Posts Tagged ‘Federal Budget’

Real World Graduation: Question 26

RealWorldGraduation_Question_26  <– PDF

Some political operatives stated during 2008 that there was a $5 trillion surplus at the end of the Clinton administration (20 Jan 2001).  The total national debt as of 30 Sep 2008 is $10.024 trillion, per the official U. S. treasury records [1].  The table below shows the budget deficits for each year of the G. W. Bush administration.  Keep in mind that a trillion is 1000 billion.  The total of all the deficits during the G. W. Bush administration is 4.35 trillion as shown at the bottom of the table.  A surplus of $5 trillion when Bush came into office, and a total debt of $ 10.024 as of 30 Sep 08 represents an increase in the debt of 15.024 trillion.  Where did all the money go?

a) George W. Bush, Richard V. Cheney, and all their crooked friends on Wall Street stole it.

b) It was spent on the war in Iraq.

c) It was spent on the war in Afghanistan

d) The rich people got tax cuts

e) Some combination of b), c), and d); and the jury is out on the possibility of answer a).

Year Ending       Deficit ($ Trillion)

30 Sep 2001          0.133

30 Sep 2002         0.421

30 Sep 2003         0.555

30 Sep 2004         0.596

30 Sep 2005         0.553

30 Sep 2006         0.574

30 Sep 2007         0.501

30 Sep 2008        1.017

Total deficits during G. W. Bush’s time in office = $4.45 Trillion


(The answer is shown on p. 2 of the PDF.)

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Posted in critical thinking, Economics, federal budget, national debt, Real World Graduation | No Comments »

Barack H. Obama’s Legacy, Part 5

ObamaLegacyPart5 <– PDF

In closing out Mr. Obama’s domestic agenda, we come to the state of the national debt. The national debt had been growing for many years, but it reached and surpassed a critical point during Mr. Obama’s tenure.  It is true that President’s are not directly responsible for the nation’s debt (because only Congress can authorize a budget), but Presidents can use their influence to restrain the worst instincts of Congress.  Mr. Obama did nothing but encourage Congress’ reckless spending.  Figure 1 shows the nation’s GDP, total national debt, and ratio of GDP to debt for the years 1929 to 2016 in current-year dollars.  The ratio of GDP to debt is an important indicator of the nation’s liabilities compared to its total economic activity; higher is better.  These figures are not exactly in alignment, since the debt figures are for fiscal years, and the GDP values are for calendar years.  The general trend is accurate.

Figure 1: GDP, National Debt, and GDP-to-Debt Ratio, 1929 – 2016

Figure 2 shows the ratio of debt to GDP for the same interval. When Hoover entered office in 1929, the nation’s finances were in excellent shape, as the GDP-to-debt ratio was over six.  Then came the Great Depression, which nitwit Hoover made worse with his bad policies.  The GDP-to-debt declined drastically in the early 1930’s.  It was left to the even bigger nitwit Roosevelt to extend the depression to 1940 with his even worse policies, although the GDP-to-debt remained fairly static around 2.5 from 1934 to 1940.    It was not until Hitler rescued Roosevelt by starting World War II that the American economy came back to life.  The downside in financial terms is that the expansion of production was paid for by adding it onto the debt.. The GDP to debt ratio reached its all-time low in 1946 (0.82), just after the enormous debts accumulated during World War II.  From the Truman to Nixon administrations, the debt increased, but GDP increased faster, and the GDP to debt ratio steadily improved, reaching 3.16 in 1974.  It remained fairly steady until the halfway through Reagan’s first term; it then began a long slow protracted decline until halfway through the Clinton administration.  It improved a bit from there until about 2007, the second-last year of Bush Jr. administration, and then resumed its steady decline until sinking below 1.0 in 2014.  It is interesting to observe that one can draw a straight line from 1994 to 2011 and end up in the same place. It has continued a slight decline since 2014.

Many economists consider a GDP-to-debt ratio to be an accurate indicator of high risk. It is comparable to a household with debt equal to an entire year’s income.  In the long run, it is unsustainable.

