a lousy name, which is why members of Congress in both parties don’t like to vote on it, because it makes you vulnerable in political campaigns.” He continued, “Raising the debt ceiling does not increase our debt. It does not grow our deficits. It does not allow for a single dime of increased spending. All it does is allow the Treasury Department to pay for what Congress has already spent.”

Under what we shall term the Third Conception, what federal law calls the debt ceiling is likely just a misnomer, for raising this alleged ceiling won’t increase the nation’s debt, nor increase budget deficits, nor allow for even a single dime of increased spending. In other words, according to Potus 44, scholars of bygone days, including those who once favored unlimited government borrowing and spending, were misguided. Come to find out, there really is no national debt, and even if you choose to call it such, it carries no negative consequences, no matter how high it should climb.

So what are we to make of this? Could it be that the totalitarian control policies required to keep inflation in check are already secretly in place? Or have we drifted so far from reality that we no longer believe what we see with our own eyes? In Budgeting 201: An Immediate Debt Crisis, we saw how the tiny nation of Cyprus buckled as recession hit its economy while its debt-to-GDP ratio stood at around 93%, and we know that this led to the confiscation of funds from private citizen’s bank accounts. Yet our leaders turned a blind eye, as our own debt-to-GDP ratio edged above 100%.

Now, what we hear from Potus 44 is that “all of us need to stop focusing on the lobbyists and the bloggers and the talking heads on radio and the professional activists who profit from conflict and focus on what the majority of Americans sent us here to do.” Yes, and what perchance is that, to grow the size of government, and along with it the National Debt?

To rephrase this, what Potus is saying is that since the final popular vote totals were 65,899,660 for Obama-Biden (51.1%) and 60,932,152 (47.2%) for Romney-Ryan, nearly half of us, or 47.2%, need to stop focusing on what we believe in, and in many cases would give our very lives for, and instead focus on whatever he, the person whom the other 51.1% of America voted for, says, no matter how preposterous, and no matter how much damage it may inflict on the nation as a whole. But who’s to say the other 51.1% actually co-signed on the concept of unlimited increases to the national debt? After all, when campaigning, didn’t Potus 44 himself promise to place the debt in check?

If it be not a debt ceiling, then what shall we call it – a debt sky, or maybe a debt horizon? Perhaps we should begin referring to it as simply “not the debt ceiling”. The truth is, no matter what we choose to call it, as soon as Congress voted to temporarily suspend the thing, the national debt catapulted above the $17 trillion milestone.

Thus, the Third Conception fails the reality test. Sorry, but we don’t compromise on principles merely to satisfy the insane whims of any and every brain-dead person around us. Try that in your own life, if you wish. In fact, Potus 44, himself, once voted against raising the debt ceiling while serving in the U.S. Senate.

As a side-note, Hell will freeze over before I ever purchase a commercial health insurance policy through the federal government. Are you kidding me? You thought people would flock to a federal government owned and operated website to purchase commercial health insurance policies from private insurance companies? Uh, what’s wrong with this picture? Do we really need the middleman? Good luck with that scam.

You see, there’s truth, and then there’s politics. One is real, the other make-believe. Does anyone out there know the difference between danger and fear? Danger is real; fear is imagined. So here’s how one can know the difference. Over the last 26 years, the United States has spent a total of $8.9 trillion on interest payments to service its national debt; $2.0 trillion of that since 2009 alone (see chart above).

Yet, according to the U.S. Treasury, the gross national debt was only $10.0 trillion at the close of fiscal year 2008, and it stands at $17.1 trillion today (see chart below). Herein is our dilemma: Unless interest rates hover near zero-percent forever and ever, this adjustable-rate, interest-only, debt bomb will one day explode, and the annual interest payments thereon will eventually consume every dime of tax revenue. Is this real, or imagined? I guess it doesn’t matter to some, as long as it’s not their money.

If the next generation doesn’t care about the size of the national debt, today, then it will reap the rewards of negligence. Those who care now won’t be around forever to warn of the perils of unlimited government debt, so if that’s how you want it, have it your way. But, don’t say you were never warned about the 70% to 90% income tax rates you’ll eventually enjoy, and don’t forget to send my generation every dime we’re due in Social Security and Medicare entitlements while you figure it all out. Have a great future! I’ll leave you with the following words of wisdom.

