Wall Street Journal
Monday January 28, 2008 Pg A14
As every reformed addict knows, the road to recovery is long and hard. So it is for Republicans who became addicted to spending "earmarks" while running Congress, lost their majority in large part because of it, and are now struggling with mixed results to dry out.
Their latest halting effort in what appears to be at least a 12-step recovery plan will come tonight, when President Bush uses his State of the Union address to lay down his toughest anti-earmakring pledge to date. We're told he will tell Congress that he will veto any fiscal 2009 spending bills that doesn't cut earmarks in half from 2008 levels. He will also report that he is issuing a Presidential order informing executive departments that from now on they should refuse to fund earmarks that aren't explicitly mentioned in statutory language.
This is progress, though frankly less than we had hoped because Mr. Bush's executive order will not aply to the fiscal 2008 spending bills that passed late last yaer. Congress endorsed 11,735 special-interest earmarks worth $16.9 billion in fiscal 2008, yet thousands of these weren't even written into the actual budget bills. Instead, they were "air-dropped" at the last minute into non-binding conference reports that serve as advice to federal departments about where to allocate funds. This ruse means that earmarks are able to avoid scrutiny from spending hawks on the House and Senate floor.
We argued in December that Mr. Bush had the legal authority to refuse to fund those this year as well. But in the end we hear he acceded to the argument from Capitol Hill that because he hadn't made a specific earmark veto pledge last year, he would be sandbagging Congress after the fact and courting its wrath.
The President had, however, said the following last year: "even worse, over 90% of earmarks never make it to the floor of the House and Senate - they are dropped into committee reports taht are not even part of the bill that arrives on my desk. You didn't vote them into law. I didn't sign them into law. Yet they're treated as if they have the force of law. The time has come to end this practice." Members in both parties whooped and hollered in approval, even as they could barely contain their self-knowing grins.
Senate Republicans in particular lobbied hard to stop Presidential action against their 2008 earmarks, in the strange belief that they will help incumbent Members in close races this fall, including Minority Leader Mitch McConnell of Kentucky. This shows that Senate Republicans haven't even taken the first essential step of admitting their addiction.
They also don't understand that pork is overrated as incumbent protection, as ex-Congresswoman Anne Northup of Kentucky found out last year. She received five times as much pork as the average House Member, but still lost her Louisville district. Conrad Burns delivered $2 billion in earmarks for Montana - about $5,000 for every voter - but he lost too. Five pork-barrelling Republicans on the Appropriations Committee in the House and Senate were defeated in 2006. The pork could well boomerang again this year if certain GOP incumbents under investigation for earmark favoritism for political allies are indicted before Election Day.
House Republicans at least made some progress at their annual retreat late last week, offering a one-year moratorium on earmarks if Democrats go along. That probably won't happen, however. So the GOP leadership could help itself with voters by endorsing Arizona Representative Jeff Flake's request to join the Appropriations Committee, where he could serve as a taxpayer watchdog. Imagine how he could torment such all-world earmarkers as Pennsylvania Democrat Jack Murtha?
Mr. Bush's strategy of drawing a harder line on the fiscal 2009 budget might at least force an anti-earmark showdown this autumn. An an executive order will set a precedent for the next President, who would pay a political price to repeal it. But Republicans are still missing a major opportunity this year to restore their fiscal credibility by swearing off earmarking altogether. You can't claim to have kicked the habit if you keep hitting the vodka bottle in your desk drawer.
Tuesday, February 26, 2008
Economic jitters reach younger workers
by Gita Sitaramiah
St. Paul Pioneer Press
Monday January 28, 2008 Pg 1A
Justin Fox sat his girlfriend down recently and said he'd be cutting bak on their dinner and movie dates. It's not that he's just not that into her: He's worried about the future, even though the 26-year-old made a handsome six-figure income last year.
Blame recession fears. Although economists continue to debate whether we're headed for one - or perhaps already mired in one - many consumers are voting with their wallets.
For younger workers like Fox, the prospect of a second recession so early in their careers is particularly unsettling. Experts say it could affect them long after the economy kicks back into gear.
The tumult of the housing market and rising gas and food prices have prompted Fox, a real estate broker, to pay off his Chevy Tahoe, reduce his home equity debt and move the drnks and dinner outings with this girlfriend and buddies to his Cottage Grove home.
"I probably save $300 or more a month from before, paying for two people to eat and go out to movies," he said.
The financial stress for Gen X and Y is in some ways no different than any other group starting out. Wages often are lower in first and second jobs - Fox notwithstanding - and savings nonexistent.
What makes things different is that today's young adults are carrying more debt and facing higher housing costs in inflation-adjusted dollars than their parents did. Tack on higher expectations by many raised in solidly middle-class households with indulgent parents, and the stress level spikes.
"The first 10 years of your adult work life is when the fastest wage growth happens, so to expect back-to-back recessions during that first 10 years can have a fundamental effect on your whole working life," said Tamara Draut, author of "Strapped: Why America's 20- and 30-Somethings Can't Get Ahead."
"Add on to the mix that this is a generation that's just been walloped by student loan and credit card debt, so their long-term financial outlook could be bleaker than even I have predicted," Draut said.
Adult children of babyboomers are much more likely than their parents or grandparents to report feeling stress regarding finances, according to a new Ameriprise Fianancial "Money Across Generations" study. Young adults were much more reluctant to part witht heir money than older generations and expressed the lowest level of confidence that now is a good time to purchase, said a study of 301 adult children of baby boomers averaging 29-1/2 years old.
They may have reason to be more concerned if recession strikes. "They may be some of the first laid off because of lack of experience or tenure with a particular company," said Ginger Ewing, a senior financial adviser for Ameriprise Financial.
On the bright side, one of the great things about being young is the room to make changes to prepare for the future, said Clarky Davis, the Raleigh, N.C.-based author of the CareOne Credit Counseling Debt Diva blog. "If you're young, you can get a rommate, you don't mind getting a second job, you're more willing to take risks and extend yourself as far as work, and that's a good thing," she said.
Bree Halverson, 27, used to be a spender. The St. Paul resident reined in her shoe addiction, gives fewer Christmas presents and will no longer dine out with friends on weeknights, only on weekends, to pay down college and credit card debt and one day buy a house.
"I bought a Crockpot, and I'm going to be eating in more," said Halverson, a political organizer for St. Paul Trades and Labor Assembly who makes less than $50,000 and recently earned a graduate degree and some related debt.
Despite her savings plan, she's scared. The thought of retirement planning makes her anxious, despite having a union job with a pension plan. "I worry about Social Security," she said. "I don't know if I'll have to work until I'm 75."
Even big savers such as Yang Zhang Madsen, a 29-year-old city planner who lives in St. Paul, and her husband, who make a household income around the Twin Cities median of $62,223, are postponing starting a family. The decision is "a little bit about economics, because if I had a child, one of us wouldn't work full time," she said.
Kate Smith, 30, and her husband bought a house in St. Paul, started a business together and had a baby this past year. Their household income will be down to $30,000 from around $75,000 last year. She doesn't go to Kowalski's anymore. The "fancy cheeses" are too tempting; she sticks to co-op trips only. There are no more liquor store stops for beer, either.
For Smith, who grew up going on a family vacation every year, not having disposable income is tough, but she figures everybody struggles along the way. She's decided she and her friends need to do a better job at managing expectations.
"Our parents grew up with less and tried to provide us with more," she said. "And we take things for granted."
St. Paul Pioneer Press
Monday January 28, 2008 Pg 1A
Justin Fox sat his girlfriend down recently and said he'd be cutting bak on their dinner and movie dates. It's not that he's just not that into her: He's worried about the future, even though the 26-year-old made a handsome six-figure income last year.
Blame recession fears. Although economists continue to debate whether we're headed for one - or perhaps already mired in one - many consumers are voting with their wallets.
For younger workers like Fox, the prospect of a second recession so early in their careers is particularly unsettling. Experts say it could affect them long after the economy kicks back into gear.
The tumult of the housing market and rising gas and food prices have prompted Fox, a real estate broker, to pay off his Chevy Tahoe, reduce his home equity debt and move the drnks and dinner outings with this girlfriend and buddies to his Cottage Grove home.
"I probably save $300 or more a month from before, paying for two people to eat and go out to movies," he said.
The financial stress for Gen X and Y is in some ways no different than any other group starting out. Wages often are lower in first and second jobs - Fox notwithstanding - and savings nonexistent.
What makes things different is that today's young adults are carrying more debt and facing higher housing costs in inflation-adjusted dollars than their parents did. Tack on higher expectations by many raised in solidly middle-class households with indulgent parents, and the stress level spikes.
"The first 10 years of your adult work life is when the fastest wage growth happens, so to expect back-to-back recessions during that first 10 years can have a fundamental effect on your whole working life," said Tamara Draut, author of "Strapped: Why America's 20- and 30-Somethings Can't Get Ahead."
"Add on to the mix that this is a generation that's just been walloped by student loan and credit card debt, so their long-term financial outlook could be bleaker than even I have predicted," Draut said.
Adult children of babyboomers are much more likely than their parents or grandparents to report feeling stress regarding finances, according to a new Ameriprise Fianancial "Money Across Generations" study. Young adults were much more reluctant to part witht heir money than older generations and expressed the lowest level of confidence that now is a good time to purchase, said a study of 301 adult children of baby boomers averaging 29-1/2 years old.
They may have reason to be more concerned if recession strikes. "They may be some of the first laid off because of lack of experience or tenure with a particular company," said Ginger Ewing, a senior financial adviser for Ameriprise Financial.
On the bright side, one of the great things about being young is the room to make changes to prepare for the future, said Clarky Davis, the Raleigh, N.C.-based author of the CareOne Credit Counseling Debt Diva blog. "If you're young, you can get a rommate, you don't mind getting a second job, you're more willing to take risks and extend yourself as far as work, and that's a good thing," she said.
Bree Halverson, 27, used to be a spender. The St. Paul resident reined in her shoe addiction, gives fewer Christmas presents and will no longer dine out with friends on weeknights, only on weekends, to pay down college and credit card debt and one day buy a house.
"I bought a Crockpot, and I'm going to be eating in more," said Halverson, a political organizer for St. Paul Trades and Labor Assembly who makes less than $50,000 and recently earned a graduate degree and some related debt.
Despite her savings plan, she's scared. The thought of retirement planning makes her anxious, despite having a union job with a pension plan. "I worry about Social Security," she said. "I don't know if I'll have to work until I'm 75."
Even big savers such as Yang Zhang Madsen, a 29-year-old city planner who lives in St. Paul, and her husband, who make a household income around the Twin Cities median of $62,223, are postponing starting a family. The decision is "a little bit about economics, because if I had a child, one of us wouldn't work full time," she said.
Kate Smith, 30, and her husband bought a house in St. Paul, started a business together and had a baby this past year. Their household income will be down to $30,000 from around $75,000 last year. She doesn't go to Kowalski's anymore. The "fancy cheeses" are too tempting; she sticks to co-op trips only. There are no more liquor store stops for beer, either.
For Smith, who grew up going on a family vacation every year, not having disposable income is tough, but she figures everybody struggles along the way. She's decided she and her friends need to do a better job at managing expectations.
"Our parents grew up with less and tried to provide us with more," she said. "And we take things for granted."
Monday, February 25, 2008
Auditors Recoup Millions For Medicare but Assailed
By Theo Francis
Wall Street Journal
January 26-27, 2008 Weekend Edition Pg A12
A pilot program to audit Medicare claims filed by hospitals and others in three states recouped nearly $250 million last year but is drawing fire from health-care providers as it prepares to go national over the coming year.
The program, which relies on private-sector auditing firms to comb through past claims filed by hospitals and other medical providers, recovered $247.4 million for Medicare last year from medical providers in California, Florida and New York, according to figures from the federal Centers for Medicare and Medicaid Services.
But hospital groups have mounted a campaign against its expansion, saying the effort is "riddled with flaws" and suffered too many problems to expand so soon. Chief among their complaints: The program's reliance on what some hospitals called a "'bounty hunter' payment mechanism" - contingency fees that reward the auditorsan incentive to be thorough at little cost to the government, since the fees come from funds the government otherwise wouldn't have recovered. Critics counter that it encourages the auditors to be too aggressive.
"Any kind of question is a reason for denial," even in subjective decisions such as determining whether an expense was medically necessary, said Don May, vice president for policy at the American Hospital Association. "Going at it from this kind of perspective really isn't, I don't believe, in the best interest of taxpayers."
The program has encountered problems. After California hospitals complained last year - enlisting help from congressional representatives - CMS spot-checked claims from inpatient rehabilition facilities that had been rejected in audits. The review upheld 60% of the auditor's findings, but determined that many had been handled inconsistently.
Medicare considers the program a success, both in recovering pasat improper payments and as a deterrent to future overbilling. "[W]e believe recovery auditing is a valuable tool in the Medicare program," Kerry Weems, the acting CMS administrator, wrote the California lawmakers last month.
Overall, auditors identified $357 million in overpayments in fiscal 2007, of which $17.8 million - or 7.1% of appealed claims - were overturned on appeal, according to CMS figures. An additional $77.7 million went to contingency fees and other administrative expenses, and the auditors identified $14.3 million in underpayments - situations in which Medicare should have paid more than it did.
Hospital groups have also complained that many claim reviews weren't done by qualified medical personnel, that the process doesn't give providers an opportunity to fix errors and that the auditors haven't been required to publicize what areas they are targeting. They also note that CMS isn't required to take the audit program national until 2010.
Supporters of the program note that in expanding the program, CMS is addressing many of these concerns: Auditing firms will have to have a medical director and medical-coding experts, return contingency fees for claims upheld on appeal even when further appeals are possible, and notify CMS sooner if they identify new kinds of problem claims. The national program also shortens the period auditors could review to three years from four, and puts all claims filed before October 2007 off-limits.
Wall Street Journal
January 26-27, 2008 Weekend Edition Pg A12
A pilot program to audit Medicare claims filed by hospitals and others in three states recouped nearly $250 million last year but is drawing fire from health-care providers as it prepares to go national over the coming year.
The program, which relies on private-sector auditing firms to comb through past claims filed by hospitals and other medical providers, recovered $247.4 million for Medicare last year from medical providers in California, Florida and New York, according to figures from the federal Centers for Medicare and Medicaid Services.
But hospital groups have mounted a campaign against its expansion, saying the effort is "riddled with flaws" and suffered too many problems to expand so soon. Chief among their complaints: The program's reliance on what some hospitals called a "'bounty hunter' payment mechanism" - contingency fees that reward the auditorsan incentive to be thorough at little cost to the government, since the fees come from funds the government otherwise wouldn't have recovered. Critics counter that it encourages the auditors to be too aggressive.
"Any kind of question is a reason for denial," even in subjective decisions such as determining whether an expense was medically necessary, said Don May, vice president for policy at the American Hospital Association. "Going at it from this kind of perspective really isn't, I don't believe, in the best interest of taxpayers."
The program has encountered problems. After California hospitals complained last year - enlisting help from congressional representatives - CMS spot-checked claims from inpatient rehabilition facilities that had been rejected in audits. The review upheld 60% of the auditor's findings, but determined that many had been handled inconsistently.
Medicare considers the program a success, both in recovering pasat improper payments and as a deterrent to future overbilling. "[W]e believe recovery auditing is a valuable tool in the Medicare program," Kerry Weems, the acting CMS administrator, wrote the California lawmakers last month.
Overall, auditors identified $357 million in overpayments in fiscal 2007, of which $17.8 million - or 7.1% of appealed claims - were overturned on appeal, according to CMS figures. An additional $77.7 million went to contingency fees and other administrative expenses, and the auditors identified $14.3 million in underpayments - situations in which Medicare should have paid more than it did.
Hospital groups have also complained that many claim reviews weren't done by qualified medical personnel, that the process doesn't give providers an opportunity to fix errors and that the auditors haven't been required to publicize what areas they are targeting. They also note that CMS isn't required to take the audit program national until 2010.
Supporters of the program note that in expanding the program, CMS is addressing many of these concerns: Auditing firms will have to have a medical director and medical-coding experts, return contingency fees for claims upheld on appeal even when further appeals are possible, and notify CMS sooner if they identify new kinds of problem claims. The national program also shortens the period auditors could review to three years from four, and puts all claims filed before October 2007 off-limits.
U.S. deficit looms over stimulus talks
Yes, I know it's old news by now, just trying to get through the backlog of information I've needed to post for quite awhile now.
U.S. deficit looms over stimulus talks
Current plan to jump-start economy could push deficit to $400 billion
By Kevin G. Hall
McClatchy Newspapers
St. Paul Pioneer Press
Thursday January 24, 2008 Pg 3A
As the Bush administration and Congress try to craft an economic stimulus plan, a dark cloud hangs over them: the federal deficit.
Iraq war costs of $9.6 billion a month and a gaping federal deficit that's funded by borrowing from foreign governments limit how aggressively the U.S. government can cut taxes or boost spending to fend off a recession.
Just over the horizon, a fiscal crisis that some call a day of reckoning looms larger.
Statistics released Wednesday by the nonpartisan Congressional Budget Office show that the federal deficit, the gap between what the government spends and the revenue it collects, is projected to leap to $250 billion in the current budget year. That's up 53 percent from the $163 billion deficit in fiscal 2007.
If Congress approves the roughly $140 billion stimulus plan now being discussed, the deficit for the 2008 fiscal year, which began Oct. 1, could swell to almost $400 billion.
The CBO presented those estimates to Congress on Wednesday as part of its budget and economic outlook for 2008 to 2018.
"Ongoing increases in health care costs, along with the aging of the population, are expected to put subtantial pressure on the budget in coming decades," Director Peter Orszag told the House Budget Committee. "Those trends are already evident in the current projection period."
Lawmakers can sharply cut government spending, sharply raise taxes or pass some combination of spending cuts and tax increases, Orszag said.
The Bush administration frequently notes that although the deficit is high, it's low in hsitorical terms as a percentage of the total economy - 1.5 percent this budget year, according to CBO estimates.
That's true. But it's a snapshot of the moment. Seen in the context of what lies ahead, the deficit puts the U.S. economy on a weaker footing to address the fiscal challenges that successive Congresses have ducked.
Comptroller General David Walker, the chief auditor of the government's balance sheet, has all but shouted from the rooftop that the U.S. government had more than $50 trillion in unfunded liabilities at the close of 2006, compared with the $20 trillion in 2000. That number is the sum of everything the government has promised to pay in the future, from pensions and government healthcare to interest on the debt.
The liabilities now amount to about $170,000 per person or $440,000 per U.S. household, according to Walker. The largest drivers of this trend are big entitlement programs such as Social Security and Medicare, the government insurance program for the elderly. These programs will come under even more strain when the first baby boomers - Americans born between 1946 and 1964 - reach official retirement age in two years.
Some economists believe that to avoid passing the burden to future generations of Americans, lawmakers and President Bush should propose ways to pay for the stimulus - a combination of tax rebates for consumers and tax relief for business - over a longer time frame.
