The 'Pay-go" Cover-up

"Pay As You Go" is a massive fraud Obama is playing on the American people. I blogged below, in "Just How Orwellian Is This - 'Obama To Claim Mantle Of Fiscal Responsiblity,'" that Obama's proposed "pay as you go" legislation has massive loopholes allowing him to forego paying for all of the massive debt we are about to take on as a result of his planned social programs. It is pure smoke and mirrors being used to paint the utter profligacy of Obama as "fiscal responsiblity." I also pointed out another aspect of such legislation - that it makes it near impossible to institute tax cuts of the type that have raised revenue every time they have been tried. Now the WSJ chimes in, making the same points:

This from the WSJ:

Some things in politics you can't make up, such as President Obama's re-re-endorsement Tuesday of "pay-as-you-go" budgeting. Coming after $787 billion in nonstimulating stimulus, a $410 billion omnibus to wrap up fiscal 2009, a $3.5 trillion 2010 budget proposal, sundry bailouts and a 13-figure health-care spending expansion still to come, this latest vow of fiscal chastity is like Donald Trump denouncing self-promotion. . . .

But Mr. Obama must think the press and public are dumb enough to buy it, because there he was Tuesday re-selling the same "paygo" promises that Democrats roll out every election. Paygo is "very simple," the President claimed. "Congress can only spend a dollar if it saves a dollar elsewhere."

That's what Democrats also promised in 2006, with Nancy Pelosi vowing that "the first thing" House Democrats would do if they took Congress was reimpose paygo rules that "Republicans had let lapse." By 2008, Speaker Pelosi had let those rules lapse no fewer than 12 times, to make way for $400 billion in deficit spending. Mr. Obama repeated the paygo pledge during his 2008 campaign, and instead we have witnessed the greatest peacetime spending binge in U.S. history. As a share of GDP, spending will hit an astonishing 28.5% in fiscal 2009, with the deficit hitting 13% and projected to stay at 4% to 5% for years to come.

The truth is that paygo is the kind of budget gimmick that gives gimmickry a bad name. As Mr. Obama knows but won't tell voters, paygo only applies to new or expanded entitlement programs, not to existing programs such as Medicare, this year growing at a 9.2% annual rate. Nor does paygo apply to discretionary spending, set to hit $1.4 trillion in fiscal 2010, or 40% of the budget.

This loophole matters, because on the very day Mr. Obama was hailing paygo the House Appropriations Committee was gleefully approving a 12% increase in 2010 nondefense discretionary spending, the third year running that Democrats have proposed double-digit increases. Or consider that the 2010 budget resolution included a $2 billion increase for low-income heating assistance as an entitlement change that should be subject to paygo. But Congressional Democrats simply classified it as discretionary spending, thereby avoiding the need for $2 billion in cuts elsewhere. C'est-la-paygo.

Mr. Obama's new proposal includes even more loopholes. There's an exception for Congress's annual alternative-minimum tax "patch," which is worth at least $576 billion over 10 years; for any of the Bush tax cuts that Mr. Obama decides he wants to extend past 2010; and to protect against planned cuts in Medicare doctor payments. These carve-outs alone spare Democrats from having to come up with some $2.5 trillion in spending cuts or new taxes. To add insult to profligacy, the rules also allow the Administration to run huge early deficits for its looming health-care bonanza, and only pay for it later -- say, after 2012. . . .

The real game here is that the President is trying to give Democrats in Congress political cover for the health-care blowout and tax-increase votes that he knows are coming. . . .

The other goal of this new paygo campaign is to make it easier to raise taxes in 2011, and impossible to cut taxes for years after that. . . . In the longer term, if a GOP Congress or President ever want to cut taxes, paygo applies a straitjacket that pits those tax cuts against, say, spending cuts in Medicare. The Reagan tax reductions would never have happened under paygo. . . .

Read the entire article.

Read More...

Summary only...

Just How Orwellian Is This - "Obama To Claim Mantle Of Fiscal Responsibility"

Obama is claiming the "mantle of fiscal responsibility?" Obama is to fiscal responsiblity what Bill Clinton is to chastity.

Yet according to Reuters, that is what is happening. Obama, the man who has brought us to the edge of financial ruin, the man who has quadrupled our national debt in just a few months, the man who added more to our national debt than all other presidents combined, now wants to "claim the mantle of fiscal responsiblity." Indeed, our Profligate Spender in Chief is now all set to claim said "mantle" by introducing "pay as you go" legislation. As Obama explained yesterday:

"The 'pay as you go' principle is very simple. Congress can only spend a dollar if it saves a dollar elsewhere," Obama said in a speech at the White House attended by several Democratic members of Congress.

Can this man be any more disingenuous? Shameless? Hypocritical?

Sure!!!

How, you ask. Simple - just a little smoke and mirrors. His "pay as you go" legislation come with special dispensation for Obama's proposed health care and other major plans. As the AP explains, Obama's "pay as you go" legislation . . .