“If you will not fight for right when you can easily win without blood shed; if you will not fight when your victory is sure and not too costly; you may come to the moment when you will have to fight with all the odds against you and only a precarious chance of survival. There may even be a worse case. You may have to fight when there is no hope of victory, because it is better to perish than to live as slaves.” ~ Sir Winston Churchill

Related: #Debt

Give Up 300,000 Federal Workers… and then we’ll talk.

/ L. M. Walker / 2 Comments

U.S. Government Shutdown: Negotiation 101

– By: Larry Walker II –

“Treasury Secy. Jack Lew warns the country will run out of money later this month. Actually, that’s another lie. The country ran out of money $17 trillion ago. It’s all borrowed since then, much of it by this administration.” ~ Andrew Malcolm *

The United States federal government shutdown of 1995 and 1996 was the result of conflicts between Democratic President Bill Clinton and the Republican Congress over funding for Medicare, education, the environment, and public health in the 1996 federal budget. The government shut down after Clinton vetoed the spending bill the Republican Party-controlled Congress sent him. The federal government of the United States put non-essential government workers on furlough and suspended non-essential services from November 14 through November 19, 1995 and from December 16, 1995 to January 6, 1996, for a total of 28 days. The major players were President Clinton and Speaker of the U.S. House of Representatives Newt Gingrich.

According to the U.S. Bureau of Labor Statistics, in November of 1995, near the beginning of the shutdown, there were 2,152,900 federal government employees, excluding postal workers. By January 1996, at the end of the shutdown, this number had been trimmed by 110,300, to 2,042,600. After the parties reached an agreement, the number of federal workers was further slashed, by an additional 184,900, falling to it’s lowest point in more than 30 years, all the way to 1,857,700 by October of 2000 (see chart below).

Looking back a bit farther, there were 2,309,200 federal employees in December of 1992, so the number had already been slashed by 254,600 from the time Bill Clinton entered office until the shutdown. All in all, the federal government was able to rid itself of 451,500 non-essential employees between the years 1993 and 2000. Simply amazing!

Unfortunately, since October of 2000, the number of federal employees has grown by 291,200, reaching 2,148,900 by August of 2013. How quickly we forget. But the situation today is even more dire. According to the Cato Institute, “Total wages and benefits paid to executive branch civilians will be about $248 billion in 2013, indicating that compensation is a major federal expense that can be trimmed. During the last decade, compensation of federal employees rose faster than compensation of private-sector employees. As a consequence, the average federal civilian worker now earns 74 percent more in wages and benefits than the average worker in the U.S. private sector.” What’s up with that?

Keeping in mind that the only time the federal budget has balanced in our lifetimes was between the years 1996 and 2000, and putting aside partisan B.S. for a moment, what does that tell you? Was it just a coincidence that balancing the federal budget during this time-frame entailed slashing the number of federal workers to the lowest level in more than three decades? No it wasn’t.

The Bottom Line: What this should tell us is that among the 900,000 (or so) non-essential federal workers just placed on furlough, at least 300,000 need to be sent packing – permanently. There’s no way the federal budget will ever balance again, until the federal government takes serious measures to reduce its own size. The private sector is not the problem; government is the problem. Now is not the time to add new entitlement programs, and ever more federal employees, rather like 1995 it’s time to slash and burn. Give up 300,000 federal workers, then, and only then, may we engage in an adult conversation regarding the remainder of the federal budget.

References and Related:

Chart: Overpaid Federal Workers – Cato Institute

If 900,000 federal workers can be furloughed as ‘non-essential,’ why employ them? – Investor’s Business Daily

Make the Shutdown of Undesirable Federal Departments and Agencies Permanent: A Continuing Resolution is an abomination. – Ideal Taxes Association

U.S. Government Manufactures 469,000 Jobs – Natural Born Conservative

Watcher’s Council Nominations – Storming The Barrycades Edition – Watcher of Weasels

Budgeting 201: An Immediate Debt Crisis

/ L. M. Walker / 1 Comment

USA vs. Cyprus: Gross Government Debt to GDP

– By: Larry Walker, II –

According to Speaker of the House John Boehner, “We do not have an immediate debt crisis.” No, then what would you call it? Seems to me it was immediate in 1995, and again in 2008, so what is it now? Are we just screwed? And according to Barack Obama, “We don’t have an immediate crisis in terms of debt. In fact, for the next 10 years, it’s gonna be in a sustainable place.” Yeah, what place is that, Wonderland? Have you people lost your minds?