"If we do something right now like a tax rebate and a couple of other things, it would be sensible to pay for it over a five-year period or something like that," said Alice Rivlin, a former vice chairman of the Federal Reserve who's now a senior researcher at the Brookings Institution, a center-left policy research organization.
While supportive of a short-term stimulus, Rivlin said long-term challenges must be considered.
"In the long run, we are in serious deficit trouble, and the long run is not so long anymore," said Rivlin, who was the director of the Congressional Budget Office from 1975 to 1983.
U.S. deficit looms over stimulus talks
Current plan to jump-start economy could push deficit to $400 billion
By Kevin G. Hall
McClatchy Newspapers
St. Paul Pioneer Press
Thursday January 24, 2008 Pg 3A
As the Bush administration and Congress try to craft an economic stimulus plan, a dark cloud hangs over them: the federal deficit.
Iraq war costs of $9.6 billion a month and a gaping federal deficit that's funded by borrowing from foreign governments limit how aggressively the U.S. government can cut taxes or boost spending to fend off a recession.
Just over the horizon, a fiscal crisis that some call a day of reckoning looms larger.
Statistics released Wednesday by the nonpartisan Congressional Budget Office show that the federal deficit, the gap between what the government spends and the revenue it collects, is projected to leap to $250 billion in the current budget year. That's up 53 percent from the $163 billion deficit in fiscal 2007.
If Congress approves the roughly $140 billion stimulus plan now being discussed, the deficit for the 2008 fiscal year, which began Oct. 1, could swell to almost $400 billion.
The CBO presented those estimates to Congress on Wednesday as part of its budget and economic outlook for 2008 to 2018.
"Ongoing increases in health care costs, along with the aging of the population, are expected to put subtantial pressure on the budget in coming decades," Director Peter Orszag told the House Budget Committee. "Those trends are already evident in the current projection period."
Lawmakers can sharply cut government spending, sharply raise taxes or pass some combination of spending cuts and tax increases, Orszag said.
The Bush administration frequently notes that although the deficit is high, it's low in hsitorical terms as a percentage of the total economy - 1.5 percent this budget year, according to CBO estimates.
That's true. But it's a snapshot of the moment. Seen in the context of what lies ahead, the deficit puts the U.S. economy on a weaker footing to address the fiscal challenges that successive Congresses have ducked.
Comptroller General David Walker, the chief auditor of the government's balance sheet, has all but shouted from the rooftop that the U.S. government had more than $50 trillion in unfunded liabilities at the close of 2006, compared with the $20 trillion in 2000. That number is the sum of everything the government has promised to pay in the future, from pensions and government healthcare to interest on the debt.
The liabilities now amount to about $170,000 per person or $440,000 per U.S. household, according to Walker. The largest drivers of this trend are big entitlement programs such as Social Security and Medicare, the government insurance program for the elderly. These programs will come under even more strain when the first baby boomers - Americans born between 1946 and 1964 - reach official retirement age in two years.
Some economists believe that to avoid passing the burden to future generations of Americans, lawmakers and President Bush should propose ways to pay for the stimulus - a combination of tax rebates for consumers and tax relief for business - over a longer time frame.
"If we do something right now like a tax rebate and a couple of other things, it would be sensible to pay for it over a five-year period or something like that," said Alice Rivlin, a former vice chairman of the Federal Reserve who's now a senior researcher at the Brookings Institution, a center-left policy research organization.
While supportive of a short-term stimulus, Rivlin said long-term challenges must be considered.
"In the long run, we are in serious deficit trouble, and the long run is not so long anymore," said Rivlin, who was the director of the Congressional Budget Office from 1975 to 1983.
Sunday, February 24, 2008
Washington warned on health costs
by Jeremy Grant
in Washington
Financial Times
Wednesday January 30, 2008 Pg 2
An influential US official yesterday hit out at his country's "addiction to debt" warning that the federal budget was on an "imprudent and unsustainable path" due to ballooning healthcare costs.
David Walker, US comptroller general, warned a Senate budget committee hearing that while recent falls in the budget deficit were encouraging, the long-term fiscal outlook was grim.
"Our real challenge is not this year's deficit, or even next year's; it is how to change our current path so that growing deficits and debt levels do not swamp our ship of state," he said.
"If there is one thing that could bankrupt America, it is runaway health costs. We must not allow this to happen. This is our addiction to debt."
Mr. Walker's comments echo a warning he made last year, in which he urged the US to "learn from the fall of Rome" and deal quickly with a "burning platform" of unsustainable policies, including fiscal deficits.
Moody's Investor Services, the credit rating agency, last month warned that a lack of reform to Medicare - the government-administered healthcare plan - and the social security system threatened the US's long-term fiscal outlook, and thus, its AAA bond rating.
Mr Walker said the root of the problem was the government's continuing pledge to fund the gap between promised and funded social security and Medicare benefits and other commitments. In a report released to coincide with the hearing, the Government Accountability Office - which Mr Walker heads - put the total US public debt at $9,000bn, including the debt held by social security funds. That was almost double the $5,000bn headline figure for the public debt, which excludes such funds' debt.
Including the gap between future promised and funded social security and Medicare benefits, the GAO put the total debt burden in present dollar value at $53,000bn - about four times the size of the US economy.
"Medicare and Medicaid spending threaten to consume an untenable share of the budget and economy in the coming decades," said Mr Walker. The government had essentially written a "blank cheque" for these programmes, he said.
There was a "shrinking window of opportunity" to address the issues, he added. "We have a five- to 10-year window to demonstrate to our foreign lenders that we are getting serious about this. I would say closer to five."
Kent Conrad, the committee chairman, said the US deficit was still a relatively small proportion of gross domestic product, at a projected 2.5 per cent for this year.
Mr Walker conceded that the current deficit and debt levels were "not a major problem." But he said the difference this time was that the US would be unable to grow its way out of a long term fiscal crunch. "We've never seen anything like what we are headed into."
in Washington
Financial Times
Wednesday January 30, 2008 Pg 2
An influential US official yesterday hit out at his country's "addiction to debt" warning that the federal budget was on an "imprudent and unsustainable path" due to ballooning healthcare costs.
David Walker, US comptroller general, warned a Senate budget committee hearing that while recent falls in the budget deficit were encouraging, the long-term fiscal outlook was grim.
"Our real challenge is not this year's deficit, or even next year's; it is how to change our current path so that growing deficits and debt levels do not swamp our ship of state," he said.
"If there is one thing that could bankrupt America, it is runaway health costs. We must not allow this to happen. This is our addiction to debt."
Mr. Walker's comments echo a warning he made last year, in which he urged the US to "learn from the fall of Rome" and deal quickly with a "burning platform" of unsustainable policies, including fiscal deficits.
Moody's Investor Services, the credit rating agency, last month warned that a lack of reform to Medicare - the government-administered healthcare plan - and the social security system threatened the US's long-term fiscal outlook, and thus, its AAA bond rating.
Mr Walker said the root of the problem was the government's continuing pledge to fund the gap between promised and funded social security and Medicare benefits and other commitments. In a report released to coincide with the hearing, the Government Accountability Office - which Mr Walker heads - put the total US public debt at $9,000bn, including the debt held by social security funds. That was almost double the $5,000bn headline figure for the public debt, which excludes such funds' debt.
Including the gap between future promised and funded social security and Medicare benefits, the GAO put the total debt burden in present dollar value at $53,000bn - about four times the size of the US economy.
"Medicare and Medicaid spending threaten to consume an untenable share of the budget and economy in the coming decades," said Mr Walker. The government had essentially written a "blank cheque" for these programmes, he said.
There was a "shrinking window of opportunity" to address the issues, he added. "We have a five- to 10-year window to demonstrate to our foreign lenders that we are getting serious about this. I would say closer to five."
Kent Conrad, the committee chairman, said the US deficit was still a relatively small proportion of gross domestic product, at a projected 2.5 per cent for this year.
Mr Walker conceded that the current deficit and debt levels were "not a major problem." But he said the difference this time was that the US would be unable to grow its way out of a long term fiscal crunch. "We've never seen anything like what we are headed into."
Cure the Disease, Not Just the Symptoms
by Ed Lotterman
St. Paul Pioneer Press
Thursday January 24, 2008 1C
Politicians and journalists are missing a key question when talking about ongoing U.S. economic problems: Is the current slowdown in economic activity and decline in asset prices cyclical or structural? Without answering that question, much public discussion is pointless.
Cyclical economic events result from the business cycle, the historical pattern of fluctuation in output, employment and inflation. Structural ones stem from longer-term shifts in the underlying framework of an economy.
This distinction is often applied to types of unemployment. Autoworkers laid off for a few months because auto sales drop during a recession are cyclically unemployed. The thousands of boilermakers let go in the 1950s as railroads shifted from steam locomotives to diesels represented structural unemployment.
The cyclical-structural distinction also applies to budget deficits. If tax receipts fall below outlays solely because a sluggish economy redues income - and sales-tax revenue, the deficit is cyclical. However, if a deficit persists at full employment and high output, the problem is structural.
The key question right now is wehther our economic problems are primarily cyclical - resulting from a long-established (even if not perfectly regular) pattern ofincreases and decreases in output, employment and prices. Or are our problems more fundamental and long-term?
Policies commonly deemed appropriate responses to business-cycle problems - manipulating the money supply, interest rates, taxes and government spending - are ineffective in addressing structural challenges. Indeed, they may make the situation worse rather than better.
We are in the same quandary as Japan was in 1989. That country faced an asset price bubble much greater than ours. Japanese stock prices rose by a factor of five in the 1980s. Real estate price increases were even more extreme.
At prevailing exchange rates, the grounds of the Imperial Palace in Tokyo were worth more than all of California. Ginza district land reached $139,000 per square foot.
But in 1989 the bottom fell out. Stock prices fell 50 percent from 1989 to 1990 and even more in following years. Tokyo home prices fell 90 percent. The crash wiped $25 trillion (in 2008 dollars) off of Japanese balance sheets.
The government treated the crash as a cyclical problem, lowering interest rates and increasing spending on vast public works projects. Japan went from having one of the lowest rations of national debt to GDP among industrialized countries to one of the highest.
Yes, the Bank of Japan was hesitant and erratic in money supply increases. Yes, there was poor coordination of fiscal and monetary policies. But overall, Japan had no lack of Keynesian stimulus. Yet its economy stagnated for more than a decade.
Japan's problems were structural. The economy depended too much on exports stoked by an undervalued yen. RElationships between financial institutions and corporations were too cozy and fraught with conflicts of interest. Financial regulators encouraged hiding losses than writing them off. Major corporations and banks could not go bankrupt, no matter how insolvent. An appreciating yen drew in more foreign investment than the country could absorb.
Traditional monetary and fiscal stimulus addressed none of these problems. Rather it made a bad situation worse.
President Bush repeatedly says that the U.S. economy is fundamentally sound, implying that current problems are merely cyclical. Is he correct? Will the fiscal package that he and other elected officials from both parties propose fix things?
At a very fundamental level and over the long term, the U.S. economy has great strengths. We have enormous natural resources. We have enormous natural resources. We have extensive private and public infrastructure. Most importantly, we have a hard working, skilled, creative and enterprising labor force. There is no bar to our long-term prosperity.
But in the medium term, we are ignoring important structural problems. For three decades, general government spending has exceeded general revenue by large margins - through booms as well as recessions. But the way we finance Social Security obscures the size of the general federal deficit. The national savings rate has fallen to near zero despite repeated tax cuts intended to boost savings and investment. Lenders market credit more aggressively than in any other country or era. Capital markets have created myriad complex and poorly understood financial instruments and new players, such as hedge funds, that are more difficult to regulate. We borrow hundreds of billions abroad while cheap imports suppress consumer inflation, even though the money supply grows faster than output, year after year.
If we ignore such fundamental underlying problems and expect cheaper money and a larger federal deficit to provide a quick fix, we are likely to be disappointed.
St. Paul Pioneer Press
Thursday January 24, 2008 1C
Politicians and journalists are missing a key question when talking about ongoing U.S. economic problems: Is the current slowdown in economic activity and decline in asset prices cyclical or structural? Without answering that question, much public discussion is pointless.
Cyclical economic events result from the business cycle, the historical pattern of fluctuation in output, employment and inflation. Structural ones stem from longer-term shifts in the underlying framework of an economy.
This distinction is often applied to types of unemployment. Autoworkers laid off for a few months because auto sales drop during a recession are cyclically unemployed. The thousands of boilermakers let go in the 1950s as railroads shifted from steam locomotives to diesels represented structural unemployment.
The cyclical-structural distinction also applies to budget deficits. If tax receipts fall below outlays solely because a sluggish economy redues income - and sales-tax revenue, the deficit is cyclical. However, if a deficit persists at full employment and high output, the problem is structural.
The key question right now is wehther our economic problems are primarily cyclical - resulting from a long-established (even if not perfectly regular) pattern ofincreases and decreases in output, employment and prices. Or are our problems more fundamental and long-term?
Policies commonly deemed appropriate responses to business-cycle problems - manipulating the money supply, interest rates, taxes and government spending - are ineffective in addressing structural challenges. Indeed, they may make the situation worse rather than better.
We are in the same quandary as Japan was in 1989. That country faced an asset price bubble much greater than ours. Japanese stock prices rose by a factor of five in the 1980s. Real estate price increases were even more extreme.
At prevailing exchange rates, the grounds of the Imperial Palace in Tokyo were worth more than all of California. Ginza district land reached $139,000 per square foot.
But in 1989 the bottom fell out. Stock prices fell 50 percent from 1989 to 1990 and even more in following years. Tokyo home prices fell 90 percent. The crash wiped $25 trillion (in 2008 dollars) off of Japanese balance sheets.
The government treated the crash as a cyclical problem, lowering interest rates and increasing spending on vast public works projects. Japan went from having one of the lowest rations of national debt to GDP among industrialized countries to one of the highest.
Yes, the Bank of Japan was hesitant and erratic in money supply increases. Yes, there was poor coordination of fiscal and monetary policies. But overall, Japan had no lack of Keynesian stimulus. Yet its economy stagnated for more than a decade.
Japan's problems were structural. The economy depended too much on exports stoked by an undervalued yen. RElationships between financial institutions and corporations were too cozy and fraught with conflicts of interest. Financial regulators encouraged hiding losses than writing them off. Major corporations and banks could not go bankrupt, no matter how insolvent. An appreciating yen drew in more foreign investment than the country could absorb.
Traditional monetary and fiscal stimulus addressed none of these problems. Rather it made a bad situation worse.
President Bush repeatedly says that the U.S. economy is fundamentally sound, implying that current problems are merely cyclical. Is he correct? Will the fiscal package that he and other elected officials from both parties propose fix things?
At a very fundamental level and over the long term, the U.S. economy has great strengths. We have enormous natural resources. We have enormous natural resources. We have extensive private and public infrastructure. Most importantly, we have a hard working, skilled, creative and enterprising labor force. There is no bar to our long-term prosperity.
But in the medium term, we are ignoring important structural problems. For three decades, general government spending has exceeded general revenue by large margins - through booms as well as recessions. But the way we finance Social Security obscures the size of the general federal deficit. The national savings rate has fallen to near zero despite repeated tax cuts intended to boost savings and investment. Lenders market credit more aggressively than in any other country or era. Capital markets have created myriad complex and poorly understood financial instruments and new players, such as hedge funds, that are more difficult to regulate. We borrow hundreds of billions abroad while cheap imports suppress consumer inflation, even though the money supply grows faster than output, year after year.
If we ignore such fundamental underlying problems and expect cheaper money and a larger federal deficit to provide a quick fix, we are likely to be disappointed.
Did you say deficit?
Wall Street Journal
Thursday January 24, 2008 Pg A16
The Congressional Budget Office yesterday estimated that the federal budget deficit will rise this year for the first time since 2004, and the explanation is no surprise: Revenue growth is slowing as the economy slows, while spending has begun to pick up again.
CBO forsees a fiscal 2008 deficit of $219 billion, or about 1.5% of GDP, and up about $65 billion from what the CBO projected as recently as last August. Most of the change from August is due to the one-year Alternative Minimum Tax fix passed in December - the previous "baseline" asumed 23 million new AMT victims would be welcomed into the fold this year. A smaller piece of the shortfall is due to lower projections for economic growth this year.
We should remind readers that back in 2004 CBO projected a $286 billion deficit for 2008, by that yardstick, $219 billion is an improvement. Back then, the CBO also projected some $200 billion less in corporate and personal income taxes than we actually saw, due mostly to better-than-expected growth after the 2003 tax cuts.
By the way, that $219 billion doesn't include any "stimulus" package. As we've seen since 2003, tax cuts on capital and marginal income rates can have a salutary effect on the deficit over time by helping to promote growth. The current Beltway mix of more spending and tax "rebates" will do very little for growth and thus have virtually no revenue feedback effect. Don't expect anyone in Washington to mention that while loudly deploring a higher deficit.
Thursday January 24, 2008 Pg A16
The Congressional Budget Office yesterday estimated that the federal budget deficit will rise this year for the first time since 2004, and the explanation is no surprise: Revenue growth is slowing as the economy slows, while spending has begun to pick up again.
CBO forsees a fiscal 2008 deficit of $219 billion, or about 1.5% of GDP, and up about $65 billion from what the CBO projected as recently as last August. Most of the change from August is due to the one-year Alternative Minimum Tax fix passed in December - the previous "baseline" asumed 23 million new AMT victims would be welcomed into the fold this year. A smaller piece of the shortfall is due to lower projections for economic growth this year.
We should remind readers that back in 2004 CBO projected a $286 billion deficit for 2008, by that yardstick, $219 billion is an improvement. Back then, the CBO also projected some $200 billion less in corporate and personal income taxes than we actually saw, due mostly to better-than-expected growth after the 2003 tax cuts.
By the way, that $219 billion doesn't include any "stimulus" package. As we've seen since 2003, tax cuts on capital and marginal income rates can have a salutary effect on the deficit over time by helping to promote growth. The current Beltway mix of more spending and tax "rebates" will do very little for growth and thus have virtually no revenue feedback effect. Don't expect anyone in Washington to mention that while loudly deploring a higher deficit.
Friday, February 22, 2008
PP: Quick fix is beyond government's power
Edward Lotterman: Quick fix is beyond government's power
St. Paul Pioneer Press
Wednesday January 23, 2008 Pg 1A
Don't put too much hope in the Fed's latest cut in its target interest rate or in any eventual fiscal stimulus package on which President Bush and Congress may agree. The ability of government to offset swings in employment, output and prices is much more limited than many people think, especially when dealing with a $14 trillion economy that is highly enmeshed with the rest of the world. At least that is my humble opinion.
The economic news this week has been dramatic. Several Asian stock markets fell more than 10 percent in two days. In an unscheduled meeting, the Federal Reserve's policymakers cut its target for the federal funds interest rate an unprecedented three-fourths of a percentage point, from 4.25 to 3.5 percent. Meanwhile, the president, Congress and sundry presidential candidates are falling over each other with proposals for "fiscal stimulus."
The situation raises many questions: Just what can government do to solve growing economic problems? Should the Fed cut interest rates even further? Is the danger of inflation real? Will rebates, further tax cuts or greater government spending forestall a recession?