. . . would carve out about $2.5 trillion worth of exemptions for Obama's priorities over the next decade. His health care reform plan also would get a green light to run big deficits in its early years. But over a decade, Congress would have to come up with money to cover those early year deficits.

The "mantle of fiscal responsiblity" indeed. This would make even George Orwell blush.

Is there anyone who believes the left would actually cut spending to add new social programs? Is there anyone who believes this will actually result in voluntary fiscal restraint in a decade, when Obama is safely out of office? Indeed, even as Ben Bernanke is sounding the alarms about the need to reduce the defecit now, Obama is planning for ever more spending on borrowed money - 2.7 trillion of it.

And lastly, the problem with this type of legislation is that it makes tax cuts that much harder to pass. But the truth is that cutting taxes has, every time it is tried, resulted in more tax revenues. This legislation is more designed to defeat Repulican attempts at tax cuts than it is at imposing fiscal discipline on the most undisciplined President and Congress our nation has ever known.

Obama is spending us into ruin. And he does so while the train whistle of economic disaster gets ever closer.

Read More...

Summary only...

Heading Towards A Self Inflicted Depression?

And to think that Obama ran against Bush on the charge that Republicans lacked fiscal responsibility.

The economic news gets progressively worse by the day. Obama has broken the bank with his profligate spending. Indeed, the borrowing for his spending has been so massive that Moodys is warning that it may have to downgrade federal government bonds - a move that would send us far deeper into debt. Further, this downturn is turning into a perfect storm, as it is merging into a crisis with social security and Medicaid. One would think all of that is more than enough, but no. Obama is pursuing plans for massive taxation through several vehicles, the sum total of which will massively burden every American and portends to derail any recovery. Then there is Obama's non-sequiter that in order to stem the bleeding from Medicare, we have to enact another trillion dollar program, universal health care. And lastly, from Carl at No Oil For Pacifists, a detailed review of Obama's economic programs to the present, set in an econ 101 grading scheme.

Economists debate whether FDR's massive "New Deal" spending was effective in combating the Great Depression. Given that the depression did not end until WWII, that is an open question. But Obama has bet the farm - and the second mortgage on the farm - on the theory that FDR had it right.

The national debt today is four times higher than it was just one year ago, standing at $1.84 trillion dollars. Of that, half has been borrowed. And that is a figure likely to rise as the year progresses both through increased allocations, increases in the cost of borrowing, and the failure of the Obama rosy predictions to fail to materialize. Just paying down that figure is daunting, if there was nothing more.

But we are in the midst of a near perfect economic storm. Democrat protests to the contrary, we have known for years that Social Security and Medicare were going to balloon in size - into the multi-trillions of dollars - as more baby boomers age. Democrats have run these plans as a ponzi scheme, and the scheme is being exposed by falling receipts. This will come to crisis proportions in a few years, if not sooner. But Obama has yet to say word one about how he will address social security. More on medicaid below.

Between Obama's profligate spending and our looming massive crisis in Social Security and Medicaid, we face yet another major obstacle. This from Financial Times:

Long before the current financial crisis, nearly two years ago, a little-noticed cloud darkened the horizon for the US government. It was ignored. But now that shadow, in the form of a warning from a top credit rating agency that the nation risked losing its triple A rating if it did not start putting its finances in order, is coming back to haunt us.

That warning from Moody’s focused on the exploding healthcare and Social Security costs that threaten to engulf the federal government in debt over coming decades. The facts show we’re in even worse shape now, and there are signs that confidence in America’s ability to control its finances is eroding.

Prices have risen on credit default insurance on US government bonds, meaning it costs investors more to protect their investment in Treasury bonds against default than before the crisis hit. It even, briefly, cost more to buy protection on US government debt than on debt issued by McDonald’s. Another warning sign has come from across the Pacific, where the Chinese premier and the head of the People’s Bank of China have expressed concern about America’s longer-term credit worthiness and the value of the dollar. . . .

The bottom line of all of this is that we are headed for far more difficult times if the cost of our ability to borrow rises significantly - as will assuredly happen if we lose our AAA rating.

One of the clear lessons that came out of the Great Depression was that increasing taxation can defeat a recovery. Obama is planning to do tax increases on steroids. Obama intends to fund his profligate spending on the backs of all Americans through massive direct and indirect taxes as well as a business tax that portends to drive multinational businesses from our shores. As discussed by Martin Feldstein in the WSJ:

The current outlook for an economic recovery remains precarious. Although the stimulus package will give a temporary boost to growth in the current quarter, it will not be enough to offset the combined effect of lower consumer spending, the decline in residential construction, the weakness of exports, the limited availability of bank credit and the downward spiral of house prices. A sustained economic upturn is far from a sure thing. This is no time for tax increases that will reduce spending by households and businesses.

Even if the proposed tax increases are not scheduled to take effect until 2011, households will recognize the permanent reduction in their future incomes and will reduce current spending accordingly. Higher future tax rates on capital gains and dividends will depress share prices immediately and the resulting fall in wealth will cut consumer spending further. Lower share prices will also raise the cost of equity capital, depressing business investment in plant and equipment.