The chart above is from data published by the International Monetary Fund in its World Economic Outlook Database, October 2012. Based on what’s happening in Cyprus, for some reason I don’t believe either of them. We had an immediate debt crisis in 1995 when our debt-to-GDP ratio reached 71%, insomuch that the government was shut down. And another in 2008 when it reached 76%, just before all hell broke loose. And now suddenly, as gross U.S. debt has surged beyond 100% of GDP, the problem is no longer immediate. If the debt isn’t an immediate problem, when will it become one? Let me answer that for you.

The debt will become an immediate crisis when our economy inevitably dips into recession, a phenomenon which has occurred historically about once every 5 years since World War II. In fact, recession is exactly what’s happening in Cyprus right now. But surely recession will never reoccur in the U.S., because government fixed that problem once and for all, right? I mean it cost us around $6.7 trillion over the last four years, but the problem is solved, right? With GDP surging at a robust growth rate of 0.4% (revised) in the 4th Quarter of 2012, how can our government possibly be wrong? Oh give me a break!

I believe part of what exacerbated the crisis of 2008 was an excessive amount of government debt. So what do you think is going to happen with our debt hovering above 100% of GDP, as the next crisis hits? Is the U.S. government prepared for another recession? Is there anything left in the tank? It sure doesn’t look like it. Well, we’re not going to sit around and let the government continue to tax us to death, and we’re definitely not going for the unlawful seizure of our money and property, so I suggest you government guys get your act together and get serious about your spending problem, and that means now.

Instead of loosening standards and letting everyone who wants to – go on disability, welfare and food stamps; granting any illegal alien who desires – a free pass; and subsidizing any and everyone’s health insurance bill, while the other half of us and our grandchildren get stuck with the bill, now is the time to tighten standards and cut the slack. The sequester is right! Reducing the size of government is right!

Government needs to learn how to say, “No”. It should be, ‘Sorry, you’re going to have to go back to work, and you’re going to have to go back to your own country, and you’re going to have to chip in on taxes, because we can’t have 50% of the populace taking care of everyone else.’ If our government doesn’t learn how to say no, it’s going to destroy this nation and along with it our freedom. Yes, the debt is an immediate crisis, and it is an imminent threat to the survival of the Republic.

The chart above is from the Federal Reserve Bank of St. Louis. I’ll ask again. Does this look like it might be an immediate crisis, or just a tiny little problem years and years from now? It sure looks immediate to me, but maybe I’m just a bit more focused on surviving the unknowns, than sitting around fooling myself into thinking everything is going to be rosy ten years from now, if I just fold my hands, play a little more golf, and trust that someone else will handle it for me. Yeah, just like Cyprus, right? It’s time to stop playing politics and face reality.

References:

My Data – USA vs. Cyprus: Debt to GDP

IMF: World Economic Outlook Database, October 2012

Related:

Budgeting 101: A Balanced Approach

What Does Sequestration Mean To You?

From AAA to AA- in Four Years

Uncorrelated: GDP and National Debt

#Debt

Budgeting 101: A Balanced Approach

/ L. M. Walker / 1 Comment

I do believe that at some point government has borrowed enough. Although tax revenue is directly tied to economic growth, government spending is not.

– By: Larry Walker, II –

How does one balance a budget? Let me count the ways. Spend less than you take in annually, and you’ll live within your means. But how can governments comply? Why that’s easy. Simply calculate the rate of revenue growth in the previous year, then adjust the prior year’s spending level by this multiple for the current year. If a deficit ensues, trim spending back into balance. If a surplus results, pass it back to taxpayers in the form of tax rate reductions. Most of us would call this a balanced approach.