Unfortunately, economists have different views on these issues, depending on the degree to which they are convinced by competing economic theories. John Maynard Keynes (1883-1946) argued government can manipulate four variables - taxes, government spending, the money supply and interest rates - to ward off recessions or curb inflation. Monetarists, led by the University of Chicago's articulate and energetic Milton Friedman (1912-2006), saw government tromping on fiscal and monetary gas and brake pedals as not only doomed to failure but also inherently harmful. So did a later group called "rational expectationists."
Virtually all economists agree on one thing: A central bank can control inflation if it does not let the money supply grow too fast. Prime Minister Margaret Thatcher of Great Britain and U.S. Fed Chairman Paul Volcker proved that.
What economists don't agree on is how well government policies can ward off a recession and on the relative usefulness of monetary policy (money supply and interest rates) compared to fiscal policy (government taxing and spending).
The historical record is mixed. Many argue that military spending wasa the primary factor in ending the Great Depression. Others point to the tax cuts enacted after John F. Kennedy's assassination as a success story of fiscal stimulus that worked. Some view the 2001 Bush tax cuts as having increased consumer spending, even though their stated purpose was to encourage long-term investment.
But there are many counter-arguments or examples. Rising spending on the Vietnam War was probably a bigger stimulus than the Kennedy-Johnson tax cuts. And in 2001, the Fed increased the money supply, pushing short-term interest rates to historic lows at the same time the Bush tax cuts took effect.
Moreover, after most industrialized countries overtly adopted Keynesian policies in the 1950s, many experienced increases in inflation even during recessions with high unemployment. Such "stagflation" dominated the 1970s and baffled both political parties.
Richard Nixon expolicitly proposed fiscal stimulus in 1971 and 1972 even as he cynically kept the lid on inflation with wage and price controls. Both inflation and unemployment soared a year later. Neither Gerald Ford nor Jimmy Carter could settle on a coherent response for either inflation or unemployment, and the nation suffered.
The 1980s demonstrated that the Fed could tame inflation if politicians were able to tolerate a harsh recession in the short term. Moreover, a stable price environment fostered investment by households and businesses.
But human nature leads central bankers into temptation. As memories of the 1970s inflation faded in the go-go years of the 1990s, arguments for faster money growth and lower interest rates overwhelmed calls for prudence. The Fed needed to lower interest rates to help out banks wracked by bad loans on commercial property. It needed to stop contagion from Asian financial crises or from Russia or Brazil.
Then, when the U.S. economy slowed in 2000, monetary expansion seemed necessary. People agreed it was even more true after Sept. 11.
Overall, we nearly doubled the money supply since the mid-1990s, while the real economy grew by about 50 percent. Such easy money clearly created many of the problems we face today.
Some say that calls for even lower interest rates mimic Will Rogers' sarcastic query "If stupidity got us into this mess, then why can't it get us out?" Moreover, as the Fed increases the money supply to lower interest rates, the value of the dollar tends to slide compared to other currencies.
Fiscal stimulus packages are even more fraught with difficulty.
Politicians love to step on the gas pedal, increasing spending and cutting taxes. They are especially quick to call for fiscal largesse in election years. The unemployment rate is never low enough or growth fast enough for a congressman facing reelection.
Politicans never want to step on the brake pedal, even when inflation gets out of control as it did in the 1970s. Moreover, the time lags in getting tax and spending bills through Congress are such that the economic effects often arrive too late. In many cases, they make business cycle fluctuations more extreme instead of dampening them.
At this juncture, the impulse to try anything with some plausible chance of success is powerful. Easier money and an even looser federal budget may ameliorate a bad, and worsening, situation. But the monetary, budgetary and trade imbalances that have accumulated over the years are large and difficult to resolve. Americans should not delude themselves with the idea that there are quick and easy fixes.
St. Paul Pioneer Press
Wednesday January 23, 2008 Pg 1A
Don't put too much hope in the Fed's latest cut in its target interest rate or in any eventual fiscal stimulus package on which President Bush and Congress may agree. The ability of government to offset swings in employment, output and prices is much more limited than many people think, especially when dealing with a $14 trillion economy that is highly enmeshed with the rest of the world. At least that is my humble opinion.
The economic news this week has been dramatic. Several Asian stock markets fell more than 10 percent in two days. In an unscheduled meeting, the Federal Reserve's policymakers cut its target for the federal funds interest rate an unprecedented three-fourths of a percentage point, from 4.25 to 3.5 percent. Meanwhile, the president, Congress and sundry presidential candidates are falling over each other with proposals for "fiscal stimulus."
The situation raises many questions: Just what can government do to solve growing economic problems? Should the Fed cut interest rates even further? Is the danger of inflation real? Will rebates, further tax cuts or greater government spending forestall a recession?
Unfortunately, economists have different views on these issues, depending on the degree to which they are convinced by competing economic theories. John Maynard Keynes (1883-1946) argued government can manipulate four variables - taxes, government spending, the money supply and interest rates - to ward off recessions or curb inflation. Monetarists, led by the University of Chicago's articulate and energetic Milton Friedman (1912-2006), saw government tromping on fiscal and monetary gas and brake pedals as not only doomed to failure but also inherently harmful. So did a later group called "rational expectationists."
Virtually all economists agree on one thing: A central bank can control inflation if it does not let the money supply grow too fast. Prime Minister Margaret Thatcher of Great Britain and U.S. Fed Chairman Paul Volcker proved that.
What economists don't agree on is how well government policies can ward off a recession and on the relative usefulness of monetary policy (money supply and interest rates) compared to fiscal policy (government taxing and spending).
The historical record is mixed. Many argue that military spending wasa the primary factor in ending the Great Depression. Others point to the tax cuts enacted after John F. Kennedy's assassination as a success story of fiscal stimulus that worked. Some view the 2001 Bush tax cuts as having increased consumer spending, even though their stated purpose was to encourage long-term investment.
But there are many counter-arguments or examples. Rising spending on the Vietnam War was probably a bigger stimulus than the Kennedy-Johnson tax cuts. And in 2001, the Fed increased the money supply, pushing short-term interest rates to historic lows at the same time the Bush tax cuts took effect.
Moreover, after most industrialized countries overtly adopted Keynesian policies in the 1950s, many experienced increases in inflation even during recessions with high unemployment. Such "stagflation" dominated the 1970s and baffled both political parties.
Richard Nixon expolicitly proposed fiscal stimulus in 1971 and 1972 even as he cynically kept the lid on inflation with wage and price controls. Both inflation and unemployment soared a year later. Neither Gerald Ford nor Jimmy Carter could settle on a coherent response for either inflation or unemployment, and the nation suffered.
The 1980s demonstrated that the Fed could tame inflation if politicians were able to tolerate a harsh recession in the short term. Moreover, a stable price environment fostered investment by households and businesses.
But human nature leads central bankers into temptation. As memories of the 1970s inflation faded in the go-go years of the 1990s, arguments for faster money growth and lower interest rates overwhelmed calls for prudence. The Fed needed to lower interest rates to help out banks wracked by bad loans on commercial property. It needed to stop contagion from Asian financial crises or from Russia or Brazil.
Then, when the U.S. economy slowed in 2000, monetary expansion seemed necessary. People agreed it was even more true after Sept. 11.
Overall, we nearly doubled the money supply since the mid-1990s, while the real economy grew by about 50 percent. Such easy money clearly created many of the problems we face today.
Some say that calls for even lower interest rates mimic Will Rogers' sarcastic query "If stupidity got us into this mess, then why can't it get us out?" Moreover, as the Fed increases the money supply to lower interest rates, the value of the dollar tends to slide compared to other currencies.
Fiscal stimulus packages are even more fraught with difficulty.
Politicians love to step on the gas pedal, increasing spending and cutting taxes. They are especially quick to call for fiscal largesse in election years. The unemployment rate is never low enough or growth fast enough for a congressman facing reelection.
Politicans never want to step on the brake pedal, even when inflation gets out of control as it did in the 1970s. Moreover, the time lags in getting tax and spending bills through Congress are such that the economic effects often arrive too late. In many cases, they make business cycle fluctuations more extreme instead of dampening them.
At this juncture, the impulse to try anything with some plausible chance of success is powerful. Easier money and an even looser federal budget may ameliorate a bad, and worsening, situation. But the monetary, budgetary and trade imbalances that have accumulated over the years are large and difficult to resolve. Americans should not delude themselves with the idea that there are quick and easy fixes.
LTTE: Sound as a Dollar?
Wall Street Journal
Tuesday January 22, 2008 Pg A17
Regarding David Malpass's op-ed ("Markets and the Dollar," Jan. 14), I cannot tell you how refreshing it is to see an economist take issue with the Fed lowering interest rates in these times of high inflation as well as the relentless printing of U.S. dollars, and its subsequent devaluation. While we're at it, could we please make a token effort at balancing our fiscal budget? Perhaps then we'll be real "conservative Republicans" instead of the "radical Republicans" who have been "governing" these last seven years. Doesn't anyone on the Bush economic team care what kind of currency and country their kids and grandkids will inherit? If not, please tell me where they are planning to relocate when the bottom drops out.
Mike Fitzsimmons
Crossville, Tenn.
Tuesday January 22, 2008 Pg A17
Regarding David Malpass's op-ed ("Markets and the Dollar," Jan. 14), I cannot tell you how refreshing it is to see an economist take issue with the Fed lowering interest rates in these times of high inflation as well as the relentless printing of U.S. dollars, and its subsequent devaluation. While we're at it, could we please make a token effort at balancing our fiscal budget? Perhaps then we'll be real "conservative Republicans" instead of the "radical Republicans" who have been "governing" these last seven years. Doesn't anyone on the Bush economic team care what kind of currency and country their kids and grandkids will inherit? If not, please tell me where they are planning to relocate when the bottom drops out.
Mike Fitzsimmons
Crossville, Tenn.
WSJ: Feel-Good Economics
By Bruce Bartlett
Wall Street Journal
Jan. 19-20, 2008 Weekend Edition Pg A12
With remarkable speed, Congress, the White House, Republicans, Democrats and even the Federal Reserve have come to a consensus on the need for economic stimulus to moderate and perhaps forestall a recession. It seems certain that the final stimulus package will contain a tax rebate.
The underlying theory for the rebate idea traces back to the British economist John Maynard Keynes. He believed that spending was the driving force in the economy. It didn't matter whether the spending was done by businesses on capital equipment, by governments on public works, or by consumers - spending is spending in the Keynesian modeal, and all of it is stimulative.
In Keynes' defense, his theory was developed during a severe, world-wide deflation. Spending of all kinds was paralyzed by a lack of liquidity, and the Federal Reserve had difficulty injecting money into the economy because so many banks had closed. Under these circumstances, deficit spending by governments made sense as a means of getting money into circulation and overcoming deflation. The problem is that, once World War II seemed to validate Keynes's theory, the idea of stimulating the economy by increasing government spending became the all-purpose cure for every economic slowdown, regardless of its underlying cause.
In the 1960s and 1970s, this usually took the form of public works spending. But in 1974, the White House was keen on the idea of cutting taxes to stimulate private spending. Since it was feared that a permanent tax cut might be inflationary, President Gerald Ford and the Democratic Congress agreeed on a one-shot tax rebate. It was thought that cash-strapped consumers would take their government checks and immediately run out and spend them on food, clothing and other necessities. This would give the economy a Keynesian boost.
One dissenter was economist Milton Friedman. His research had led him to conclude that consumer spending was less a function of liquidity than something he called "permanent income." Friedman observed that when workers lost their jobs, they didn't immediately cut back on spending. They borrowed or drew down savings to maintain spending, in the expectation of finding a new job shortly. Conversely, consumers didn't immediately spend windfalls. They kept spending on an even keel until they achieved a promotion at work, or other increase in their long-term income expectations.
Thus Friedman predicted that the $100 to $200 checks disbursed by the Treasury Department in the spring of 1975 would have a minimal impact on spending, because they did not alter peoples' permanent income. Most likely, people would save the money or pay down debt, which is the same thing. Very little of the rebate would cause consumers to buy things they wouldn't otherwise have bought in the near term.
Subsequent studies by MIT economists Franco Modigliani and Charles Steindel, and Alan Blinder of Princeton, showed that Freidman's prediction was correct. The 1975 rebate had very little impact on spending and much less than a permanent tax cut - which would change peoples' concept of their permanent income - of similiar magnitude.
In 2001 - despite the thoroughness and general acceptance of these studies - Congress and the White House once again chose a one-shot tax rebate to deal with an economic slowdown in 2001.
To his credit, Treasury Secretary Paul O'Neill cautioned against the rebate. "I was here when we tried that in 1975, and it just didn't work," he said. "If we want to change consumption patterns, we need to make permanent changes in peoples' tax burdens." But President George W. Bush overruled his Treasury secretary and approved the rebate idea. Checks of $300 to $600 per taxpayer were sent out in the late summer. Contemporaneous polls by Gallup, Bloomberg and the University of Michigan all found that the vast bulk of consumers expected to save the money or use it to pay bills. Subsequent studies confirmed these forecasts.
In short, there is virtually no empirical evidence that tax rebates are an effective response to economic slowdowns. The increased personal saving doesn't help the economy because the federal budget deficit, which can be thought of as negative saving, offsets all of it in the aggregate. The main benefit of a tax rebate would seem to be political - giving politicans a way of appearing to be doing something about the nation's economic problems that is superficially plausible.
A new rebate probably won't do much harm. But anyone who thinks it will prevent a recession - if one is actually in the pipeline, which is not at all certain - is dreaming. It's an insult to Keynes even to call a tax rebate Keynesian economics. It should be called "feel good economics" because its only real effect is to make politicans feel tood about themselves and buy reelection with the public purse.
Mr. Bartlett was deputy assistant secretary of the Treasury for econoimc policy during the administration of President George H.W. Bush
Wall Street Journal
Jan. 19-20, 2008 Weekend Edition Pg A12
With remarkable speed, Congress, the White House, Republicans, Democrats and even the Federal Reserve have come to a consensus on the need for economic stimulus to moderate and perhaps forestall a recession. It seems certain that the final stimulus package will contain a tax rebate.
The underlying theory for the rebate idea traces back to the British economist John Maynard Keynes. He believed that spending was the driving force in the economy. It didn't matter whether the spending was done by businesses on capital equipment, by governments on public works, or by consumers - spending is spending in the Keynesian modeal, and all of it is stimulative.
In Keynes' defense, his theory was developed during a severe, world-wide deflation. Spending of all kinds was paralyzed by a lack of liquidity, and the Federal Reserve had difficulty injecting money into the economy because so many banks had closed. Under these circumstances, deficit spending by governments made sense as a means of getting money into circulation and overcoming deflation. The problem is that, once World War II seemed to validate Keynes's theory, the idea of stimulating the economy by increasing government spending became the all-purpose cure for every economic slowdown, regardless of its underlying cause.
In the 1960s and 1970s, this usually took the form of public works spending. But in 1974, the White House was keen on the idea of cutting taxes to stimulate private spending. Since it was feared that a permanent tax cut might be inflationary, President Gerald Ford and the Democratic Congress agreeed on a one-shot tax rebate. It was thought that cash-strapped consumers would take their government checks and immediately run out and spend them on food, clothing and other necessities. This would give the economy a Keynesian boost.
One dissenter was economist Milton Friedman. His research had led him to conclude that consumer spending was less a function of liquidity than something he called "permanent income." Friedman observed that when workers lost their jobs, they didn't immediately cut back on spending. They borrowed or drew down savings to maintain spending, in the expectation of finding a new job shortly. Conversely, consumers didn't immediately spend windfalls. They kept spending on an even keel until they achieved a promotion at work, or other increase in their long-term income expectations.
Thus Friedman predicted that the $100 to $200 checks disbursed by the Treasury Department in the spring of 1975 would have a minimal impact on spending, because they did not alter peoples' permanent income. Most likely, people would save the money or pay down debt, which is the same thing. Very little of the rebate would cause consumers to buy things they wouldn't otherwise have bought in the near term.
Subsequent studies by MIT economists Franco Modigliani and Charles Steindel, and Alan Blinder of Princeton, showed that Freidman's prediction was correct. The 1975 rebate had very little impact on spending and much less than a permanent tax cut - which would change peoples' concept of their permanent income - of similiar magnitude.
In 2001 - despite the thoroughness and general acceptance of these studies - Congress and the White House once again chose a one-shot tax rebate to deal with an economic slowdown in 2001.
To his credit, Treasury Secretary Paul O'Neill cautioned against the rebate. "I was here when we tried that in 1975, and it just didn't work," he said. "If we want to change consumption patterns, we need to make permanent changes in peoples' tax burdens." But President George W. Bush overruled his Treasury secretary and approved the rebate idea. Checks of $300 to $600 per taxpayer were sent out in the late summer. Contemporaneous polls by Gallup, Bloomberg and the University of Michigan all found that the vast bulk of consumers expected to save the money or use it to pay bills. Subsequent studies confirmed these forecasts.
In short, there is virtually no empirical evidence that tax rebates are an effective response to economic slowdowns. The increased personal saving doesn't help the economy because the federal budget deficit, which can be thought of as negative saving, offsets all of it in the aggregate. The main benefit of a tax rebate would seem to be political - giving politicans a way of appearing to be doing something about the nation's economic problems that is superficially plausible.
A new rebate probably won't do much harm. But anyone who thinks it will prevent a recession - if one is actually in the pipeline, which is not at all certain - is dreaming. It's an insult to Keynes even to call a tax rebate Keynesian economics. It should be called "feel good economics" because its only real effect is to make politicans feel tood about themselves and buy reelection with the public purse.
Mr. Bartlett was deputy assistant secretary of the Treasury for econoimc policy during the administration of President George H.W. Bush
Wednesday, February 20, 2008
WSJ: In Times of Turmoil, Cautionary TIPS Tale
In Times of Turmoil, Cautionary TIPS Tale
Investors Flock to Bonds With Inflation Protection, Sending Prices Soaring
Wall Street Journal
Wednesday January 9, 2008 Pg C13
In times of market turmoil, many investors seek a haven for their money. And right now many are buying up inflation-protected U.s. government bonds in the belief that they are the safest investment around.
The markets are volatile amid worries about a recession, even as signs of inflation pressure emerge.
The best TIPS funds, meanwhile, offer low fees and a straightforward exposure to TIPS. Among the most popular, are Vanguard's Inflation Protected-Securities Index fund, and an exchange-traded fund, Lehman TIPS iShare.
All Crowd In?
The only problem is that everyone has the same idea. Huge demand has sent the price of these bonds, known as Treasury Inflation-Protected Securities, or TIPS, soaring to lofty levels. And while investors may not realize it, at current valuations thaey offer much more meager returns than normal.
TIPS are a relatively new class of government bond, launched in the 1990s. They offer an appealing double benefit for investors - especially those, such as retirees, seeking safety and conservation of capital.
First, like ordinary U.S. government bonds, they offer guaranteed income and return of capital. They are issued by the federal government and the risk of any default is miniscule.