The Obama budget calls for tax increases of more than $1.1 trillion over the next decade. . . .

Mr. Obama's biggest proposed tax increase is the cap-and-trade system of requiring businesses to buy carbon dioxide emission permits. The nonpartisan Congressional Budget Office (CBO) estimates that the proposed permit auctions would raise about $80 billion a year and that these extra taxes would be passed along in higher prices to consumers. Anyone who drives a car, uses public transportation, consumes electricity or buys any product that involves creating CO2 in its production would face higher prices.

CBO Director Douglas Elmendorf testified before the Senate Finance Committee on May 7 that the cap-and-trade price increases resulting from a 15% cut in CO2 emissions would cost the average household roughly $1,600 a year, . . .

But while the cap-and-trade tax rises with income, the relative burden is greatest for low-income households. According to the CBO, households in the lowest-income quintile spend more than 20% of their income on energy intensive items (primarily fuels and electricity), while those in the highest-income quintile spend less than 5% on those products.

The CBO warns that the estimate of an $80 billion-a-year tax increase could be significantly higher or lower, depending on how the program is designed. The Waxman-Markey bill currently before Congress calls for reducing greenhouse gasses 20% by 2020 and by an incredible 83% by 2050. As the government reduces the amount of CO2 that is allowed, the price of the CO2 permits would rise and the pass-through to consumer prices would also increase.

The next-largest tax increase -- with a projected rise in revenue of more than $300 billion between 2011 and 2019 -- comes from increasing the tax rates on the very small number of taxpayers with incomes over $250,000. Because this revenue estimate doesn't take into account the extent to which the higher marginal tax rates would cause those taxpayers to reduce their taxable incomes -- by changing the way they are compensated, increasing deductible expenditures, or simply earning less -- it overstates the resulting increase in revenue.

This is a large part of the smoke and mirrors of the Obama unrealistic forecasts. If a 10% tax in place on $1000 of income brings in $100 today, raising the tax to 15% almost assuredly does not mean that tax receipts will rise to $150. The more confiscatory taxes become, the more people do what they can to lessen the burden. To continue with Mr. Feldstein:

Since the projected revenue from this source is already designated to be used for Mr. Obama's health plan, some other tax increases will be needed. Moreover, Mr. Obama's budget characterizes the projected $634 billion outlay for health-care reform as just a down payment on the program. The budget notes that there would be "additional resources and new benefits to be determined with Congress." Those additional resources would no doubt be even higher taxes.

The third major tax increase is the plan to raise $220 billion over the next nine years by changing the taxation of foreign-source income. While some extra revenue could no doubt come from ending the tax avoidance gimmicks that use dummy corporations in the Caribbean, most of the projected revenue comes from disallowing corporations to pay lower tax rates on their earnings in countries like Germany, Britain and Ireland. The purpose of the tax change is not just to raise revenue but also to shift overseas production by American firms back to the U.S. by reducing the tax advantage of earning profits abroad.

The administration is likely to be disappointed about its ability to achieve both goals. Bringing production back to be taxed at the higher U.S. tax rate would raise the cost of capital and make the products less competitive in global markets. American corporations would therefore have an incentive to sell their overseas subsidiaries to foreign firms. That would leave future profits overseas, denying the Treasury Department any claim on the resulting tax revenue. And new foreign owners would be more likely to use overseas suppliers than to rely on inputs from the U.S. The net result would be less revenue to the Treasury and fewer jobs in America. . . .

Read the entire article. To add to this list of proposed taxes, we find today that the Senate is looking into raising taxes on sin - specifically, alcohol, tobacco, chips and sodas. The bottom line, Obama's plans seem to be a clear path to a much weaker economy - and the people who are going to bear the biggest brunt are those in the lower and lower middle class.

As to Medicaid, that is clearly a plan that has to be addressed. But instead of trying to staunch the bleeding, Obama is making ridiculous claims that it can only be done as part of an incredibly expensive move to universal health care. As Megan McCardle points out:

Perhaps predictably, someone showed up in the comments to my post on Medicare and Social Security to argue that liberal analysts have very serious plans to cut Medicare's costs, which is why we need universal coverage, so that we can implement those very serious plans.

I hear this argument quite often, and it's gibberish in a prom dress. Any cost savings you want to wring out of Medicare can be wrung out of Medicare right now: the program is large and powerful enough, and costly enough, that they are worth doing without adding a single new person to the mix. Conversely, if there is some political or institutional barrier which is preventing you from controlling Medicare cost inflation, than that barrier probably is not going away merely because the program covers more people. Indeed, to the extent that seniors themselves are the people blocking change (as they often are), adding more users makes it harder, not easier, to get things done.

Lastly, in this whirlwind of bad news, Carl at No Oil For Pacifists has an exceptional post documenting Obama's economic moves over the past 100+ days:

What if the Presidency were a college course? Should Obama get good marks for making the first steps towards financial sanity? Imagine Obama's mid-semester report card from an ivy-covered academy . . .

Read it, and do hit all of the links. You will be amazed that Obama gets an A in econ 101.

Read More...

Summary only...