Of course proponents of big-government will retort, “It doesn’t work like that. We must spend around 50% or more than we take in, to stimulate revenue; so that we can spend around 50% more than we take in, to stimulate even more revenue; so that we can spend around 50% more than we take in, stimulating ever more revenue, ad infinitum…” Yet, it’s rather obvious that the modern day extreme left-wing’s touted correlation between government borrowing and economic growth is nonexistent, as we proved in – Uncorrelated: GDP and National Debt.

It might be helpful for far left-wingers to remember the words of the Original Democrat, Andrew Jackson, who once said, “I am one of those who do not believe that a national debt is a national blessing, but rather a curse to a republic; inasmuch as it is calculated to raise around the administration a moneyed aristocracy dangerous to the liberties of the country.” For more, see my post entitled, From AAA to AA- in Four Years.

You see, “For Jackson politics was very personal,” says H.W. Brands, an Andrew Jackson biographer at the University of Texas. “He hated not just the federal debt. He hated debt at all.” Before he was president, Jackson was a land speculator in Tennessee. He learned to hate debt when a land deal went bad and left him with massive debt and some worthless paper notes. Thus, unlike POTUS #44, Jackson brought practical business experience to the White House.

When he ran for president, Jackson knew his enemy: banks and the national debt. He called it “the national curse”. In Jackson’s mind, debt was “a moral failing”, says Brands. “The idea you could somehow acquire stuff through debt almost seemed like black magic.” But now days, if you listen closely to the Democratic Party, its enemy is no longer the national debt, but rather the average, anti-debt, fiscally responsible, Tea Party patriot.

The Balanced Approach

What would the federal government’s surpluses and deficits look like had it followed a balanced approach since 1929? Per the chart below, having begun with a surplus of $1 billion in 1929, the federal government would have realized a surplus of $835 billion in the 3rd quarter of 2012, compared to an actual deficit of around $1.1 trillion. Of course, all surpluses along the way could have been returned to taxpayers through periodic tax rate reductions, making income tax compliance at least somewhat worthy of the effort.

Under the balanced approach, when all spending is totaled from 1929 through 2012, the federal government would have spent a total of $39.4 trillion, versus the $66.9 trillion actually spent, for savings of $27.5 trillion. That means instead of a national debt fast approaching $17 trillion, we could be sitting on a national surplus of around $10.5 trillion.

The Unbalanced Approach

In contrast, what has the federal government’s unbalanced approach yielded? Per the second chart (below), having begun with a surplus of $1 billion in 1929, the federal government wound up running a budget deficit of approximately $1.1 trillion in the 3rd quarter of 2012. As you can see, the main imbalance has occurred since the year 2008, which is when the federal government adopted its current philosophy, where expenditures are completely decoupled from revenue growth – as if spending is suddenly a function of an imaginary 22nd Century economic boom. Meanwhile, approximately $6.7 trillion has been added to the debt since 2008, and the economy grew at a paltry annual rate of 0.4% (revised) in the 4th Quarter of 2012.

Conclusion

Although federal tax revenue is a function of economic growth, government spending is not. In other words, as the economy grows, tax revenue increases; and as it shrinks, tax revenue declines. Anyone who doesn’t understand this should return to the 6th grade for a refresher in basic math. On the other hand, government spending is a function of revenue. That is to say, as tax revenue rises and falls, so follows the amount available for government expenditures. Surpluses and deficits are directly linked to the level of government spending. When government spends less than it takes in, there is a surplus; when it spends more than it takes in, a deficit. It’s really that simple.

If the federal government is to ever regain control over spending, it must start with the rate of revenue increase (or decrease) in the previous year, since this is the only reasonable way of projecting the amount available for the current year, and then adjust its current year spending level accordingly (up or down). As soon as a deficit appears, the role of government is to trim spending back into balance. When a surplus results, government’s role is to pass the savings back to taxpayers, in the form of tax rate reductions. This we call, “the balanced approach” – and there is none other. Don’t patronize me. There is really only one question, Will the Democratic Party ever recover its bygone common sense?

Reference:

My Worksheet on Google Drive

BEA: Table 3.2. Federal Government Current Receipts and Expenditures

Related:

From AAA to AA- in Four Years

Uncorrelated: GDP and National Debt

#Debt

What Does Sequestration Mean To You?