Second, unlike most government bonds, they contain insurance against a rise in inflation as well. Through a complex formula involving both coupons and bond prices, TIPS guarantee that their annual interest rate will keep up with fluctuations in the consumer-price index over the price of the bond. They offer a guaranteed "real" yield on top of the CPI.
Careful on the Seesaw
Bonds work like a seesaw: When the price rises, the yield you get falls.
The accompanying chart shows that this is doing to TIP yields. The "real" or after-inflation yield on a benchmark 10-Year TIP has plunged by nearly half, from over 2.8% in August to just 1.57% today.
History is pretty clear. That tends to prove a poor deal for investors.
Only twice in recent history have these real yields fallen to similar levels: In early 2004, and again in 2005. On both occasions, those who invested quickly lost money as the bonds fell back again and the yields rose.
The best time to buy TIPS is when they are out of fashion and the real yield being offered is over 2%. The market seems to consider that a good long-term value.
TIPS do offer guaranteed income and protection against inflation. But always on Wall Street, price matters too. And there is no safety in numbers.
If TIPS appear to offer meager pickings right now, the same could also be said for regular government bonds - the ones with no inflation protection. The current yield on the 10-year Treasury is a dismal 3.85%, and 4.36% on the 30 year. Both have collapsed since last summer. It is worth adding that these yields are all subject to federal income tax as well, unless the bonds are held in a tax-sheltered account like an IRA.
For savers seeking better interest, it may be sensible to wait in cash for better opportunities. E*Trade Financial Corp.'s E*Trade Bank, for example, offers a savings account paying 4.93%. And deposits are federally guaranteed up to $100,000.
Investors Flock to Bonds With Inflation Protection, Sending Prices Soaring
Wall Street Journal
Wednesday January 9, 2008 Pg C13
In times of market turmoil, many investors seek a haven for their money. And right now many are buying up inflation-protected U.s. government bonds in the belief that they are the safest investment around.
The markets are volatile amid worries about a recession, even as signs of inflation pressure emerge.
The best TIPS funds, meanwhile, offer low fees and a straightforward exposure to TIPS. Among the most popular, are Vanguard's Inflation Protected-Securities Index fund, and an exchange-traded fund, Lehman TIPS iShare.
All Crowd In?
The only problem is that everyone has the same idea. Huge demand has sent the price of these bonds, known as Treasury Inflation-Protected Securities, or TIPS, soaring to lofty levels. And while investors may not realize it, at current valuations thaey offer much more meager returns than normal.
TIPS are a relatively new class of government bond, launched in the 1990s. They offer an appealing double benefit for investors - especially those, such as retirees, seeking safety and conservation of capital.
First, like ordinary U.S. government bonds, they offer guaranteed income and return of capital. They are issued by the federal government and the risk of any default is miniscule.
Second, unlike most government bonds, they contain insurance against a rise in inflation as well. Through a complex formula involving both coupons and bond prices, TIPS guarantee that their annual interest rate will keep up with fluctuations in the consumer-price index over the price of the bond. They offer a guaranteed "real" yield on top of the CPI.
Careful on the Seesaw
Bonds work like a seesaw: When the price rises, the yield you get falls.
The accompanying chart shows that this is doing to TIP yields. The "real" or after-inflation yield on a benchmark 10-Year TIP has plunged by nearly half, from over 2.8% in August to just 1.57% today.
History is pretty clear. That tends to prove a poor deal for investors.
Only twice in recent history have these real yields fallen to similar levels: In early 2004, and again in 2005. On both occasions, those who invested quickly lost money as the bonds fell back again and the yields rose.
The best time to buy TIPS is when they are out of fashion and the real yield being offered is over 2%. The market seems to consider that a good long-term value.
TIPS do offer guaranteed income and protection against inflation. But always on Wall Street, price matters too. And there is no safety in numbers.
If TIPS appear to offer meager pickings right now, the same could also be said for regular government bonds - the ones with no inflation protection. The current yield on the 10-year Treasury is a dismal 3.85%, and 4.36% on the 30 year. Both have collapsed since last summer. It is worth adding that these yields are all subject to federal income tax as well, unless the bonds are held in a tax-sheltered account like an IRA.
For savers seeking better interest, it may be sensible to wait in cash for better opportunities. E*Trade Financial Corp.'s E*Trade Bank, for example, offers a savings account paying 4.93%. And deposits are federally guaranteed up to $100,000.
WSJ: Consumer Borrowing Rises At Fastest Rate in 3 Months
Wall Street Journal
Wednesday January 9, 2008 Pg A2
U.S. consumer borrowing rose at an annual rate of 7.4% in November, the fastest pace in three months, the Federal Reserve said.
The 0.6% monthly increase in consumer credit outstanding, to $2.505 trillion, is a positive sign for consumer spending, which accounts for more than two-thirds of the nation's economic activity. Consumer credit increased at an annual rate of just 1% in October, or 0.08% for the month.
The Fed said revolving credit - largely credit-card financing - grew at an 11.3% rate to $937.5 billion, the fastest pace in six months.
Households' nonrevolving credit, such as car and boat loans, rose at an annualized 5.1% pace to $1.568 trillion, rebounding from October's drop in that category, the Fed said.
Separately, the National Association of Realtors said its forward-looking indicator of existing-home sales fell in November after rising for two months. The industry group's pending-home-sales index, based on signed contracts for homes, declined at a seasonally adjusted annual rate of 2.6% to 87.6.
Wednesday January 9, 2008 Pg A2
U.S. consumer borrowing rose at an annual rate of 7.4% in November, the fastest pace in three months, the Federal Reserve said.
The 0.6% monthly increase in consumer credit outstanding, to $2.505 trillion, is a positive sign for consumer spending, which accounts for more than two-thirds of the nation's economic activity. Consumer credit increased at an annual rate of just 1% in October, or 0.08% for the month.
The Fed said revolving credit - largely credit-card financing - grew at an 11.3% rate to $937.5 billion, the fastest pace in six months.
Households' nonrevolving credit, such as car and boat loans, rose at an annualized 5.1% pace to $1.568 trillion, rebounding from October's drop in that category, the Fed said.
Separately, the National Association of Realtors said its forward-looking indicator of existing-home sales fell in November after rising for two months. The industry group's pending-home-sales index, based on signed contracts for homes, declined at a seasonally adjusted annual rate of 2.6% to 87.6.
Monday, February 18, 2008
Delinquency rate up on consumer loans
Delinquency rate up on consumer loans
St. Paul Pioneer Press
Friday January 4, 2008 Pg 2C
Late payments on a cluster of consumer loans, including those for autos, home improvement and certain home-equity loans, climbed in the summer to their highest point since the country's last recession in 2001. The American Bankers Association said Thursday the delinquency rate on a composite of consumer loans increased to 2.44 percent in the July-to-September quarter. That was up sharply from 2.27 percent in the previous quarter and was the highest late-payment rate since the second quarter of 2001. Payments are considered delinquent if they are 30 or more days past due. The survey is based on information supplied by more than 300 banks nationwide. Late payments on credit cards, meanwhile, dipped during summer. The delinquency rate on credit cards dropped to 4.18 percent in the third quarter, down from 4.39 percent in the second quarter.
St. Paul Pioneer Press
Friday January 4, 2008 Pg 2C
Late payments on a cluster of consumer loans, including those for autos, home improvement and certain home-equity loans, climbed in the summer to their highest point since the country's last recession in 2001. The American Bankers Association said Thursday the delinquency rate on a composite of consumer loans increased to 2.44 percent in the July-to-September quarter. That was up sharply from 2.27 percent in the previous quarter and was the highest late-payment rate since the second quarter of 2001. Payments are considered delinquent if they are 30 or more days past due. The survey is based on information supplied by more than 300 banks nationwide. Late payments on credit cards, meanwhile, dipped during summer. The delinquency rate on credit cards dropped to 4.18 percent in the third quarter, down from 4.39 percent in the second quarter.
Bankruptcy filings back on the rise
Bankruptcy filings back on the rise
St. Paul Pioneer Press
Friday January 4, 2008 Pg 1C
U.S. personal bankruptcy filings jumped 40 percent in 2007 because of rising mortgage payments, job losses and other financial pressures. The increase followed a sharp decline from a year earlier, when a new law made it more difficult for consumers to seek bankruptcy-court protection from creditors.
More than 800,000 personal bankruptcy filings were made in 2007, compared with more than 573,000 in 2006 - the lowest level since 1998, according to data collected by the National Bankruptcy Research Center and published by the American Bankruptcy Institute, a research group in Alexandria, Va.
Personal bankruptcy filings soared to more than 2 million in 2005 for the nation, with more than 600,000 filings made in October, when the law took effect.
Minnesota bankruptcies through November totaled 10,834, compared with 7,729 filings for all of 2006. The 11-month 2007 total is well below 2005's 25,420 for the same period. From 1999 through 2004, Minnesota saw between 14,510 and 19,416 filings during hte first 11 months.
St. Paul Pioneer Press
Friday January 4, 2008 Pg 1C
U.S. personal bankruptcy filings jumped 40 percent in 2007 because of rising mortgage payments, job losses and other financial pressures. The increase followed a sharp decline from a year earlier, when a new law made it more difficult for consumers to seek bankruptcy-court protection from creditors.
More than 800,000 personal bankruptcy filings were made in 2007, compared with more than 573,000 in 2006 - the lowest level since 1998, according to data collected by the National Bankruptcy Research Center and published by the American Bankruptcy Institute, a research group in Alexandria, Va.
Personal bankruptcy filings soared to more than 2 million in 2005 for the nation, with more than 600,000 filings made in October, when the law took effect.
Minnesota bankruptcies through November totaled 10,834, compared with 7,729 filings for all of 2006. The 11-month 2007 total is well below 2005's 25,420 for the same period. From 1999 through 2004, Minnesota saw between 14,510 and 19,416 filings during hte first 11 months.
Financial Times: Recession Risks
This article appeared in the Wed. Jan. 2, 2008 issue of the Financial Times:
Whatever the inflationary risks lurking in the US economy, recession is the fear that is keeping policymakers up at night. Rightly so. The long-resilient US faces a series of blows that will cut into growth. The residential housing market is dealing with an almost unprecedented nationwide fall in prices. Meanwhile, unstable credit markets, roiled by the subprime crisis, could have a significant impact on the availability, and price, of credit.
How big will the impact be? US growth will certainly slow. But a house price correction in itself should be manageable, unless it turns into a freefall. After all, the pain so far has been concentrated among poorer, subprime borrowers, whose spending is very small in the context of the overall economy.
The trouble is, we are heading into largely uncharted territory on housing when it comes to guessing whether consumers, already heavily burdened with debt, will lose confidence. That is a significant risk. And it could feed back into credit market problems.
Banks are already building up their own liquidity and are worried about lending to each other because of the credit market crisis. Now they also have to factor in the risk of a recession. If they are bearish, they are likely to ratchet up credit standards and reduce lending somewhat to prepare for loan losses. There is the risk of a downward spiral, where such a credit contraction in itself increases recession risk.
As the property and credit markets undergo a slow and ugly repricing, it would be little surprise if the US slipped at least briefly into recession. Stronger export growth, on the back of a weak dollar and healthy demand from the rest of the world, will struggle to offset the domestic forces at work.
Whatever the inflationary risks lurking in the US economy, recession is the fear that is keeping policymakers up at night. Rightly so. The long-resilient US faces a series of blows that will cut into growth. The residential housing market is dealing with an almost unprecedented nationwide fall in prices. Meanwhile, unstable credit markets, roiled by the subprime crisis, could have a significant impact on the availability, and price, of credit.
How big will the impact be? US growth will certainly slow. But a house price correction in itself should be manageable, unless it turns into a freefall. After all, the pain so far has been concentrated among poorer, subprime borrowers, whose spending is very small in the context of the overall economy.
The trouble is, we are heading into largely uncharted territory on housing when it comes to guessing whether consumers, already heavily burdened with debt, will lose confidence. That is a significant risk. And it could feed back into credit market problems.
Banks are already building up their own liquidity and are worried about lending to each other because of the credit market crisis. Now they also have to factor in the risk of a recession. If they are bearish, they are likely to ratchet up credit standards and reduce lending somewhat to prepare for loan losses. There is the risk of a downward spiral, where such a credit contraction in itself increases recession risk.
As the property and credit markets undergo a slow and ugly repricing, it would be little surprise if the US slipped at least briefly into recession. Stronger export growth, on the back of a weak dollar and healthy demand from the rest of the world, will struggle to offset the domestic forces at work.
Saturday, February 16, 2008
Newest National Debt Statistics posted
Here are the most recent figures related to the size our our National Debt, per www.treasurydirect.gov
As of Feb. 14, 2008 (Happy Valentine's Day):
Publicly Held: $5,195,943,354,136.82
Intragovernmental holdings: $4,095,955,735,115.73
Total: $9,291,899,089,252.55
Interest payments for FY08:
October 2007 - $22,310,362,733.54
November 2007 - $25,344,987,578.31
December 2007 -$106,138,177,851.45
January 2008 - $24,686,746,422.35
FY08 to date: $178,480,274,585.65
Public Contributions:
December 2007: $113,092.26
FY08 to date: $330,616.89
FY07 totals: $2,624,862.42
Per the IRS, Gifts to reduce the Public Debt ARE tax deductible for income tax purposes. For more information, see www.irs.gov
As of Feb. 14, 2008 (Happy Valentine's Day):
Publicly Held: $5,195,943,354,136.82
Intragovernmental holdings: $4,095,955,735,115.73
Total: $9,291,899,089,252.55
Interest payments for FY08:
October 2007 - $22,310,362,733.54
November 2007 - $25,344,987,578.31
December 2007 -$106,138,177,851.45
January 2008 - $24,686,746,422.35
FY08 to date: $178,480,274,585.65
Public Contributions:
December 2007: $113,092.26
FY08 to date: $330,616.89
FY07 totals: $2,624,862.42
Per the IRS, Gifts to reduce the Public Debt ARE tax deductible for income tax purposes. For more information, see www.irs.gov
Friday, February 15, 2008
Dave's Thoughts on the Stimulus Tax Rebate
Dave's Thoughts on the Stimulus Tax Rebate
by Dave Ramsey
www.daveramsey.com
Most of you are jumping with joy that you're probably going to be getting a big, fat check from the government. You may be thinking, "FREE MONEY, BABY!!!"
Well, I'm not here to totally rain on your parade, but plain and simple, I'm not lovin' this plan. This government plan to try to stimulate the economy and pull us away from a possible recession is actually straight-up socialism - just the opposite of capitalism! I don't want my money to help you (if you haven't paid federal income taxes) buy an iPhone or whatever else you have your eye set on.
"Letting Americans keep more of their own money should increase consumer spending, and lift our economy at a time when people otherwise might spend less," President Bush said. The idea in theory sounds like it will work smoothly, but I have a much better idea that will eventually increase consumer spending, and in turn, cause the economy to flourish: encourage freedom from debt!
The last time a stimulus rebate like this was issued was in 2001. A recent study revealed consumers spent two-thirds of those rebates within 6 months of receiving them. Do you have a game plan already for what you'll do with your rebate this time around?
Make the Money Work For You
Don't wait until it comes in the mail to formulate a plan, and whatever you do, do NOT spend this money before it gets to your hands! Those are just formal invitations for Murphy to unpack his suitcases in your spare bedroom! Here are a handful of ways I recommend making your tax rebate work for you, depending on where you are in the Baby Steps:
Pay off debt. This may sound like a no-brainer, but I already expect that few people will actually do it! There's really no reason NOT to throw this "free" money toward your debt snowball. It will get you one step (or maybe quite a few) closer to being debt free, and THEN you will have the freedom to buy that toy or take that vacation you've had your heart set on for quite a while! Learn how
Invest it. If you put this big chunk of change into a mutual fund for a few years, you'll actually receive TONS more money than just the initial $600 or $1,200 check this summer.
Say you get back $600 and put it automatically into a mutual fund averaging 12%. In 2018, that one-time investment will grow to approximately $2,000! If left in for 20 years, it will be worth about $6,500! For the married folks, this free money can grow up to $13,000 over 20 years - WOW! Calculate your earnings!
Have some fun. I'm not a total meanie. I actually do like to have some fun with my money, and I encourage you to do the same! There's nothing wrong with taking your spouse out for a nice dinner or buying that new pair of jeans with some of this money you could be getting. Just stick within your boundaries, and remember that the quicker you get out of debt, the more fun things you can do and the more money you can give away to bless others.
Source: CNNMoney.com
by Dave Ramsey
www.daveramsey.com
Most of you are jumping with joy that you're probably going to be getting a big, fat check from the government. You may be thinking, "FREE MONEY, BABY!!!"
Well, I'm not here to totally rain on your parade, but plain and simple, I'm not lovin' this plan. This government plan to try to stimulate the economy and pull us away from a possible recession is actually straight-up socialism - just the opposite of capitalism! I don't want my money to help you (if you haven't paid federal income taxes) buy an iPhone or whatever else you have your eye set on.
"Letting Americans keep more of their own money should increase consumer spending, and lift our economy at a time when people otherwise might spend less," President Bush said. The idea in theory sounds like it will work smoothly, but I have a much better idea that will eventually increase consumer spending, and in turn, cause the economy to flourish: encourage freedom from debt!
The last time a stimulus rebate like this was issued was in 2001. A recent study revealed consumers spent two-thirds of those rebates within 6 months of receiving them. Do you have a game plan already for what you'll do with your rebate this time around?
Make the Money Work For You
Don't wait until it comes in the mail to formulate a plan, and whatever you do, do NOT spend this money before it gets to your hands! Those are just formal invitations for Murphy to unpack his suitcases in your spare bedroom! Here are a handful of ways I recommend making your tax rebate work for you, depending on where you are in the Baby Steps:
Pay off debt. This may sound like a no-brainer, but I already expect that few people will actually do it! There's really no reason NOT to throw this "free" money toward your debt snowball. It will get you one step (or maybe quite a few) closer to being debt free, and THEN you will have the freedom to buy that toy or take that vacation you've had your heart set on for quite a while! Learn how
Invest it. If you put this big chunk of change into a mutual fund for a few years, you'll actually receive TONS more money than just the initial $600 or $1,200 check this summer.
Say you get back $600 and put it automatically into a mutual fund averaging 12%. In 2018, that one-time investment will grow to approximately $2,000! If left in for 20 years, it will be worth about $6,500! For the married folks, this free money can grow up to $13,000 over 20 years - WOW! Calculate your earnings!
Have some fun. I'm not a total meanie. I actually do like to have some fun with my money, and I encourage you to do the same! There's nothing wrong with taking your spouse out for a nice dinner or buying that new pair of jeans with some of this money you could be getting. Just stick within your boundaries, and remember that the quicker you get out of debt, the more fun things you can do and the more money you can give away to bless others.
Source: CNNMoney.com
Wednesday, January 23, 2008
CBO Sees $250 Billion Deficit
CBO Sees $250 Billion Deficit
Associated Press Wednesday January 23, 10:33 am ET
By Andrew Taylor, Associated Press Writer
CBO Predicts Rising Federal Budget Deficit As Economy Weakens
WASHINGTON (AP) -- The deficit for the current budget year will jump to about $250 billion, the Congressional Budget Office estimated Wednesday, citing the weakening economy. And that figure does not reflect at least $100 billion in red ink from an economic stimulus measure in the works.