So the U. S. financial condition is now about where it was in 1947.  But there is a big difference between the federal government obligations in 1947, wherein it began a long period of improvement, and now.  In 1947, there was no Medicare, no Medicaid, no Obamacare with its subsidies, no extensive social spending, no pervasive meddling bureaucracy to be paid, and Social Security was only a small item in the budget.  Mr. Obama was content to let the financial condition deteriorate without making some sort of attempt to get back on a sound financial footing.  We can only hope that Mr. Trump will not make the same mistake.

Figure 2: GDP-to-Debt Ratio, 1929-2016

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The Antics of the Government Shutdown, Oct 2013

AnticsOfTheShutdownOct2013  <– PDF version

So we’ve had another “partial shutdown” of the federal government.  As usual, the administration did what it could to inconvenience the people for political gain; “essential” government employees worked as usual; and “non-essential” government employees received a two-week taxpayer-paid vacation.  Meanwhile, non-government employees who suffered from slowdowns and furloughs went without.  Situation normal: the ruling elite always look out for themselves and their non-essential government colleagues, first and foremost.  Finally the Democratic faction of the ruling elite came up with a temporary fix on 16 Oct 2013 which will cause the same debate to recur in Jan 2014.  In return, the Republican faction received a promise to negotiate spending cuts from the elitist President that would not even talk to them during the partial shutdown.

This shutdown started when the Republican faction attempted to link de-funding of Obamacare to a continuing resolution; they later reduced their demands to a delay in the individual mandate, but failed in the end to achieve even that.  The Democratic faction spent the two weeks busily claiming the shutdown was a conspiracy by the Republican faction, whimpering non-stop that it was unfair to link Obamacare modifications to a continuing resolution.  But, in their never-ending hypocrisy, the Democratic faction ignored the fact that Obamacare was passed originally as part of a budget resolution.  Therefore every budget bill would naturally allow a challenge to Obamacare.  The blame-stream media of course castigated the Republican faction at every turn.  What else should be expected from institutions that behave as if they were entirely owned and operated by the Democratic faction?

But the Republican faction is equally hypocritical when they pretend that they would behave any differently than the Democrats if Obamacare had been their idea.  After all, the main purpose of the law is to transfer power to the government by regulating the distribution of health care services, and the Republican faction desires the expansion of government power just as much as the Democratic faction.  As always, it is the people who lose out; in this case, the people will, in the long run, end up with lower quality or lesser quantity at a higher cost, typical of every one-size-fits-all government program.  If the problems signing up for Obamacare so far are any indication, the law is even worse than the analysts concluded.  Good thing the Democrats didn’t read it before they passed it — now they have plausible deniability.

The ruling elite cannot or will not do their jobs because they do not have the discipline to impose a budget process, hence the need for continuing resolutions.  This is especially true of the Republicans, who control the House of Representatives from whence all funding bills must originate.  In this instance the budget problem was coupled with a need to raise the debt limit because the government would be technically unable to meet all its obligations around the 17th of Oct 2013.  Once again, the hypocrisy of the administration was in full vigor, claiming that the U. S. would have defaulted on Treasury obligations (i.e., to pay interest on the debt) on that date.  But there is sufficient cash flow from the never-ending cascade of federal taxes being paid every month to cover those interest payments.  What Mr. Obama really meant was that the government would not be able to both service the debt and make full payouts on all the social programs, corporate welfare, and excessive regulation which the ruling elite together has imposed on the people.

In reality, both factions wanted a shutdown.  The Republicans wanted it for two reasons: a) to embarrass the President into allowing a cancellation of his signature “achievement”; and 2) draw attention to the excessive government spending (except for the part they voted for).  The Democrats also wanted it for two reasons: a) to distract attention from the scandal-of-the-week; and b) let the blame-stream media paint the Republicans as extremists for political advantage.

Look no further to the ruling elites in Washington for “leadership” or “solutions”.  If it’s not in the Marxist Handbook, the Democrats cannot understand it.  If it requires working together for a sensible objective, the Republicans cannot pull it off.  The good news is that they get to do it all again in a few months.