/ L. M. Walker / 3 Comments

Government is the Problem

– By: Larry Walker II –

“Originally passed as part of the Budget Control Act of 2011 on the heels of the debt ceiling compromise, the sequester was intended to pressure the Joint Select Committee on Deficit Reduction (the “Supercommittee”) to agree on a budget of $1.5 trillion by way of spending cuts and revenue increases over the next decade.”

The above excerpt is from the National Council on Disability’s webpage entitled, What Will Sequestration Mean for People with Disabilities? A similar blurb may now be found on about every other government agency website, followed by a breakdown of how many disabled, homeless, widows and orphans will be left for dead, unless the federal government repeals its week-old budgetary cuts and instead raises taxes by around 40.7% across-the-board, which is about what it would take to come anywhere close to balancing the federal budget without such cuts.

But, the real question is what does the sequestration mean to you? I can’t answer that, but I can tell you what it means to me. What the sequestration means to me is that the U.S. government has decayed to the point of passing dummy laws, solely for the purpose of pressuring the very lawmakers who pass them, to enact real laws. In other words, government enacted the Sequester as law; solely as a means of pressuring itself into repealing it, and when its attempt failed, the mock law remained permanent.

I mean it’s akin to me signing a blood covenant stating that, “In my household, we will do without cable television, cell phone data plans, dining out, movies, snacks, and all other non-necessities, until such time as we actually have the money to pay for it,” but doing so, solely for the purpose of pressuring myself into deciding which we are going to do without – cable television, cell phone data plans, dining out, movies, snacks, or all other non-necessities. However, since there already wasn’t enough money to go around, and since I had already signed the covenant in my own blood, there was really nothing else to decide. So why didn’t I just make that decision from the get go? Actually, I did. “To thine own self be true.” ~ Anonymous

The lesson for government: Don’t pass a law you don’t intend to enforce. And for the public: Government is not the solution to our problems, government is the problem. Signing a bill into law, solely for the purpose of pressuring lawmakers to repeal it, and then whining about it when they refuse, is indicative of the kind of leadership emanating from the White House these days. “In America you have a right to be stupid – if you want to be.” ~ John Kerry, Secretary of State (2/26/2013). Yeah, so who’s looking stupid now?

GAO: “No Opinion” on U.S. Financial Audit

/ L. M. Walker / 3 Comments

Comments on 2012 Financial Statements of the U.S. Government

– By: Larry Walker II –

The Government Accountability Office (GAO) is required to audit financial statements for the U.S. government each year. What the GAO found in its Fiscal Year 2012 Audit published on January 17, 2013 is clearly unacceptable. If you take a few moments to read the report, what you’ll discover is that not only has the U.S. government been operating without a budget for the last three years, but even worse its books and records are so out of order that financial auditors were unable to render an opinion. You can bet that all the major credit rating agencies are paying attention and will render an opinion when judgment day arrives, and that day should be right around the corner. Following are some highlights from the latest report (in italics) along with a brief commentary.

Disclaimer of Opinion

“Because of the federal government’s inability to demonstrate the reliability of significant portions of the U.S. government’s accompanying accrual-based consolidated financial statements for fiscal years 2012 and 2011, principally resulting from limitations related to certain material weaknesses in internal control over financial reporting and other limitations on the scope of our work, we are unable to, and we do not, express an opinion on such accrual-based consolidated financial statements. As a result of these limitations, readers are cautioned that amounts reported in the accrual-based consolidated financial statements and related notes may not be reliable.”

Based on the auditor’s inability to express an opinion on the federal government’s financial statements, it is my opinion that any request to raise the debt ceiling should be summarily denied. Were the federal government a private entity, its creditors would be cashing out now and asking questions later. But since the federal government has a seeming unlimited ability to borrow without ever reducing its debt principal, perhaps my personal perceptions are overly rational. Then again, any decision based upon uncertainty or unreliable information can later come back to bite. If the federal government’s financial statements are so unreliable that auditors are unable to express an opinion, my gut instinct is to limit exposure, cut losses and move on.

“While significant progress has been made in improving federal financial management since the federal government began preparing consolidated financial statements 16 years ago, three major impediments continued to prevent GAO from rendering an opinion on the federal government’s accrual-based consolidated financial statements over this period: (1) serious financial management problems at DOD that have prevented its financial statements from being auditable, (2) the federal government’s inability to adequately account for and reconcile intragovernmental activity and balances between federal agencies, and (3) the federal government’s ineffective process for preparing the consolidated financial statements.”