"After three years of declining budget deficits, a slowing economy this year will contribute to an increase in the deficit," the CBO report said.
The figure greatly exceeds the $163 billion in red ink registered last year. Adding likely but still unapproved outlays for the wars in Iraq and Afghanistan brings its "baseline" deficit estimate of $219 billion to about $250 billion, the nonpartisan CBO said.
Senate Budget Committee Chairman Kent Conrad, D-N.D., said the 2008 deficit would reach more than $350 billion once the costs of an upcoming economic stimulus measure under negotiation between the Bush administration and Congress are factored in.
The CBO crunches economic and budget data for lawmakers.
Unlike an increasing number of economists, CBO does not forecast a recession this year. It instead forecasts a growth rate of 1.7 percent, down from 2.2 percent real growth in the gross domestic product (GDP) last year.
"Although recent data suggest that the probability of a recession in 2008 has increased, CBO does not expect the slowdown in economic growth to be large enough to register as a recession," CBO said. The CBO economic forecast was completed last month, before a recent spike in unemployment and the release of disappointing holiday retail sales figures.
"A number of ominous economic signs have emerged since CBO finalized last month the forecast underlying today's report," said House Budget Committee Chairman John Spratt Jr., D-S.C. "Today's new economic forecast thus adds to the growing evidence that the economy has weakened, and that policymakers in Washington must take action."
CBO Director Peter Orszag testified before the House Budget Committee. He warned them again that regardless of the short-term fluctuations in the deficit, the longer-term picture remains bleak due to expected spiraling costs of Medicare, Medicaid and Social Security as the Baby Boom generation retires.
"A substantial reduction in the growth of spending, a significant increase in tax revenues relative to the size of the economy, or some combination of the two will be necessary to maintain the nation's long-term fiscal stability," Orszag said.
Officially, CBO predicts the 2008 deficit at $219 billion, but that figure fails to account for at least an additional $30 billion in war costs and the likely infusion of deficit-financed economic stimulus measures such as income tax rebates, business tax breaks and help for the unemployed now under discussion on Capitol Hill and at the White House.
The deficit seems to be an afterthought as lawmakers race toward agreement with President Bush on a plan to pump perhaps $150 billion worth of deficit spending into the economy. The bulk of the plan would come as tax cuts, though Democrats are pressing for additional help for the unemployed and people on food stamps. Constituency groups in both political parties are pressing for even more, such as Democratic-sought aid to cash-strapped states and people with high heating bills.
Most of any economic stimulus bill would be released before the Oct. 1 start of the 2009 budget year, with any benefits to the economy -- and therefore federal revenues -- lagging behind.
The White House is set to release its 2009 budget on Feb. 4, and Bush has promised a plan that would erase the deficit by 2012 if his policies are followed.
The 2006 deficit was $248 billion and had closed from a high of $413 billion registered in 2004.
The deficit picture remains worse than it was when Bush took office seven years ago. Then, both White House and congressional forecasters projected cumulative surpluses of $5.6 trillion over the subsequent decade.
But a revenue bubble burst, a recession and the Sept. 11, 2001, terrorist attacks adversely affected the books. Several rounds of tax cuts, including Bush's signature $1.35 trillion 2001 tax cut, also contributed to the return to deficits in 2002 after four years of budget surpluses. The national debt has risen to $9.2 trillion.
"This guy will come close to doubling the debt of the country during his period of presidency," Conrad said.
Congressional Budget Office: http://www.cbo.gov
Associated Press Wednesday January 23, 10:33 am ET
By Andrew Taylor, Associated Press Writer
CBO Predicts Rising Federal Budget Deficit As Economy Weakens
WASHINGTON (AP) -- The deficit for the current budget year will jump to about $250 billion, the Congressional Budget Office estimated Wednesday, citing the weakening economy. And that figure does not reflect at least $100 billion in red ink from an economic stimulus measure in the works.
"After three years of declining budget deficits, a slowing economy this year will contribute to an increase in the deficit," the CBO report said.
The figure greatly exceeds the $163 billion in red ink registered last year. Adding likely but still unapproved outlays for the wars in Iraq and Afghanistan brings its "baseline" deficit estimate of $219 billion to about $250 billion, the nonpartisan CBO said.
Senate Budget Committee Chairman Kent Conrad, D-N.D., said the 2008 deficit would reach more than $350 billion once the costs of an upcoming economic stimulus measure under negotiation between the Bush administration and Congress are factored in.
The CBO crunches economic and budget data for lawmakers.
Unlike an increasing number of economists, CBO does not forecast a recession this year. It instead forecasts a growth rate of 1.7 percent, down from 2.2 percent real growth in the gross domestic product (GDP) last year.
"Although recent data suggest that the probability of a recession in 2008 has increased, CBO does not expect the slowdown in economic growth to be large enough to register as a recession," CBO said. The CBO economic forecast was completed last month, before a recent spike in unemployment and the release of disappointing holiday retail sales figures.
"A number of ominous economic signs have emerged since CBO finalized last month the forecast underlying today's report," said House Budget Committee Chairman John Spratt Jr., D-S.C. "Today's new economic forecast thus adds to the growing evidence that the economy has weakened, and that policymakers in Washington must take action."
CBO Director Peter Orszag testified before the House Budget Committee. He warned them again that regardless of the short-term fluctuations in the deficit, the longer-term picture remains bleak due to expected spiraling costs of Medicare, Medicaid and Social Security as the Baby Boom generation retires.
"A substantial reduction in the growth of spending, a significant increase in tax revenues relative to the size of the economy, or some combination of the two will be necessary to maintain the nation's long-term fiscal stability," Orszag said.
Officially, CBO predicts the 2008 deficit at $219 billion, but that figure fails to account for at least an additional $30 billion in war costs and the likely infusion of deficit-financed economic stimulus measures such as income tax rebates, business tax breaks and help for the unemployed now under discussion on Capitol Hill and at the White House.
The deficit seems to be an afterthought as lawmakers race toward agreement with President Bush on a plan to pump perhaps $150 billion worth of deficit spending into the economy. The bulk of the plan would come as tax cuts, though Democrats are pressing for additional help for the unemployed and people on food stamps. Constituency groups in both political parties are pressing for even more, such as Democratic-sought aid to cash-strapped states and people with high heating bills.
Most of any economic stimulus bill would be released before the Oct. 1 start of the 2009 budget year, with any benefits to the economy -- and therefore federal revenues -- lagging behind.
The White House is set to release its 2009 budget on Feb. 4, and Bush has promised a plan that would erase the deficit by 2012 if his policies are followed.
The 2006 deficit was $248 billion and had closed from a high of $413 billion registered in 2004.
The deficit picture remains worse than it was when Bush took office seven years ago. Then, both White House and congressional forecasters projected cumulative surpluses of $5.6 trillion over the subsequent decade.
But a revenue bubble burst, a recession and the Sept. 11, 2001, terrorist attacks adversely affected the books. Several rounds of tax cuts, including Bush's signature $1.35 trillion 2001 tax cut, also contributed to the return to deficits in 2002 after four years of budget surpluses. The national debt has risen to $9.2 trillion.
"This guy will come close to doubling the debt of the country during his period of presidency," Conrad said.
Congressional Budget Office: http://www.cbo.gov
Friday, January 11, 2008
Fidelity: Debt crowds job-based savings
The following appeared in the January 11, 2008 issue of the St. Paul Pioneer Press business section, page 2C.
Fidelity: Debt crowds job-based savings
High consumer debt is slowing growth in retirement savings accounts, according to a study released Thursday by Fidelity Investments. The mutual fund company, which is based in Boston, found one in three employees of nonprofit organizations increased their contributions to job-based savings plans in 2007. Some 44 percent of participants in the survey also admitted to personal debt exceeding $5,000, not including mortgages, the study found. The impact of debt could be seen in the breakdown of savings by people who considered themselves investors, savers or spenders. The spenders tended to carry higher debt than people in the other categories. Some 42 percent of people who considered themselves investors raised their contributions in 2007, compared with 30 percent of savers and 25 percent of spenders, the study found.
Tuesday, January 8, 2008
Happy New Year
It's pretty sad when one has to celebrate for NOT hitting a milestone. I'm celebrating because we still haven't hit the $10 Trillion National Debt level. Sadly, the way things are going, I'm sure we'll hit it by the end of the year.
Since I've been out of town and have had computer problems, I haven't been able to post for the past two months. Needless to say, despite my inability to monitor our debt for the past two months, it kept creeping up.
Here are the latest statistics from TreasuryDirect.com pertaining to the National Debt (effective Jan. 4, 2008).
Debt Held by Public: $5,116,199,834,200.04
Intragovernmental: $4,081,378,046,617.39
Total Debt (4 Jan): $9,197,577,880,817.43
Interest Payments FY08:
October 2007 - $22,310,362,733.54
November 2007 - $25,344,987,578.31
December 2007 - $106,138,177,851.45
Total 1st Q: $153,793,528,163.30
Gifts to reduce the Public Debt:
November 2007 - $27,617.15
October 2007 - $189,907.48
FY08 to Date: $217,524.63
Gifts to reduce the Public Debt in FY 2007: $2,624,862.42
Now that we are into the Presidential Primary season, it would be nice if the politicians who want to be our next leader would finally address this key issue. The silence is deafening!!
Since I've been out of town and have had computer problems, I haven't been able to post for the past two months. Needless to say, despite my inability to monitor our debt for the past two months, it kept creeping up.
Here are the latest statistics from TreasuryDirect.com pertaining to the National Debt (effective Jan. 4, 2008).
Debt Held by Public: $5,116,199,834,200.04
Intragovernmental: $4,081,378,046,617.39
Total Debt (4 Jan): $9,197,577,880,817.43
Interest Payments FY08:
October 2007 - $22,310,362,733.54
November 2007 - $25,344,987,578.31
December 2007 - $106,138,177,851.45
Total 1st Q: $153,793,528,163.30
Gifts to reduce the Public Debt:
November 2007 - $27,617.15
October 2007 - $189,907.48
FY08 to Date: $217,524.63
Gifts to reduce the Public Debt in FY 2007: $2,624,862.42
Now that we are into the Presidential Primary season, it would be nice if the politicians who want to be our next leader would finally address this key issue. The silence is deafening!!
Thursday, November 8, 2007
New Debt Stats Now Available At TreasuryDirect.gov
Been a busy few weeks with work, campaigns and helping friends move. Yet the Debt continues to grow in my absence.
Here are the figures for the Month of October 2007 courtesy of the U.S. Treasury at TreasuryDirect.gov
Debt Held By The Public (Nov. 7, 2007): $5,082,087,499,065.19
Intragovernmental Holdings (Nov. 7, 2007): $4,002,186,282,492.45
Total National Debt (Nov. 7, 2007): $9,084,273,781,557.64
Gifts to Reduce Public Debt Held By Public (Sept. 2007) $27,460.42
Total Gifts for FY 2007: $2,624,862.42
Interest Payment - October 2007: $22,310,362,733.54
Since October 2007 is the first month in FY 2008, the October amount reflects the cumulative total for the Fiscal Year.
Here are the figures for the Month of October 2007 courtesy of the U.S. Treasury at TreasuryDirect.gov
Debt Held By The Public (Nov. 7, 2007): $5,082,087,499,065.19
Intragovernmental Holdings (Nov. 7, 2007): $4,002,186,282,492.45
Total National Debt (Nov. 7, 2007): $9,084,273,781,557.64
Gifts to Reduce Public Debt Held By Public (Sept. 2007) $27,460.42
Total Gifts for FY 2007: $2,624,862.42
Interest Payment - October 2007: $22,310,362,733.54
Since October 2007 is the first month in FY 2008, the October amount reflects the cumulative total for the Fiscal Year.
Monday, October 15, 2007
Newest Debt figures released
I'm about a week behind the times, but the October monthly statement of the National Debt has been released. Here is a summary:
National Debt Total as of 10/12/2007:
$9,044,256,689,740.39
Of that, the debt held by the public comes to: $5,038,254,667,984.29
and Intragovernmental holdings (trust funds) are: $4,006,002,021,756.10
In September, taxpayers paid $19,186,822,742.64 in interest on our National Debt (19 billion is roughly three quarters of the gap that Congress and the Administration are arguing over for the SCHIPS program funding increase).
During the 2007 fiscal year, taxpayers paid: $429,977,998,108.20 in interest. (Just shy of $430 billion - just think of what we could do with that money if we weren't paying interest - tax cuts anyone?)
For public contributions to reduce the national debt, $10,518.85 was donated to the Treasury Department in August 2007, with $2,597,402.00 given year-to-date. ($2 million donated to the Treasury with $19 billion in interest payments in one month.)
Next report will be out on the 4th business day of November.
These figures are available at Treasury Direct, www.treasurydirect.gov
National Debt Total as of 10/12/2007:
$9,044,256,689,740.39
Of that, the debt held by the public comes to: $5,038,254,667,984.29
and Intragovernmental holdings (trust funds) are: $4,006,002,021,756.10
In September, taxpayers paid $19,186,822,742.64 in interest on our National Debt (19 billion is roughly three quarters of the gap that Congress and the Administration are arguing over for the SCHIPS program funding increase).
During the 2007 fiscal year, taxpayers paid: $429,977,998,108.20 in interest. (Just shy of $430 billion - just think of what we could do with that money if we weren't paying interest - tax cuts anyone?)
For public contributions to reduce the national debt, $10,518.85 was donated to the Treasury Department in August 2007, with $2,597,402.00 given year-to-date. ($2 million donated to the Treasury with $19 billion in interest payments in one month.)
Next report will be out on the 4th business day of November.
These figures are available at Treasury Direct, www.treasurydirect.gov
AP - Deficit falls to lowest level in 5 years
The following article appeared on Oct. 11, 2007, courtesy of the Associated Press.
Deficit falls to lowest level in 5 years
Both spending, revenue at record marks in 2007
BY MARTIN CRUTSINGER
Associated Press
WASHINGTON - The Bush administration reported Thursday that the federal budget deficit fell to $162.8 billion in the just-completed budget year, the lowest amount of red ink in five years.
The administration credited the president's tax cuts for helping generate record-breaking revenues but warned of an approaching "fiscal train wreck" unless Congress deals with unsustainable growth in Social Security, Medicare and Medicaid.
President Bush, appearing with his economic team to trumpet the news, noted that the deficit turned out to be $81 billion lower than it was projected to be in February. He said the deficit represents 1.2 percent of gross domestic product - less than the average of the last 40 years.
"By keeping taxes low we can grow the economy, and by working with Congress to set priorities we can be fiscally responsible and we can head toward balance," Bush said after the meeting across the street from the White House. "And that's exactly where we're headed."
The deficit for the 2007 budget year that ended on Sept. 30 was 34.4 percent lower than the $248.2 billion deficit recorded in 2006, reflecting faster growth in revenues than in government spending.
Administration officials said the government was on track to accomplish Bush's goal of eliminating the deficit by 2012. But Democrats said the improvement in the deficit this year did not mask the fact that Bush's economic policies transformed the budget surpluses of the Clinton years into record deficits and an unprecedented increase in the national debt.
The debate over the president's signature tax cuts and their impact on the economy are certain to be played out in the coming presidential campaign. Republican candidates are vowing to make permanent Bush's tax cuts, which are due to expire at the end of 2010; Democrats want to roll back the tax cuts received by the wealthiest taxpayers.
Both revenues and spending climbed to record levels in 2007. Spending rose by 2.8 percent to $2.73 trillion while revenues rose by a faster 6.7 percent to a record $2.57 trillion, a gain the administration attributed to the economic stimulus from the president's tax cuts.
"This year's budget results further demonstrate how the president's tax relief, combined with spending discipline, has helped promote a sustained economic expansion, which led to revenue growth and resulted in a declining deficit," said White House budget director Jim Nussle.
But administration officials said while the short-term budget deficit was improving, greater efforts were needed to deal with the budgetary pressures that will arise in future years with the approaching retirement of 78 million baby boomers.
"For the sake of our children and grandchildren, Congress should begin to take action to prevent this fiscal train wreck," Nussle said in a statement accompanying the budget figures.
Senate Budget Committee Chairman Kent Conrad, D-N.D., said that Bush would "go down in history as the most fiscally irresponsible president ever. The fact is that the nation's debt has exploded on his watch - rising by $3 trillion since 2001, to $9 trillion today."
Bush recently signed into law a measure increasing the government's borrowing ceiling to $9.815 trillion. It was the fifth debt increase of Bush's presidency. The national debt is the accumulation of the annual deficits.
The deficit hit an all-time high in dollar terms of $413 billion in 2004 and has been coming down since.
The Congressional Budget Office projects the deficit will improve further in the 2008 budget year, which began on Oct. 1, projecting a decline to $155 billion before the imbalance starts to rise again in 2009.
Deficit falls to lowest level in 5 years
Both spending, revenue at record marks in 2007
BY MARTIN CRUTSINGER
Associated Press
WASHINGTON - The Bush administration reported Thursday that the federal budget deficit fell to $162.8 billion in the just-completed budget year, the lowest amount of red ink in five years.
The administration credited the president's tax cuts for helping generate record-breaking revenues but warned of an approaching "fiscal train wreck" unless Congress deals with unsustainable growth in Social Security, Medicare and Medicaid.
President Bush, appearing with his economic team to trumpet the news, noted that the deficit turned out to be $81 billion lower than it was projected to be in February. He said the deficit represents 1.2 percent of gross domestic product - less than the average of the last 40 years.
"By keeping taxes low we can grow the economy, and by working with Congress to set priorities we can be fiscally responsible and we can head toward balance," Bush said after the meeting across the street from the White House. "And that's exactly where we're headed."
The deficit for the 2007 budget year that ended on Sept. 30 was 34.4 percent lower than the $248.2 billion deficit recorded in 2006, reflecting faster growth in revenues than in government spending.
Administration officials said the government was on track to accomplish Bush's goal of eliminating the deficit by 2012. But Democrats said the improvement in the deficit this year did not mask the fact that Bush's economic policies transformed the budget surpluses of the Clinton years into record deficits and an unprecedented increase in the national debt.
The debate over the president's signature tax cuts and their impact on the economy are certain to be played out in the coming presidential campaign. Republican candidates are vowing to make permanent Bush's tax cuts, which are due to expire at the end of 2010; Democrats want to roll back the tax cuts received by the wealthiest taxpayers.
Both revenues and spending climbed to record levels in 2007. Spending rose by 2.8 percent to $2.73 trillion while revenues rose by a faster 6.7 percent to a record $2.57 trillion, a gain the administration attributed to the economic stimulus from the president's tax cuts.
"This year's budget results further demonstrate how the president's tax relief, combined with spending discipline, has helped promote a sustained economic expansion, which led to revenue growth and resulted in a declining deficit," said White House budget director Jim Nussle.
But administration officials said while the short-term budget deficit was improving, greater efforts were needed to deal with the budgetary pressures that will arise in future years with the approaching retirement of 78 million baby boomers.