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A Note on the Budget Impasse

A_Note_on_the_Budget_Impasse  <== PDF version

Most of us have heard about the big “budget debate” in Washington between the leaders of the two major political parties.  The Washington establishment and the media are telling us that it is necessary to achieve some kind of long-term budget agreement in the next few weeks or else the U. S. will default on its obligations by 2 Aug 2011.  Now of course, the government has a lot of money rolling in each month – more than enough to pay interest on the debt that is due each month.  So, defaulting on our $14.4 trillion debt is actually a matter of choice.  What the politicians want us to believe is that come 2 Aug they will be able to pay only part of their obligations and renege on the rest; i.e., they will have to “default” on something. But it will certainly not be interest payments on the debt (that would cause real economic problems), what they mean is that some interest groups, some corporate welfare queens, some individual welfare recipients, or some illegal aliens will not get all the free goodies they have been promised out of our pockets.

I for one don’t believe it, on the grounds that no one, not even two-bit party-hack politicians, could be stupid enough to delay resolving this issue until a few weeks before the Big Event.  If it is true that they knowingly and willfully delayed all this time, recognizing months in advance that such an event would be triggered by their inaction, the proper remedy is for them to resign in disgrace for dereliction of duty.  That can never happen.

Mr. Obama and Mr. Boehner, as leaders of their respective parties, have been haggling (we are told) over a long-term “solution”.  At one point, it was to be a $4 trillion “solution”, involving spending cuts to the largest budget items (Social Security, Medicare, and defense) to be augmented by tax increases on the middle class and the wealthy.  Supposedly, Mr. Obama’s Democratic allies rejected any talk of reducing those entitlements, while Mr. Boehner’s Republican allies rejected any talk of tax increases; hence they are now struggling to come up with a “small” $2.1 trillion deal.  But, we should remember that no one in Washington, regardless of party, ever gets around to actually cutting spending.  If they cut a deal, the tax increases would go into effect immediately, whereas the spending cuts would be scheduled for ten years from now and would simply never happen; this is exactly what occurred during the tax increases of the Reagan and G. H. W. Bush eras.  It is even worse than that: when the “deficit hawk” Republicans gained control of both houses of Congress in 2000, the first thing they did, and continued to do, was to increase spending just as the Democrats had done.  I would be leery of any so-called “solution” according to the usual formulas.

In the end, the big-money, big-vote-getting interests obtain their desires through exemptions, exclusions, subsidies, outright gifts, and unfunded mandates on the states, while the average guy continues to lose ground or stay where he is.  That said, I may be fairly conservative, but I would not be opposed to a “provisional” tax increase to help deal with the debt.  “Provisional” in this context is understood to mean a tax increase devoted only to reducing the debt.  But, to guard against the political trickery of the past, I would remain in favor of a tax increase only under the following caveats:

a.  Revenue increases shall be imposed only by a payroll tax, which may be graduated and scaled for total income (i.e., the rich to pay more, the poor less); this eliminates loopholes to aid the politicians’ favorite friends.

b.  In year 1 of the budget deal, spending will be cut by “X” amount, without any increase in marginal tax rates.

c.  In year 2, of the budget deal, tax rates may be increased to approximate “X” from the year before.

d.  The same formula as above shall prevail for all succeeding years, that is, the amount of additional revenue in a given year shall not exceed the budget cuts of the past year, as compared to the year before that.

Only then can we be assured that the spending cuts are real; secondly, we will have a solid metric by which to evaluate the magnitude of the subsequent tax increase.  The politicians will complain that the additional revenue will come too late; that people will suffer in the initial cuts.  Poor babies; maybe they should have given that some consideration before they ran up our credit card to $14.3 trillion; just a thought.

Now that I’ve mentioned tax loopholes, I would also like this budget deal to address the complexity of the tax code, which exists only to benefit special interests and politicians’ favorite puppies.  Therefore, I require, as compensation of my taxes going up, a reduction in the volume of the tax code according to the following schedule:

a.  50% reduction in tax code volume within the first four years

b.  An additional 50% reduction (to 25% of current) in the next succeeding four years

c.   An additional reduction (to 12.5% of current) in the next succeeding four years.

In order to ensure Congress and the IRS comply with these restrictions, I require a provision by which all income and payroll tax withholding shall cease if Congress and the IRS refuses or is unable to meet the above reductions.

None of these ideas have any chance of passage, of course.  But it will be entertaining to see what our illustrious leaders foist on us this time.

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Posted in federal budget, national debt, Uncategorized | No Comments »