The Department of Defense (DOD) is no longer the largest drag on the federal budget; the Department of Health and Human Services (HHS) came in at number one last year, while the Social Security Administration (SSA) clocked in at number two, responsible for 23% and 22% of net federal costs, respectively. DOD now represents the 3rd largest item in the federal budget, consuming 21% of the government’s $3.8 trillion in net costs for FY 2012, yet its financial statements are currently not auditable. That means we really have no idea what DOD is buying, what it already owns, or the true nature of its future liabilities.

Further, according to GAO, most of the increase in DOD’s cost during FY 2012 was attributed to its Military Retirement Fund and other benefits programs. Since at the same time, the bulk of HHS and SSA costs come from major social insurance and postemployment benefits programs administered by those agencies (e.g., Medicare for HHS, and Social Security for SSA), that means better than 50% of federal spending (more than $1.9 Trillion) is directed towards retirement security, medical care, and other social welfare programs, which technically account for the entire $1.3 trillion shortfall realized by the federal government in FY 2012, and then some.

Intragovernmental Insanity

The national debt is comprised of debt held by the public and intragovernmental holdings. Intragovernmental holdings are debts the federal government owes to itself, a phenomenon only possible within the realm of the criminally insane. For example, as of the end of FY 2012, the Treasury has borrowed a total of $2.7 trillion from the Social Security Administration (its entire Trust Fund), and more recently from federal employee pension funds in order to meet its unmanageable over-inflated obligations. The total debt outstanding has grown from $5.7 trillion at the end of fiscal year 2000 to $16.4 trillion as of January 17, 2013. Included within this figure, intragovernmental debt has grown from $2.3 trillion at the end of fiscal year 2000 to $4.9 trillion as of January 17, 2013 (see table below).

As if the sheer weight of its total debt isn’t bad enough, according to GAO, the federal government can no longer adequately account for and reconcile its intragovernmental activity or the balances owed between federal agencies. Here’s an example. Back on June 28, 2010, the United States Postal Service, Office of Inspector General (OIG) discovered that the Postal Service had made a $75 billion overpayment to the Civil Service Retirement System (CSRS). However, since according to Note 24 of the GAO report (page 120), the Civil Service Retirement and Disability, and Civil Service Health Benefits Program Trust Funds are currently $849.1 billion and $240.0 billion in the hole, respectively, why would CSRS care?

USPS to CSRS: “Hey, you guys owe us $75 billion.”

CSRS to USPS: “Hey, give us a break; we’re already over a trillion dollars in the hole.”

USPS to CSRS: “My bad, we keep forgetting.”

World War Infinity

“Prior to 1917, the Congress approved each debt issuance. In 1917, to facilitate planning in World War I, Congress established a dollar ceiling for Federal borrowing. With the Public Debt Act of 1941 (Public Law 77-7), Congress and the President set an overall limit of $65 billion on Treasury debt obligations that could be outstanding at any one time. Since then, Congress and the President have enacted a number of debt limit increases. Most recently, pursuant to the Budget Control Act (BCA) of 2011, the debt limit was raised by $400 billion in August 2011 to $14.694 trillion, by $500 billion in September 2011 to $15.194 trillion, and by $1.2 trillion to $16.394 trillion in January 2012.”

Let’s make this clear. Prior to 1917, Congress approved each and every debt issuance request made by the Treasury Department. It was with the outbreak of the 1st World War that a debt ceiling was first established. This gave the Treasury some latitude in keeping the government afloat without impairing wartime activities. So it would make sense that after the end of World Wars I and II, Congress would resume its role of approving each debt issuance. But instead, the U.S. government has morphed into a permanent war mentality. Now, a small minority of borderline insane pundits are actually advocating for complete removal of any form of debt ceiling. It’s World War Infinity, they surmise. Like spoiled little children, they have conned themselves into believing that the role of government is to borrow and spend our way into a utopian entitlement paradise. Where are the adults?