"For the sake of our children and grandchildren, Congress should begin to take action to prevent this fiscal train wreck," Nussle said in a statement accompanying the budget figures.
Senate Budget Committee Chairman Kent Conrad, D-N.D., said that Bush would "go down in history as the most fiscally irresponsible president ever. The fact is that the nation's debt has exploded on his watch - rising by $3 trillion since 2001, to $9 trillion today."
Bush recently signed into law a measure increasing the government's borrowing ceiling to $9.815 trillion. It was the fifth debt increase of Bush's presidency. The national debt is the accumulation of the annual deficits.
The deficit hit an all-time high in dollar terms of $413 billion in 2004 and has been coming down since.
The Congressional Budget Office projects the deficit will improve further in the 2008 budget year, which began on Oct. 1, projecting a decline to $155 billion before the imbalance starts to rise again in 2009.
Saturday, October 6, 2007
WSJ: GOP Tax Dilemma
The following was sent to me by a good friend. In my opinion, the party's fiscal message should be the following: eliminate wasteful government spending, balance the federal budget each year and start paying off the National Debt. If the party and it's candidates adopt that approach, I think they'll find widespread support.
GOP Tax Dilemma
After years of waste in Congress, voters aren't buying the party's fiscal message.
BY STEPHEN MOORE
Friday, October 5, 2007 12:01 a.m. EDT - Wall Street Journal
A few weeks ago Republican leaders gathered on Capitol Hill to hear from their top pollsters and pundits about how they can win back the votes of independent voters. Some of the attendees are still in a state of cardiac arrest over what they learned.
America's swing voters, especially the suburban "security moms," who abandoned the GOP in droves in 2006 still hold Republicans in very low regard. What has party tacticians especially spooked is that these independents are apparently not much attracted to what the Republicans are saying about taxes. That's a bitter pill for party leaders to swallow, because for 25 years the anti-tax banner has been a political trump card for conservative candidates. A top strategist at the Republican National Committee who attended the meeting told me: "Our tax message has worn thin."
Well, that's not exactly true. It is true that the GOP message on taxes needs a makeover, perhaps a radical one--and the party's congressional leaders had better figure this out soon: The big tax fight starts as early as next week when House Ways and Means Committee Chairman Charlie Rangle unveils his multibillion dollar soak-the-rich tax hike plan to pay for middle-class Alternative Minimum Tax relief. So let's review some of the key attitudinal shifts of voters on taxes as revealed in recent polls and focus-group findings.
First, the not-so-good news for the GOP. Most voters are unpersuaded by the Republican message that the Bush tax cuts were a resounding success that pumped the economy back to life. Worse, the key independent voters are actually repelled by that message. "It crashes like the Hindenburg," says Richard Thau, who has been monitoring swing voter sentiments across the nation. Why? Because politicians who boast about the rosy economy seem out of touch, even delusional, given the rising costs of gasoline, health insurance and college tuition.
The reality, of course, is that the investment tax cuts did help create seven million jobs and did steer the economy out of recession. That doesn't matter to these "stressed out" voters, as Mr. Thau calls them. The Bush tax cuts are a bridge to the past, not the future, to borrow a Clintonite term. Moreover, because local property and school taxes have been skyrocketing, many independent voters scratch their heads and wonder: What tax cuts?
There is more deflating news. Unlike in the 1980s and '90s, voters are today less attracted to talk of new tax cuts, which they think are pie-in-the-sky, given the current war costs and budget-deficit. Nor are they averse to raising taxes on "the wealthy," a group they are persuaded is taking advantage of tax loopholes to avoid paying their fair share. That the richest 10% already pay two-thirds of the income taxes isn't well understood. One strong defense mechanism against the left's class warfare tax policy is that roughly half of voters are convinced that when politicians say they are only going to soak the rich, they fear their own tax bills will go up.
There is another silver lining for the GOP: The Democrat's tax-happy policies are an even less palatable message to voters. Sen. Jon Kyl of Arizona, who has sat in the GOP tax strategy sessions tells me that "an overriding concern of economically anxious voters today is that they don't see their own taxes rise."
Pollster David Winston, who's been testing the tax issue for Republicans, agrees with that assessment. When Mr. Winston asked a national sample of registered voters last month, "Do you believe or not believe this statement: Given the cost of living these days, now is not the time to raise taxes," 65% believe now isn't the time to raise taxes, while only 31% believe it is.
There is another GOP imperative: The anti-tax message must be linked to wasteful government spending. "There's no question that for seven out of 10 American voters, wasteful government spending is one of the largest problems in Washington," says pollster Tony Fabrizio. "For many of these voters it's a bigger issue than taxes." All of the polling consistently finds that voters believe about 40 cents of every dollar spent by Washington is wasted. So this widespread aversion to the way government mishandles money may be the best shield against tax hikes--at all levels of government.
In Mr. Winston's survey, 75% of respondents agreed that, "Taxes should not be increased as long as Congress continues to waste the tax money it already receives." Only 23% did not.
Perhaps the most encouraging poll finding is that Americans fully understand the link between a strong economy and deficits. In 2006 federal revenues increased by a world record $250 billion, because of surging employment, corporate profits, and stock values. No Hillary Clinton tax hike could have possibly raised that kind of money.
This is a nation that instinctively gets the supply-side message that putting people to work yields more tax revenues than a strategy of weighing down businesses and workers with tax hikes, which explains this stunning finding: When Mr. Winston's poll asked, "Which approach is more likely to increase federal revenues?" 81% said "increasing economic growth" while only 13% said "increasing taxes."
So the tax issue is still radioactive with most voters, and the GOP would be foolhardy to run and hide from it. That's especially true because if the economy slows down in the coming months due to the housing credit crunch, aversion to higher taxes is likely to intensify.
"Voters' biggest economic concern is whether they will have enough money to meet their own needs," says Sen. Kyl. He says that if Republicans are going to win in 2008, they have to persuade voters that Democratic tax hikes "will make things worse" for the economy and their own personal finances. Fortunately, this message has the added attraction that it's not just pollster-driven spin. It's the truth.
Mr. Moore is senior economics writer for the Wall Street Journal editorial page.
GOP Tax Dilemma
After years of waste in Congress, voters aren't buying the party's fiscal message.
BY STEPHEN MOORE
Friday, October 5, 2007 12:01 a.m. EDT - Wall Street Journal
A few weeks ago Republican leaders gathered on Capitol Hill to hear from their top pollsters and pundits about how they can win back the votes of independent voters. Some of the attendees are still in a state of cardiac arrest over what they learned.
America's swing voters, especially the suburban "security moms," who abandoned the GOP in droves in 2006 still hold Republicans in very low regard. What has party tacticians especially spooked is that these independents are apparently not much attracted to what the Republicans are saying about taxes. That's a bitter pill for party leaders to swallow, because for 25 years the anti-tax banner has been a political trump card for conservative candidates. A top strategist at the Republican National Committee who attended the meeting told me: "Our tax message has worn thin."
Well, that's not exactly true. It is true that the GOP message on taxes needs a makeover, perhaps a radical one--and the party's congressional leaders had better figure this out soon: The big tax fight starts as early as next week when House Ways and Means Committee Chairman Charlie Rangle unveils his multibillion dollar soak-the-rich tax hike plan to pay for middle-class Alternative Minimum Tax relief. So let's review some of the key attitudinal shifts of voters on taxes as revealed in recent polls and focus-group findings.
First, the not-so-good news for the GOP. Most voters are unpersuaded by the Republican message that the Bush tax cuts were a resounding success that pumped the economy back to life. Worse, the key independent voters are actually repelled by that message. "It crashes like the Hindenburg," says Richard Thau, who has been monitoring swing voter sentiments across the nation. Why? Because politicians who boast about the rosy economy seem out of touch, even delusional, given the rising costs of gasoline, health insurance and college tuition.
The reality, of course, is that the investment tax cuts did help create seven million jobs and did steer the economy out of recession. That doesn't matter to these "stressed out" voters, as Mr. Thau calls them. The Bush tax cuts are a bridge to the past, not the future, to borrow a Clintonite term. Moreover, because local property and school taxes have been skyrocketing, many independent voters scratch their heads and wonder: What tax cuts?
There is more deflating news. Unlike in the 1980s and '90s, voters are today less attracted to talk of new tax cuts, which they think are pie-in-the-sky, given the current war costs and budget-deficit. Nor are they averse to raising taxes on "the wealthy," a group they are persuaded is taking advantage of tax loopholes to avoid paying their fair share. That the richest 10% already pay two-thirds of the income taxes isn't well understood. One strong defense mechanism against the left's class warfare tax policy is that roughly half of voters are convinced that when politicians say they are only going to soak the rich, they fear their own tax bills will go up.
There is another silver lining for the GOP: The Democrat's tax-happy policies are an even less palatable message to voters. Sen. Jon Kyl of Arizona, who has sat in the GOP tax strategy sessions tells me that "an overriding concern of economically anxious voters today is that they don't see their own taxes rise."
Pollster David Winston, who's been testing the tax issue for Republicans, agrees with that assessment. When Mr. Winston asked a national sample of registered voters last month, "Do you believe or not believe this statement: Given the cost of living these days, now is not the time to raise taxes," 65% believe now isn't the time to raise taxes, while only 31% believe it is.
There is another GOP imperative: The anti-tax message must be linked to wasteful government spending. "There's no question that for seven out of 10 American voters, wasteful government spending is one of the largest problems in Washington," says pollster Tony Fabrizio. "For many of these voters it's a bigger issue than taxes." All of the polling consistently finds that voters believe about 40 cents of every dollar spent by Washington is wasted. So this widespread aversion to the way government mishandles money may be the best shield against tax hikes--at all levels of government.
In Mr. Winston's survey, 75% of respondents agreed that, "Taxes should not be increased as long as Congress continues to waste the tax money it already receives." Only 23% did not.
Perhaps the most encouraging poll finding is that Americans fully understand the link between a strong economy and deficits. In 2006 federal revenues increased by a world record $250 billion, because of surging employment, corporate profits, and stock values. No Hillary Clinton tax hike could have possibly raised that kind of money.
This is a nation that instinctively gets the supply-side message that putting people to work yields more tax revenues than a strategy of weighing down businesses and workers with tax hikes, which explains this stunning finding: When Mr. Winston's poll asked, "Which approach is more likely to increase federal revenues?" 81% said "increasing economic growth" while only 13% said "increasing taxes."
So the tax issue is still radioactive with most voters, and the GOP would be foolhardy to run and hide from it. That's especially true because if the economy slows down in the coming months due to the housing credit crunch, aversion to higher taxes is likely to intensify.
"Voters' biggest economic concern is whether they will have enough money to meet their own needs," says Sen. Kyl. He says that if Republicans are going to win in 2008, they have to persuade voters that Democratic tax hikes "will make things worse" for the economy and their own personal finances. Fortunately, this message has the added attraction that it's not just pollster-driven spin. It's the truth.
Mr. Moore is senior economics writer for the Wall Street Journal editorial page.
Thursday, October 4, 2007
LTTE: Lapses in judgment
Here is my response to Rep. Jim Oberstar's recent commentary, posted below. The letter appeared in the Oct. 1, 2007 edition of the St. Paul Pioneer Press.
Lapses in judgment
Rep. Jim Oberstar's recent commentary lashing out at the National Taxpayers Union as a "naysayer" organization is utterly laughable.
As the chairman of the House Transportation Committee, he should be working to prevent and fix problems instead of playing the blame game. He also fails to hold himself accountable in the process.
Oberstar points at the time it takes for freight to go through Chicago as a major concern without mentioning how he has failed to secure much-needed funding for the city of Duluth, which would enable a port in his home district to become a major hub for multi-modal freight.
He points out the need for bridge repair, but never advocated it before the I-35W bridge collapsed.
Instead, he continues to spend more earmarks on bicycle trails in his home district, mass transit and other risky schemes while continuing to blame others for his lapses of judgment.
- J. Scott Williams
Maplewood
Lapses in judgment
Rep. Jim Oberstar's recent commentary lashing out at the National Taxpayers Union as a "naysayer" organization is utterly laughable.
As the chairman of the House Transportation Committee, he should be working to prevent and fix problems instead of playing the blame game. He also fails to hold himself accountable in the process.
Oberstar points at the time it takes for freight to go through Chicago as a major concern without mentioning how he has failed to secure much-needed funding for the city of Duluth, which would enable a port in his home district to become a major hub for multi-modal freight.
He points out the need for bridge repair, but never advocated it before the I-35W bridge collapsed.
Instead, he continues to spend more earmarks on bicycle trails in his home district, mass transit and other risky schemes while continuing to blame others for his lapses of judgment.
- J. Scott Williams
Maplewood
Thursday, September 27, 2007
How Effective Has Monetary Policy Been?
ST. LOUIS, Sept. 27 /PRNewswire/ -- Central banks that have a specific,numeric target for inflation appear to have a good record of hitting those targets, but an analysis from the Federal Reserve Bank of St. Louis suggests that such targets may not be a prerequisite for achieving low and stable inflation.
The analysis was conducted by Marcela M. Williams, a senior research associate, and Robert H. Rasche, a senior vice president and director of research at the Federal Reserve Bank of St. Louis. Their research appears in the September/October issue of Review, the Reserve Bank's bimonthly journal of economic and business issues. The publication is also available online at the St. Louis Fed's web site:
http://research.stlouisfed.org/publications/review.
Williams and Rasche looked at 23 inflation-targeting countries and measured the moving average of their inflation rates. Generally speaking,they found these countries have been quite successful at keeping their long-term inflation rates within their target ranges. The most successful in meeting their targets are New Zealand, Norway, Switzerland, Thailand and the United Kingdom, which have all maintained an average inflation rate well within their target ranges, even before those ranges were explicitly defined. The exceptions are Brazil, Mexico and the
Philippines, while some countries, such as Chile, Colombia and Hungary have
been able to bring their inflation rates down over time.
To assess the disposition on the subject by members of the Federal Open Market Committee (FOMC), Williams and Rasche compiled transcripts and public statements of various Fed officials and FOMC members for the past decade or so.
Although the Fed does not set an explicit inflation target, some Fed officials have publicly stated their preference for doing so, including Governor Ben Bernanke, Dallas Fed President Jeffrey Lacker, San Francisco Fed President Janet Yellen and Philadelphia Fed President Anthony Santomero. Williams and Rasche describe St. Louis Fed President William Poole's statements regarding explicit inflation targets as "ambivalent."
Governor Donald Kohn, among others, has expressed opposition to an inflation target for the central bank.
Williams and Rasche emphasized that that the Fed's success over the past two decades in stabilizing the inflation rate without using explicit inflation targets would seem to question the marginal benefit of targeting,at least in the United States.
In addition, they surveyed historical research and commentaries to examine why evidence of the effects of monetary policy on output stabilization are so elusive. While a number of studies show the contractionary effects of monetary policy, results from econometric models often conflict with historical evidence, and economists debate how to reconcile those discrepancies.
Finally, Williams and Rasche concluded that the case for consistently effective short-run monetary stabilization policies is problematic because there are just too much uncertainties in the environment in which central banks operate.
With branches in Little Rock, Louisville and Memphis, the Federal Reserve Bank of St. Louis serves the Eighth Federal Reserve District, which includes all of Arkansas, eastern Missouri, southern Indiana, southern Illinois, western Kentucky, western Tennessee and northern Mississippi. The St. Louis Fed is one of 12 regional Reserve Banks that, along with the Board of Governors in Washington, D.C., comprise the Federal Reserve System. As the nation's central bank, the Federal Reserve System formulates U.S. monetary policy, regulates state-chartered member banks and bank
holding companies, and provides payment services to financial institutions and the U.S. government.
The analysis was conducted by Marcela M. Williams, a senior research associate, and Robert H. Rasche, a senior vice president and director of research at the Federal Reserve Bank of St. Louis. Their research appears in the September/October issue of Review, the Reserve Bank's bimonthly journal of economic and business issues. The publication is also available online at the St. Louis Fed's web site:
http://research.stlouisfed.org/publications/review.
Williams and Rasche looked at 23 inflation-targeting countries and measured the moving average of their inflation rates. Generally speaking,they found these countries have been quite successful at keeping their long-term inflation rates within their target ranges. The most successful in meeting their targets are New Zealand, Norway, Switzerland, Thailand and the United Kingdom, which have all maintained an average inflation rate well within their target ranges, even before those ranges were explicitly defined. The exceptions are Brazil, Mexico and the
Philippines, while some countries, such as Chile, Colombia and Hungary have
been able to bring their inflation rates down over time.
To assess the disposition on the subject by members of the Federal Open Market Committee (FOMC), Williams and Rasche compiled transcripts and public statements of various Fed officials and FOMC members for the past decade or so.
Although the Fed does not set an explicit inflation target, some Fed officials have publicly stated their preference for doing so, including Governor Ben Bernanke, Dallas Fed President Jeffrey Lacker, San Francisco Fed President Janet Yellen and Philadelphia Fed President Anthony Santomero. Williams and Rasche describe St. Louis Fed President William Poole's statements regarding explicit inflation targets as "ambivalent."
Governor Donald Kohn, among others, has expressed opposition to an inflation target for the central bank.
Williams and Rasche emphasized that that the Fed's success over the past two decades in stabilizing the inflation rate without using explicit inflation targets would seem to question the marginal benefit of targeting,at least in the United States.
In addition, they surveyed historical research and commentaries to examine why evidence of the effects of monetary policy on output stabilization are so elusive. While a number of studies show the contractionary effects of monetary policy, results from econometric models often conflict with historical evidence, and economists debate how to reconcile those discrepancies.
Finally, Williams and Rasche concluded that the case for consistently effective short-run monetary stabilization policies is problematic because there are just too much uncertainties in the environment in which central banks operate.
With branches in Little Rock, Louisville and Memphis, the Federal Reserve Bank of St. Louis serves the Eighth Federal Reserve District, which includes all of Arkansas, eastern Missouri, southern Indiana, southern Illinois, western Kentucky, western Tennessee and northern Mississippi. The St. Louis Fed is one of 12 regional Reserve Banks that, along with the Board of Governors in Washington, D.C., comprise the Federal Reserve System. As the nation's central bank, the Federal Reserve System formulates U.S. monetary policy, regulates state-chartered member banks and bank
holding companies, and provides payment services to financial institutions and the U.S. government.
Tuesday, September 25, 2007
Oberstar: We need more investment, more modes, less congestion
The following commentary appeared in the Sept. 23 issue of the St. Paul Pioneer Press.
By Rep. James Oberstar
The history of transportation is full of skeptics who have stood in the way of progress. Ranging from those who thought a ship would sail off the edge of the Earth to critics who proclaimed that if man were meant to fly he would have wings, these skeptics have been proven wrong throughout the ages.
I count the National Taxpayers Union (NTU) as one such group of naysayers ("Building bridges: don't raise taxes" Sept. 17). NTU has been a persistent critic of public transportation, light rail, commuter rail and even bike and foot paths. They claim all of these modes of transportation are draining tax dollars needed to fund their preferred mode of transportation: freeways.