Material Weaknesses

“In addition to the material weaknesses underlying these major impediments, GAO identified four other material weaknesses. These are the federal government’s inability to (1) determine the full extent to which improper payments occur and reasonably assure that appropriate actions are taken to reduce improper payments, (2) identify and resolve information security control deficiencies and manage information security risks on an ongoing basis, (3) effectively manage its tax collection activities, and (4) effectively monitor and report loans receivable and loan guarantee liabilities.”

While a minority within the realm of the spoiled and irresponsible are vying for total removal of any limits on the national debt, we have just been informed that the federal government has no control over improper payments, no ability to manage information security risks, cannot effectively manage its tax collections, and is unable to effectively monitor and report its loans receivable and its ballooning loan guarantee liabilities. It seems to me that the federal government should get a grip on its internal infrastructure before another dime is borrowed or spent. However, even if the federal government were able to show improvement in these areas, there are other issues on the horizon threatening to derail its entire operation.

Risks and Uncertainty

According to GAO, there are risks that other factors could affect the federal government’s financial condition in the future, including the following:

  • The U.S. Postal Service (USPS) is facing a deteriorating financial situation as it reached its borrowing limit of $15 billion in fiscal year 2012 and finished the year with a reported net loss of almost $16 billion.

  • The Federal Housing Administration (FHA) reported that its liabilities exceeded its assets by about $15 billion as of September 30, 2012, and that the capital ratio for its Mutual Mortgage Insurance Fund fell below zero during the fiscal year. In addition, the ultimate roles of Fannie Mae and Freddie Mac in the mortgage market may further affect FHA’s financial condition.

  • Several initiatives undertaken during the last 4 years by the Board of Governors of the Federal Reserve System to stabilize the financial markets have led to a significant change in the composition and size of reported securities on the Federal Reserve’s balance sheet. The value of these securities, which include mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac, and the Government National Mortgage Association, is subject to interest rate risk and may decline or increase depending on interest rate changes. Therefore, if the Federal Reserve sells these securities at a loss, future payments of Federal Reserve earnings to the federal government may be reduced.

The USPS, FHA, and Federal Reserve are in over their heads, and either technically bankrupt, or soon to be. Yet, the only answer proffered by our so-called leaders in Washington, DC is to keep borrowing. Is this really the only viable solution? The Post Office borrowed $15 billion and then lost almost $16 billion last year. Does that sound like an entity worthy of another loan? Not in my world. It seems to me that instead of continuing to prop it up, it’s time for the USPS to go the way of the dinosaurs. The FHA and Federal Reserve can follow suit.

Also according to GAO, examples of assets and liabilities reported by the federal government that are subject to substantial uncertainty include the following:

  • The federal government’s consolidated financial statements as of September 30, 2012, include approximately $109 billion of investments in two government-sponsored enterprises—the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) (reported net of about $85 billion in valuation losses). In addition, as of September 30, 2012, the financial statements include about $9 billion of liabilities for future payments to Fannie Mae and Freddie Mac and disclose a projected maximum remaining potential commitment to these entities of about $282 billion under agreements between Treasury and the entities. The future structures of these two government-sponsored enterprises and the roles they will serve in the mortgage market must still be determined.

  • The federal government reported Troubled Asset Relief Program (TARP) direct loans and equity investments of approximately $40 billion as of September 30, 2012 (reported net of about $23 billion in valuation losses), of which approximately $20 billion related to loans to and equity investments in certain entities in the automotive industry.

  • The federal government reported that the Pension Benefit Guaranty Corporation’s (PBGC) liabilities exceeded its assets by about $34 billion as of September 30, 2012. PBGC is subject to further losses if plan terminations that are reasonably possible occur.

In other words, the federal government “invested” $109 billion into Fannie Mae and Freddie Mac, which resulted in $85 billion in valuation losses, yet it plans to invest another $291 billion going forward. Another $63 billion was invested in loans made to TARP, which reported $23 billion in valuation losses ($20 billion of which is attributable to loans made to the auto industry). And the PBGC’s liabilities now exceed its assets by around $34 billion and it may be subject to further losses going forward. And what’s the federal government’s solution? Raise the debt ceiling, borrow more, and keep propping up failed entities, otherwise it fears the whole house of cards may come crashing down. Perhaps it’s time to get real and just go ahead and begin dismantling the entire criminal enterprise, one failed agency, entity and fund at a time.