NTU is stuck in the past, vainly hoping that adding a few more lanes on a freeway system that was designed in the late 1950s and built in the 1960s will keep pace with the transportation needs of the 21st century. However, our economy has grown far beyond the ability of any single mode of transportation to move all of our nation's people and products.
NTU is also wrong to claim that funding levels for transportation are adequate. In the last federal highway aid bill the U.S. Department of Transportation recommended spending $375 billion over six years to maintain our roads and bridges and keep up with congestion. Instead, the president used the threat of a veto to hold the amount of our investment to $286 billion, nearly $90 billion short of the figure his own administration recommended.
Our nation has 73,784 structurally deficient bridges on the national highway system. Congestion on our freeways is growing faster than we can keep up with. According to a report this past week by Texas AM University's Texas Transportation Institute, the average Minnesotan sits in traffic 43 hours a year, burning 30 extra gallons of gas. In effect, this wasted fuel and time levies a $78 billion-a-year congestion tax nationwide, on drivers and businesses. Freeway congestion costs Minnesota's economy $1.1 billion a year. We cannot afford to continue under-investing in our transportation infrastructure.
Congestion is not just limited to our freeways. Right now it takes a cargo container, arriving on our West Coast, 40 hours to travel 1,800 miles to Chicago. It then takes another 36 hours to travel the next seven miles through Chicago's rail yards. We need to make major investments in our nation's freight and passenger rail systems.
The amount of freight being shipped on our nation's rails and roads has increased dramatically in the past two decades. Our economy now calls for just-in-time delivery of goods, making many of the trucks on our highways rolling warehouses, as they move products to market.
Another way to relieve some of the pressure from our highways and railways is to develop a new form of shipping altogether. Short sea shipping would call for the creation of new cargo vessels that move up and down the nation's four coasts. I authored and the House passed legislation to create subsidized loans for the shipping industry to design and build this new class of energy efficient cargo vessels, for the Great Lakes and the salt-water coasts.
If we make the needed investments in technology and research, our nation's transportation system in the 21st century will be multi-modal. Freight containers will move seamlessly from factory to truck, to train, to ship, finding the most cost-effective route to the marketplace. Commuters will be able to walk or bike to a train station to go to work. Our freeways will be upgraded to allow for greater capacity and more efficient flow of traffic. American innovation and new transportation technologies will make gridlock a thing of the past.
The NTU and other skeptics are not looking at the big picture. They have to look through their bug-spattered windshields and past the bumper of the car they are stuck behind in traffic to see that our nation needs a diverse, inter-modal transportation system to serve the needs of 21st century America.
Rep. Jim Oberstar represents Minnesota's 8th Congressional District in the U.S. House of Representatives and is chairman of the Transportation and Infrastructure Committee.
By Rep. James Oberstar
The history of transportation is full of skeptics who have stood in the way of progress. Ranging from those who thought a ship would sail off the edge of the Earth to critics who proclaimed that if man were meant to fly he would have wings, these skeptics have been proven wrong throughout the ages.
I count the National Taxpayers Union (NTU) as one such group of naysayers ("Building bridges: don't raise taxes" Sept. 17). NTU has been a persistent critic of public transportation, light rail, commuter rail and even bike and foot paths. They claim all of these modes of transportation are draining tax dollars needed to fund their preferred mode of transportation: freeways.
NTU is stuck in the past, vainly hoping that adding a few more lanes on a freeway system that was designed in the late 1950s and built in the 1960s will keep pace with the transportation needs of the 21st century. However, our economy has grown far beyond the ability of any single mode of transportation to move all of our nation's people and products.
NTU is also wrong to claim that funding levels for transportation are adequate. In the last federal highway aid bill the U.S. Department of Transportation recommended spending $375 billion over six years to maintain our roads and bridges and keep up with congestion. Instead, the president used the threat of a veto to hold the amount of our investment to $286 billion, nearly $90 billion short of the figure his own administration recommended.
Our nation has 73,784 structurally deficient bridges on the national highway system. Congestion on our freeways is growing faster than we can keep up with. According to a report this past week by Texas AM University's Texas Transportation Institute, the average Minnesotan sits in traffic 43 hours a year, burning 30 extra gallons of gas. In effect, this wasted fuel and time levies a $78 billion-a-year congestion tax nationwide, on drivers and businesses. Freeway congestion costs Minnesota's economy $1.1 billion a year. We cannot afford to continue under-investing in our transportation infrastructure.
Congestion is not just limited to our freeways. Right now it takes a cargo container, arriving on our West Coast, 40 hours to travel 1,800 miles to Chicago. It then takes another 36 hours to travel the next seven miles through Chicago's rail yards. We need to make major investments in our nation's freight and passenger rail systems.
The amount of freight being shipped on our nation's rails and roads has increased dramatically in the past two decades. Our economy now calls for just-in-time delivery of goods, making many of the trucks on our highways rolling warehouses, as they move products to market.
Another way to relieve some of the pressure from our highways and railways is to develop a new form of shipping altogether. Short sea shipping would call for the creation of new cargo vessels that move up and down the nation's four coasts. I authored and the House passed legislation to create subsidized loans for the shipping industry to design and build this new class of energy efficient cargo vessels, for the Great Lakes and the salt-water coasts.
If we make the needed investments in technology and research, our nation's transportation system in the 21st century will be multi-modal. Freight containers will move seamlessly from factory to truck, to train, to ship, finding the most cost-effective route to the marketplace. Commuters will be able to walk or bike to a train station to go to work. Our freeways will be upgraded to allow for greater capacity and more efficient flow of traffic. American innovation and new transportation technologies will make gridlock a thing of the past.
The NTU and other skeptics are not looking at the big picture. They have to look through their bug-spattered windshields and past the bumper of the car they are stuck behind in traffic to see that our nation needs a diverse, inter-modal transportation system to serve the needs of 21st century America.
Rep. Jim Oberstar represents Minnesota's 8th Congressional District in the U.S. House of Representatives and is chairman of the Transportation and Infrastructure Committee.
Bush: Not Fixing Social Security Not Fair
From the Associated Press (9/24):
Bush: Not fixing Social Security not fair
Treasury report recommends benefit cuts, tax increases to fix funding shortfall
BY MARTIN CRUTSINGER Associated Press
WASHINGTON - The Bush administration said in a new report Monday that Social Security is facing a $13.6 trillion shortfall and delaying needed reforms is not fair to younger workers.
A report issued by the Treasury Department said some combination of benefit cuts and tax increases will need to be considered to permanently fix the funding shortfall. But White House officials stressed President Bush remains opposed to raising taxes.
The Treasury report put the cost of the gap between what Social Security is expected to need to pay out in benefits and what it will raise in payroll taxes in coming years at $13.6 trillion.
It said delaying necessary changes reduces the number of people available to share in the resulting burden and is unfair to younger workers. "Not taking action is thus unfair to future generations. This is a significant cost of delay," the report said.
In another key finding, the report said: "Social Security can be made permanently solvent only by reducing the present value of scheduled benefits and/or increasing the present value of scheduled tax increases."
The paper went on to say: "Other changes to the program might be desirable, but only these changes can restore solvency permanently."
While the Treasury report language seemed to indicate the administration would consider raising taxes along with reducing benefits as a way to deal with the funding shortfall, the White House was quick to reject that possibility.
"The president is not advocating for tax increases or benefit cuts," said White House spokesman Tony Fratto.
"Everyone understands that the choices available in the current structure of Social Security, that absent reform, tax increases and benefit cuts are inevitable," Fratto said. "That's why the president believes it makes more sense to reform the program sooner than later."
Treasury Secretary Henry Paulson, Bush's point person on Social Security reform, said he has had a number of discussions with members of Congress from both parties over the issue of fixing the problems in Social Security with the looming retirement of 78 million baby boomers.
"The administration's new report is a reminder of President Bush's determination to not only privatize Social Security but to make deep cuts in the benefits that American workers have earned," said Senate Majority Leader Harry Reid, D-Nev. "Nobody should be fooled into believing that the only way to save Social Security is to destroy it with privatization or deep benefit cuts."
Bush had hoped to make Social Security reform the top domestic priority of his second term. Bush put forward a Social Security reform plan in 2005 that focused on creation of private accounts for younger workers but that proposal never came up for a vote in Congress, with Democrats heavily opposed and few Republicans embracing the idea.
While Democrats have fought to protect current benefit levels, Republicans have been adamant that taxes should not be raised to cover the Social Security shortfall.
Phil Swaigel, Treasury's assistant secretary for economic policy, told reporters the plan was to release about six issue briefs on Social Security over the next three months. But he said it was "unclear" at the moment whether the papers would lead to a new push to get an overhaul program through Congress next year.
Many believe such an effort would be unlikely to gain success in 2008, a presidential election year when one-third of the Senate and all House members also will be facing re-election.
Paulson, however, has said even if he is not able to achieve an agreement during the short time the current administration will be in office, he hopes to lay the groundwork for the next administration and a new Congress to tackle the problem.
Bush: Not fixing Social Security not fair
Treasury report recommends benefit cuts, tax increases to fix funding shortfall
BY MARTIN CRUTSINGER Associated Press
WASHINGTON - The Bush administration said in a new report Monday that Social Security is facing a $13.6 trillion shortfall and delaying needed reforms is not fair to younger workers.
A report issued by the Treasury Department said some combination of benefit cuts and tax increases will need to be considered to permanently fix the funding shortfall. But White House officials stressed President Bush remains opposed to raising taxes.
The Treasury report put the cost of the gap between what Social Security is expected to need to pay out in benefits and what it will raise in payroll taxes in coming years at $13.6 trillion.
It said delaying necessary changes reduces the number of people available to share in the resulting burden and is unfair to younger workers. "Not taking action is thus unfair to future generations. This is a significant cost of delay," the report said.
In another key finding, the report said: "Social Security can be made permanently solvent only by reducing the present value of scheduled benefits and/or increasing the present value of scheduled tax increases."
The paper went on to say: "Other changes to the program might be desirable, but only these changes can restore solvency permanently."
While the Treasury report language seemed to indicate the administration would consider raising taxes along with reducing benefits as a way to deal with the funding shortfall, the White House was quick to reject that possibility.
"The president is not advocating for tax increases or benefit cuts," said White House spokesman Tony Fratto.
"Everyone understands that the choices available in the current structure of Social Security, that absent reform, tax increases and benefit cuts are inevitable," Fratto said. "That's why the president believes it makes more sense to reform the program sooner than later."
Treasury Secretary Henry Paulson, Bush's point person on Social Security reform, said he has had a number of discussions with members of Congress from both parties over the issue of fixing the problems in Social Security with the looming retirement of 78 million baby boomers.
"The administration's new report is a reminder of President Bush's determination to not only privatize Social Security but to make deep cuts in the benefits that American workers have earned," said Senate Majority Leader Harry Reid, D-Nev. "Nobody should be fooled into believing that the only way to save Social Security is to destroy it with privatization or deep benefit cuts."
Bush had hoped to make Social Security reform the top domestic priority of his second term. Bush put forward a Social Security reform plan in 2005 that focused on creation of private accounts for younger workers but that proposal never came up for a vote in Congress, with Democrats heavily opposed and few Republicans embracing the idea.
While Democrats have fought to protect current benefit levels, Republicans have been adamant that taxes should not be raised to cover the Social Security shortfall.
Phil Swaigel, Treasury's assistant secretary for economic policy, told reporters the plan was to release about six issue briefs on Social Security over the next three months. But he said it was "unclear" at the moment whether the papers would lead to a new push to get an overhaul program through Congress next year.
Many believe such an effort would be unlikely to gain success in 2008, a presidential election year when one-third of the Senate and all House members also will be facing re-election.
Paulson, however, has said even if he is not able to achieve an agreement during the short time the current administration will be in office, he hopes to lay the groundwork for the next administration and a new Congress to tackle the problem.
Sunday, September 23, 2007
Bush can't be Keynesian supply-sider
The following appeared in the Sept. 23, 2007 issue of the St. Paul Pioneer Press and was written by Ed Lotterman. A link to the story may be found here.
It is too bad the Old Testament prophet Elijah never passed through Washington, D.C. His challenge to the Israelites in 1 Kings 18, "Choose ye this day whom ye will serve," is a powerful argument against holding two diametrically opposed positions at the same time. Unfortunately, that is a common occurrence in our nation's capital.
Confusion is evident in the White House response to Alan Greenspan's criticism of administration fiscal policies. Defending President Bush, Press Secretary Dana Perino said, "in late 2000, we were headed into a recession, and tax cuts were the prescribed remedy."
Perino is correct. Tax cuts are a prescribed remedy for a recession - if you are a Keynesian. But George W. Bush did not run for office as a Keynesian. He ran as a supply-sider. Supply-side economists are the most diametrically opposed to Keynes of any school of economic thought. The very name "supply-side" is a rejection of the demand-side jockeying John Maynard Keynes advocated.
Supply-side economists argued that trying to micro-manage an economy by manipulating consumer spending was short-sighted and counterproductive. Keynesian tromping of economic gas and brake pedals to regulate demand harms rather than hurts, they said.
Focus instead on the supply side of the economy, they argued. Reduce regulation of economic activity. Increase incentives for saving and investment. That means lowering high marginal income tax rates and taxes on investment earnings from interest, dividends and capital gains. The object is to increase investment. That requires more savings and, thus, less current consumption.
That was the platform on which George W. Bush ran for office in 2000 and was his rationale for tax cuts in 2001. But by the 2004 election, his arguments had changed. Cutting taxes was needed to spur household consumption. That is back to pure Keynesianism.
The problem is that if you cut taxes to spur demand because the economy faces recession, you have to raise them to curtail demand when it really gets rolling. That should have happened two years ago, but the administration showed no willingness to implement the other half of Keynes' prescription.
Just as ancient Israelites could follow Yahweh or Baal, you can be a Keynesian or a supply-sider. But you cannot be both.
Confused economic policy is not original to the Bush administration.
Jimmy Carter's economic advisers were dyed-in-the-wool Keynesians.
But the Carter White house never could decide if it needed to spur the economy to lower unemployment or retard it to cut inflation.
We ended up with the worst combination of both inflation and unemployment in decades.
It is too bad the Old Testament prophet Elijah never passed through Washington, D.C. His challenge to the Israelites in 1 Kings 18, "Choose ye this day whom ye will serve," is a powerful argument against holding two diametrically opposed positions at the same time. Unfortunately, that is a common occurrence in our nation's capital.
Confusion is evident in the White House response to Alan Greenspan's criticism of administration fiscal policies. Defending President Bush, Press Secretary Dana Perino said, "in late 2000, we were headed into a recession, and tax cuts were the prescribed remedy."
Perino is correct. Tax cuts are a prescribed remedy for a recession - if you are a Keynesian. But George W. Bush did not run for office as a Keynesian. He ran as a supply-sider. Supply-side economists are the most diametrically opposed to Keynes of any school of economic thought. The very name "supply-side" is a rejection of the demand-side jockeying John Maynard Keynes advocated.
Supply-side economists argued that trying to micro-manage an economy by manipulating consumer spending was short-sighted and counterproductive. Keynesian tromping of economic gas and brake pedals to regulate demand harms rather than hurts, they said.
Focus instead on the supply side of the economy, they argued. Reduce regulation of economic activity. Increase incentives for saving and investment. That means lowering high marginal income tax rates and taxes on investment earnings from interest, dividends and capital gains. The object is to increase investment. That requires more savings and, thus, less current consumption.
That was the platform on which George W. Bush ran for office in 2000 and was his rationale for tax cuts in 2001. But by the 2004 election, his arguments had changed. Cutting taxes was needed to spur household consumption. That is back to pure Keynesianism.
The problem is that if you cut taxes to spur demand because the economy faces recession, you have to raise them to curtail demand when it really gets rolling. That should have happened two years ago, but the administration showed no willingness to implement the other half of Keynes' prescription.
Just as ancient Israelites could follow Yahweh or Baal, you can be a Keynesian or a supply-sider. But you cannot be both.
Confused economic policy is not original to the Bush administration.
Jimmy Carter's economic advisers were dyed-in-the-wool Keynesians.
But the Carter White house never could decide if it needed to spur the economy to lower unemployment or retard it to cut inflation.
We ended up with the worst combination of both inflation and unemployment in decades.
AP - Bank runs here unlikely thanks to FDIC
Bank runs here unlikely thanks to FDIC
Sept. 23, 2007 (AP) - For many Americans born after the Depression, bank runs are just scenes out of movies like "It's a Wonderful Life."
The troubles at British lender Northern Rock PLC show they can still happen, but it's much less likely that Americans will be seen queuing up outside banks anytime soon to collect their cash as British depositors have this week. The U.S. banking system has different rules and procedures than its U.K. counterpart to guarantee the nation's $4.2 trillion in insured deposits are backed by the government.
Americans can get spooked like anyone else - when the U.S. lender Countrywide Financial Corp. acknowledged sharp losses in its mortgage business, customers packed its bank branches and jammed its online operations, trying to get answers and cash out.
The United States has seen nothing in decades like the billions of dollars Britons have withdrawn from banks in recent days, however.
The reason is largely that the Federal Deposit Insurance Corp. guarantees up to $100,000 per account per bank, and $250,000 for retirement accounts. In Britain, the government guarantees all deposits below 2,000 pounds ($4,000), 90 percent of deposits up to 35,000 pounds ($70,000), and nothing above that.
Furthermore, in the United States, even deposits beyond the $100,000 limit are probably safe, given the Federal Reserve has procedures to keep banks solvent.
The chance of a run on a U.S. bank is "almost nil," according to Richard Bove, a bank analyst at Punk Ziegel & Co. He added that Fed Chairman Ben Bernanke has repeated that he's willing to rescue the banking system.
U.S. bank runs are possible, as the brief panic over Countrywide suggested. But even if one happens, U.S. depositors shouldn't fret too much about losing their shirts.
Sept. 23, 2007 (AP) - For many Americans born after the Depression, bank runs are just scenes out of movies like "It's a Wonderful Life."
The troubles at British lender Northern Rock PLC show they can still happen, but it's much less likely that Americans will be seen queuing up outside banks anytime soon to collect their cash as British depositors have this week. The U.S. banking system has different rules and procedures than its U.K. counterpart to guarantee the nation's $4.2 trillion in insured deposits are backed by the government.
Americans can get spooked like anyone else - when the U.S. lender Countrywide Financial Corp. acknowledged sharp losses in its mortgage business, customers packed its bank branches and jammed its online operations, trying to get answers and cash out.
The United States has seen nothing in decades like the billions of dollars Britons have withdrawn from banks in recent days, however.
The reason is largely that the Federal Deposit Insurance Corp. guarantees up to $100,000 per account per bank, and $250,000 for retirement accounts. In Britain, the government guarantees all deposits below 2,000 pounds ($4,000), 90 percent of deposits up to 35,000 pounds ($70,000), and nothing above that.
Furthermore, in the United States, even deposits beyond the $100,000 limit are probably safe, given the Federal Reserve has procedures to keep banks solvent.