Conclusion

The GAO was not able to express an opinion on the U.S. government’s financial statements, but that doesn’t stop us from reading between the lines. Either we deal with our fiscal problems now, or later. Leaving my granddaughter’s a legacy of failure is not something I’m willing to support. It’s time to grow up, and demonstrate it by cutting the federal government down to its bare bones. Do this today and we might have a chance; wait until tomorrow, and according to GAO, the U.S.A.’s debt-to-GDP ratio will reach 395% by fiscal year 2087 and rise continuously thereafter. If Congress raises the federal government’s debt ceiling without fundamental fiscal reform, then we all deserve everything we’ve got coming to us, nothing. Until such reform takes place, government ilk can count me out. Don’t call me, don’t write me, don’t ask me to invest in federal debt issues, and don’t dare ask me for another dime.

References:

Financial Audit: U.S. Government’s Fiscal Years 2012 and 2011 Consolidated Financial Statements

What GAO Found

Related:

War on Wealth III | National Debt Review

Postal Service OIG Discovers $75 Billion Overpayment, Again

Social Security: A Breach of Trust – Notes on 2010 Financial Statements of the U.S. Government

Debt Ceiling: Evidence of Absence

/ L. M. Walker / Leave a comment

“Raising the debt ceiling does not authorize more spending. It simply allows the country to pay for spending that Congress has already committed to.” ~ POTUS ::

:: By: Larry Walker II ::

Wow, that was enlightening. I really had no idea. Now I get it. He must be talking about last year, when Congress voted unanimously in favor of the president’s budget, then walked it over to the Senate, which also unanimously approved. That’s when Congress committed to another trillion dollars of deficit spending, right?

Too bad that never happened. In reality, the president’s budget failed to attain a single vote in Congress.

“Before taking up their own budget plan for next year, House Republicans pushed a version of President Obama’s $3.6 trillion budget to the floor for a vote, and it was it was unanimously defeated, 414-0.” ~ Fox News (March 28, 2012)

“President Obama’s budget suffered a second embarrassing defeat Wednesday, when senators voted 99-0 to reject it.” ~ Washington Times (May 16, 2012)

Well, perhaps he meant this year, when Congress approved an across-the-board tax hike on every American, and at the same time delayed the previously committed automatic spending cuts for two months? But wasn’t that less about spending and more about fairness (or something)?

“President Obama signed into law the American Taxpayer Relief Act (H.R. 8) late Jan. 2, permanently extending the 2001 and 2003 tax cuts for individuals earning up to $400,000 and postponing automatic, across-the-board spending cuts for two months.” ~ Bloomberg BNA (January 7, 2013)

Now I’m confused. Exactly when did Congress commit to another trillion dollars in deficit spending?

Evidence of Absence

Evidence of absence is evidence of any kind that suggests something is missing or that it does not exist. For example: If it’s raining outside, then the streets will be wet. So it may be assumed that if the streets are not wet, then it is not raining outside. Does that make sense? If so, then so should the following:

The national debt increases when government spending is out of control, so if the national debt does not increase, then government spending is under control.

So what is a debt ceiling? Is it not a limit which prevents the nation from incurring additional debt, beyond a level which Congress has already committed to? If so, then POTUS may have it backwards (as usual). If raising the debt ceiling does not authorize more spending, as POTUS so stated, then it may also be said that, not raising the debt ceiling does not authorize less spending. But that’s just nonsense.

I hate to spoil the party, but since the previous increase to the debt ceiling has already been spent, we must conclude that government spending is indeed out of control. Thus, the real issue is not whether Congress should raise the debt ceiling (once again), but rather who, or what, keeps authorizing the federal government’s blatantly obvious spending problem.

Let us be clear. The absence of positive action to increase the debt ceiling will cause the size of government to decrease. Contrariwise, the act of raising the debt ceiling leads to increased spending, more indebtedness, higher taxes and bigger government. If the debt ceiling is not raised, then the federal government must live within its means. So what’s it going to be? Shall we begin living within our means, or will we trudge forward, wantonly borrowing, seemingly without limit?

References:

Evidence of Absence

Appeal to Ignorance (Shifting the Burden of Proof)

Argument from Ignorance

List of Fallacies