The chance of a run on a U.S. bank is "almost nil," according to Richard Bove, a bank analyst at Punk Ziegel & Co. He added that Fed Chairman Ben Bernanke has repeated that he's willing to rescue the banking system.
U.S. bank runs are possible, as the brief panic over Countrywide suggested. But even if one happens, U.S. depositors shouldn't fret too much about losing their shirts.
Friday, September 21, 2007
Fiscal Wake-Up Tour to visit Manchester N.H.
The Fiscal Wake-Up Tour Comes to Manchester to Discuss Our Nation's Unsustainable Fiscal Policy
WASHINGTON, Sept. 21 /PRNewswire-USNewswire/ -- On Friday, September 28th, The Concord Coalition will join with other federal budget analysts to host a stop on our Fiscal Wake-Up Tour, a nationwide series of town hall forums on the nation's long-term fiscal challenge. U.S. Comptroller General David M. Walker will be the featured speaker. The event will be held at the
Derryfield Country Club in Manchester and will be open to the press and public.
"One thing that Democrats and Republicans can agree on is that our nation's current fiscal policy is not sustainable over the long-term. Our children's economic future is at risk, which is something no one wants. Changing course will require hard choices such as scaling back future entitlement promises, increasing revenues to pay for them, or -- most likely -- a combination of both. Because these choices are politically difficult, the active involvement of the American people is critical. Without greater understanding of the problem among the public, community leaders, business leaders and home state media, elected leaders are unlikely to break out of their comfortable partisan talking points and unlikely to find solutions. That is why we began the nationwide Fiscal Wake-Up Tour. As demonstrated by the recent election result, voters are tired of partisan gridlock. This gives both parties an opportunity and a duty to begin working together on the real problem we face. Ensuring a sound fiscal future for our children should certainly be high on their list," said Robert L. Bixby, executive director of The Concord Coalition.
What: Fiscal Wake-Up Tour
Where: The Derryfield Country Club
625 Mammoth Road
Manchester, NH 03104
When: Friday, September 28, 2007
11:30 AM to 1:00 PM
Who: U.S. Comptroller General David M. Walker
Robert L. Bixby, The Concord Coalition
Brian Reidl, The Heritage Foundation
Paul Cullinan, The Brookings Institution
RSVP to Greater Manchester Chamber of Commerce at
603-666-6600 Ext: 122, or online at:
http://www.manchester-chamber.org/
WASHINGTON, Sept. 21 /PRNewswire-USNewswire/ -- On Friday, September 28th, The Concord Coalition will join with other federal budget analysts to host a stop on our Fiscal Wake-Up Tour, a nationwide series of town hall forums on the nation's long-term fiscal challenge. U.S. Comptroller General David M. Walker will be the featured speaker. The event will be held at the
Derryfield Country Club in Manchester and will be open to the press and public.
"One thing that Democrats and Republicans can agree on is that our nation's current fiscal policy is not sustainable over the long-term. Our children's economic future is at risk, which is something no one wants. Changing course will require hard choices such as scaling back future entitlement promises, increasing revenues to pay for them, or -- most likely -- a combination of both. Because these choices are politically difficult, the active involvement of the American people is critical. Without greater understanding of the problem among the public, community leaders, business leaders and home state media, elected leaders are unlikely to break out of their comfortable partisan talking points and unlikely to find solutions. That is why we began the nationwide Fiscal Wake-Up Tour. As demonstrated by the recent election result, voters are tired of partisan gridlock. This gives both parties an opportunity and a duty to begin working together on the real problem we face. Ensuring a sound fiscal future for our children should certainly be high on their list," said Robert L. Bixby, executive director of The Concord Coalition.
What: Fiscal Wake-Up Tour
Where: The Derryfield Country Club
625 Mammoth Road
Manchester, NH 03104
When: Friday, September 28, 2007
11:30 AM to 1:00 PM
Who: U.S. Comptroller General David M. Walker
Robert L. Bixby, The Concord Coalition
Brian Reidl, The Heritage Foundation
Paul Cullinan, The Brookings Institution
RSVP to Greater Manchester Chamber of Commerce at
603-666-6600 Ext: 122, or online at:
http://www.manchester-chamber.org/
Alaska abandons 'Bridge to Nowhere' project
Americans for Prosperity Calls Victorious Defeat of Bridge to Nowhere a Testament to the Power of Grassroots Activism
Citizen Group Visited the Bridge to Nowhere in August 2006
WASHINGTON, Sept. 21 /PRNewswire-USNewswire/ -- On the heels of news today that the state of Alaska has officially abandoned plans to pursue the infamous Gravina Bridge to Nowhere project, Americans for Prosperity President Tim Phillips issued the following victory statement:
"The death of the Alaska Bridge to Nowhere is a testament to the power of grassroots activism. Citizen outrage against hard-earned tax dollars being wasted on questionable pet projects delivered this victory for taxpayers. To paraphrase the late Senator Everett Dirksen of Illinois, when citizen activists turned up the heat on Congress, lawmakers saw the light.
By communicating their frustration over this incredibly wasteful use of federal tax dollars, citizens created an environment in which the Bridge to Nowhere could not survive any longer.
"I applaud those hard-nosed lawmakers that helped to fight against the Bridge to Nowhere, including Senator Tom Coburn, Representative Jeff Flake, and Representative Mark Kirk.
"As we drove more than 10,000 miles across 37 states on our Ending Earmarks Express road tour last year, which visited the Bridge to Nowhere, one outraged citizen after another told us that the earmark favor factory must be shut down. By refusing to remain silent while their tax dollars were abused, citizens defeated the Bridge to Nowhere.
"This victory today is a key reason why over 1,000 citizens are committed to come to Washington, DC, as part of Americans for Prosperity Foundation's Defending the American Dream Summit on October 4-5. This Summit will be a massive show of force in support of fiscal restraint and against abuse of tax dollars. With these grassroots troops we can restore genuine fiscal restraint to Washington and bring an end to questionable earmarks like the Bridge to Nowhere."
Editors Note: Americans for Prosperity Foundation traveled over 10,000 miles across the nation on the Ending Earmarks Express road tour last year, visiting 37 states and 50 earmarks, including the Bridge to Nowhere. AFPF was the first Washington, DC-based group to visit the proposed site of the Gravina Bridge to Nowhere.
To view video of AFP President Tim Phillips speaking on the ferry from Gravina Island to Ketchikan, please visit: http://www.youtube.com/watch?v=f6q__0-krUo.
Americans for Prosperity (AFP) is the nation's premier grassroots
organization committed to advancing every individual's right to economic freedom and opportunity. AFP believes reducing the size and scope of government is the best safeguard to ensuring individual productivity and prosperity for all Americans. AFP educates and engages citizens in support of restraining state and federal government growth, and returning government to its constitutional limits.
Citizen Group Visited the Bridge to Nowhere in August 2006
WASHINGTON, Sept. 21 /PRNewswire-USNewswire/ -- On the heels of news today that the state of Alaska has officially abandoned plans to pursue the infamous Gravina Bridge to Nowhere project, Americans for Prosperity President Tim Phillips issued the following victory statement:
"The death of the Alaska Bridge to Nowhere is a testament to the power of grassroots activism. Citizen outrage against hard-earned tax dollars being wasted on questionable pet projects delivered this victory for taxpayers. To paraphrase the late Senator Everett Dirksen of Illinois, when citizen activists turned up the heat on Congress, lawmakers saw the light.
By communicating their frustration over this incredibly wasteful use of federal tax dollars, citizens created an environment in which the Bridge to Nowhere could not survive any longer.
"I applaud those hard-nosed lawmakers that helped to fight against the Bridge to Nowhere, including Senator Tom Coburn, Representative Jeff Flake, and Representative Mark Kirk.
"As we drove more than 10,000 miles across 37 states on our Ending Earmarks Express road tour last year, which visited the Bridge to Nowhere, one outraged citizen after another told us that the earmark favor factory must be shut down. By refusing to remain silent while their tax dollars were abused, citizens defeated the Bridge to Nowhere.
"This victory today is a key reason why over 1,000 citizens are committed to come to Washington, DC, as part of Americans for Prosperity Foundation's Defending the American Dream Summit on October 4-5. This Summit will be a massive show of force in support of fiscal restraint and against abuse of tax dollars. With these grassroots troops we can restore genuine fiscal restraint to Washington and bring an end to questionable earmarks like the Bridge to Nowhere."
Editors Note: Americans for Prosperity Foundation traveled over 10,000 miles across the nation on the Ending Earmarks Express road tour last year, visiting 37 states and 50 earmarks, including the Bridge to Nowhere. AFPF was the first Washington, DC-based group to visit the proposed site of the Gravina Bridge to Nowhere.
To view video of AFP President Tim Phillips speaking on the ferry from Gravina Island to Ketchikan, please visit: http://www.youtube.com/watch?v=f6q__0-krUo.
Americans for Prosperity (AFP) is the nation's premier grassroots
organization committed to advancing every individual's right to economic freedom and opportunity. AFP believes reducing the size and scope of government is the best safeguard to ensuring individual productivity and prosperity for all Americans. AFP educates and engages citizens in support of restraining state and federal government growth, and returning government to its constitutional limits.
U of MN Wrestling Coach supports balanced budget amendment
Minnesota Gophers wrestling coach J. Robinson (former Army captain and National Wrestling Hall of Fame inductee) had this to say in a Q&A session with St. Paul Pioneer Press columnist Bob Sansevere in the Sept. 21, 2007 issue of the paper, prior to the team's departure for a White House ceremony commemorating their 2007 National Championship.
You can read the whole interview here: http://www.twincities.com/columnists/ci_6953579?nclick_check=1
The second thing is a balanced budget amendment. Right now, politicians talk out of both sides of their mouth. They tell the poor people, "We're not going to cut your services." And they tell the rich people, "We're not going to raise your taxes." And they can do that and then go and vote for deficit spending. The politicians don't have to make hard choices. If you take away everybody's credit card so they can't charge anything, you know what you buy when you go to the grocery store? You buy hamburger. You don't buy steak. Because you can only afford hamburger. It makes your decision-making process completely different. It mandates what you have to do. So those two things will change America.
You can read the whole interview here: http://www.twincities.com/columnists/ci_6953579?nclick_check=1
Thursday, September 20, 2007
AP-Paulson urges Congress to lift U.S. debt ceiling
The following appeared in the Sept. 20 issue of the St. Paul Pioneer Press via the AP.
Treasury Secretary Henry Paulson told Congress on Wednesday the government will hit the current debt ceiling on Oct. 1. He sought quick action to increase the limit, saying it was essential to protect the "full faith and credit" of the country, especially at a time of financial market turmoil. The limit is $8.965 trillion. Unless Congress votes to raise it, the country would be unable to borrow more money to keep the government operating and to pay debt obligations coming due. The United States has never defaulted on a debt payment, but the decision on whether to raise the debt ceiling often means a prolonged battle in Congress. That does not take into account moves the government often has to use, such as withdrawing investments from certain trust funds to create room for extra borrowing until Congress finally approved a debt-limit increase. This month, the Senate Finance Committee approved increasing the limit on the debt to $9.82 trillion. That boost of $850 billion would be the fifth since President Bush took office in 2001. The House approved an increase in May. The full Senate has not acted yet.
Treasury Secretary Henry Paulson told Congress on Wednesday the government will hit the current debt ceiling on Oct. 1. He sought quick action to increase the limit, saying it was essential to protect the "full faith and credit" of the country, especially at a time of financial market turmoil. The limit is $8.965 trillion. Unless Congress votes to raise it, the country would be unable to borrow more money to keep the government operating and to pay debt obligations coming due. The United States has never defaulted on a debt payment, but the decision on whether to raise the debt ceiling often means a prolonged battle in Congress. That does not take into account moves the government often has to use, such as withdrawing investments from certain trust funds to create room for extra borrowing until Congress finally approved a debt-limit increase. This month, the Senate Finance Committee approved increasing the limit on the debt to $9.82 trillion. That boost of $850 billion would be the fifth since President Bush took office in 2001. The House approved an increase in May. The full Senate has not acted yet.
Monday, September 17, 2007
PRNewswire: HillaryCare could create taxpayers as taxdodgers consumer group warns
An interesting read. Will we be tax dodgers if we fail to buy HillaryCare? How much would THIS add to the National Debt/
Consumer Group: Hillary Clinton's Mandatory Health Insurance Purchase Plan is an Act of War on the Middle Class Family That Can't Afford $12k Policy
Clinton Takes Over $1 Million From Insurers, Would Force All Americans to Buy Private Coverage
SANTA MONICA, Calif., Sept. 17 /PRNewswire-USNewswire/ -- The Foundation for Taxpayer and Consumer Rights (FTCR) today condemned Senator Hillary Clinton's mandatory health insurance purchase plan as a gift to insurers that have given over $1 million in campaign contributions to her presidential campaign.
FTCR said that a plan that would require every American to buy private health insurance without a cap on how much Americans would be charged is an attack on the middle class. The average American health insurance policy for a family of four costs $12,000 per year; Clinton did not say how average Americans would pay for it.
"A woman perceived as the architect of socialized medicine in America is now the godmother of a plan for corporate socialism," said Jamie Court, President of the Foundation for Taxpayer and Consumer Rights (FTCR).
"That's a testament to the power of health insurer campaign contributions. This plan guarantees insurers a market for their products at any cost. Senator Clinton's plan is a declaration of war on middle-class families who cannot afford $12,000 a year for a health insurance policy because the
Clinton plan doesn't cap premiums or regulate them. The only reason to force Americans to buy health insurance is to bailout an industry that's failed to make its products attractive enough to the market."
FTCR said that the individual mandate is untenable and that real health care reform must rein in health insurance companies.
-- A recent report by the Kaiser Family Foundation showed that the average cost of coverage for a family of four is now $12,000, not including deductibles that often require families to spend $5,000 out-of-pocket before insurance coverage kicks in.
-- Health insurance premiums are increasing 250% faster than the rate of inflation because health insurers are keeping more health care premium dollars for profit.
-- Health insurance premiums have increased 78% since 2001 compared to a 19% increase in wages and a 17% increase in inflation, according to the Kaiser report.
FTCR said that a hallmark of so-called 'individual mandate' proposals, like that already in place in Massachusetts, is high-cost polices that provide minimum benefit, bare-bones coverage. These policies do not adequately protect patients when they become sick.
"With $12,000 annual health insurance premiums fueling double-digit insurer profit increases, health reform must rein in insurance companies, not give them more control over our health care," said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights. "Clinton's plan to require all Americans to buy health insurance would force people to choose between rent and health insurance, which could force people to go bankrupt if they make the wrong choice or turn into tax dodgers if they fail to buy unaffordable health insurance."
The nation's largest insurers reported double-digit profit increases for the second quarter of 2007:
-- WellPoint, the nation's largest insurer and parent company of Blue Cross of California, reported an 11% profit increase over 2006.
-- UnitedHealth, the second largest insurer and parent of PacifiCare of California, reported a 22% increase in earnings over 2006.
-- Aetna's profit was up 27% over 2006.
-- Health Net's profit increased 23.1% over 2006.
According to Weiss Ratings, between 2001 & 2005, HMOs and health insurers nationally have recorded more than $38 billion in profits -- enough money to provide health insurance to 12 million Americans for an entire year.
In 2005, medical bills were responsible for half of all bankruptcies. Of the approximately 1 million Americans who file for bankruptcy each year as a result of illness, three-quarters have insurance; most have college degrees, are working and own their homes according to a Harvard Medical School report.
FTCR is California's leading public interest watchdog. For more information, visit us on the web at http://www.consumerwatchdog.org/
"Clinton's plan to require all Americans to buy health insurance would force people to choose between rent and health insurance, which could force people to go bankrupt if they make the wrong choice or turn into tax dodgers if they fail to buy unaffordable health insurance."
Consumer Group: Hillary Clinton's Mandatory Health Insurance Purchase Plan is an Act of War on the Middle Class Family That Can't Afford $12k Policy
Clinton Takes Over $1 Million From Insurers, Would Force All Americans to Buy Private Coverage
SANTA MONICA, Calif., Sept. 17 /PRNewswire-USNewswire/ -- The Foundation for Taxpayer and Consumer Rights (FTCR) today condemned Senator Hillary Clinton's mandatory health insurance purchase plan as a gift to insurers that have given over $1 million in campaign contributions to her presidential campaign.
FTCR said that a plan that would require every American to buy private health insurance without a cap on how much Americans would be charged is an attack on the middle class. The average American health insurance policy for a family of four costs $12,000 per year; Clinton did not say how average Americans would pay for it.
"A woman perceived as the architect of socialized medicine in America is now the godmother of a plan for corporate socialism," said Jamie Court, President of the Foundation for Taxpayer and Consumer Rights (FTCR).
"That's a testament to the power of health insurer campaign contributions. This plan guarantees insurers a market for their products at any cost. Senator Clinton's plan is a declaration of war on middle-class families who cannot afford $12,000 a year for a health insurance policy because the
Clinton plan doesn't cap premiums or regulate them. The only reason to force Americans to buy health insurance is to bailout an industry that's failed to make its products attractive enough to the market."
FTCR said that the individual mandate is untenable and that real health care reform must rein in health insurance companies.
-- A recent report by the Kaiser Family Foundation showed that the average cost of coverage for a family of four is now $12,000, not including deductibles that often require families to spend $5,000 out-of-pocket before insurance coverage kicks in.
-- Health insurance premiums are increasing 250% faster than the rate of inflation because health insurers are keeping more health care premium dollars for profit.
-- Health insurance premiums have increased 78% since 2001 compared to a 19% increase in wages and a 17% increase in inflation, according to the Kaiser report.
FTCR said that a hallmark of so-called 'individual mandate' proposals, like that already in place in Massachusetts, is high-cost polices that provide minimum benefit, bare-bones coverage. These policies do not adequately protect patients when they become sick.
"With $12,000 annual health insurance premiums fueling double-digit insurer profit increases, health reform must rein in insurance companies, not give them more control over our health care," said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights. "Clinton's plan to require all Americans to buy health insurance would force people to choose between rent and health insurance, which could force people to go bankrupt if they make the wrong choice or turn into tax dodgers if they fail to buy unaffordable health insurance."
The nation's largest insurers reported double-digit profit increases for the second quarter of 2007:
-- WellPoint, the nation's largest insurer and parent company of Blue Cross of California, reported an 11% profit increase over 2006.
-- UnitedHealth, the second largest insurer and parent of PacifiCare of California, reported a 22% increase in earnings over 2006.
-- Aetna's profit was up 27% over 2006.
-- Health Net's profit increased 23.1% over 2006.
According to Weiss Ratings, between 2001 & 2005, HMOs and health insurers nationally have recorded more than $38 billion in profits -- enough money to provide health insurance to 12 million Americans for an entire year.
In 2005, medical bills were responsible for half of all bankruptcies. Of the approximately 1 million Americans who file for bankruptcy each year as a result of illness, three-quarters have insurance; most have college degrees, are working and own their homes according to a Harvard Medical School report.
FTCR is California's leading public interest watchdog. For more information, visit us on the web at http://www.consumerwatchdog.org/
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