Category Archives: News

Debt now equals total U.S. economy

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From the Washington Times:

Debt now equals total U.S. economy

President Obama projects that the gross federal debt will top $15 trillion this year, officially equalling the size of the entire U.S. economy, and will jump to nearly $21 trillion in five years’ time.

Amid the other staggering numbers in the budget Mr. Obama sent to Congress on Monday, the debt stands out — both because Congress will need to vote to raise the debt limit later this year, and because the numbers are so large.

Mr. Obama’s budget said 2011 will see the biggest one-year jump in debt in history, or nearly $2 trillion in a single year. And the administration says it will reach $15.476 trillion by Sept. 30, the end of the fiscal year, to reach 102.6 percent of gross domestic product (GDP) — the first time since World War II that dubious figure has been reached.

In one often-cited study, two economists have argued that when gross debt passes 90 percent it hinders overall economic growth.

The president’s budget said debt as a percentage of GDP will top out at 106 percent in 2013, but only if the economy booms.

“I still don’t see a sense of urgency from the president about the massive federal debt,” said Sen. Lamar Alexander, Tennessee Republican. “His budget calls for too much government borrowing – even though the debt is already at a level that makes it harder to create private-sector jobs.”

Speaking on MSNBC on Monday, Jacob “Jack” Lew, the White House budget director, said their long-term plan to lower deficits will stabilize the debt.

“When we came into office, when President Obama took office, the deficit was climbing to over 10 percent of the economy. We have a plan that would bring it down to 3 percent,” he said. “That is the most rapid reduction in the deficit in history. It is what we have to do to be able to say we’re paying our bills and we’re not adding to the debt.”

The administration said debt as a percentage of GDP will stabilize at about 105 percent in the middle of this decade, though those calculations assume economic growth levels significantly above projections of the non-partisan Congressional Budget Office.

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WSJ: Runaway Trains Obama’s high-speed rail plan is a fiscal pipedream

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From today’s Wall Street Journal:

Runaway Trains
Obama’s high-speed rail plan is a fiscal pipedream.

We suppose every President is entitled to a pipedream, but President Obama’s vow in his State of the Union address that 80% of Americans should have access to high-speed rail in 25 years is a doozy. Vice President Joe Biden has followed up by proposing $53 billion in high-speed rail funding over the next six years. Seriously?

On recent evidence, this train is running in reverse. Though the Obama Administration has allocated more than $10 billion for high-speed rail projects the past two years, the new Republican governors of Wisconsin and Ohio, Scott Walker and John Kasich, have rejected the federal money. They don’t want to put their taxpayers on the hook for projects destined for Insolvency Junction. Florida Governor Rick Scott is also reconsidering his state’s proposed Orlando-Tampa line.

Even California, that famous incubator of pipedreams, is having second thoughts. The state has proposed an 800-mile high-speed rail plan from San Diego to San Francisco. Bay area residents are now protesting that the line will damage property values, while Central Valley farmers complain the line will ruin their land. The greater wonder is how the state will pay for a $43 billion train even as it’s facing a $28 billion budget gap over the next 18 months and $20 billion annual deficits four years after that.

Two years ago California taxpayers approved a $9.95 billion bond initiative to fund the train, buying the pitch that it would create hundreds of thousands of jobs and attract 94 million riders. The state’s high-speed rail authority told voters a one-way ticket from San Francisco to Los Angeles would cost $55—about the price of a Southwest flight. They said private equity firms were dying to invest, and that the train would operate without a public subsidy.

Studies by economists and financial consultants Alain Enthoven, William Grindley and William Warren have since debunked the rail authority’s claims. Based on the costs of high-speed rail lines in Europe and Japan, the price tag likely will fall between $62 billion and $213 billion. A one-way ticket from San Francisco to Los Angeles will cost about $190, which means more people will choose to fly.

Because of uncertainty over costs and ridership forecasts, private equity firms say they won’t invest without a revenue guarantee, i.e., an operating subsidy. Even if the state somehow manages to attract $10 billion in private equity, its business plan calls for another $5 billion in local grants and $15 billion more in federal funds. The $15 billion that they want from the feds would be nearly a third of Mr. Biden’s $53 billion figure. Maybe high-speed rail is a back-door bailout for California.

Messrs. Obama and Biden argue that the U.S. has to invest in high-speed rail to stay competitive with the world. Only if we’re competing in the Debt Bowl. Two high-speed railways in the world have broken even, and those are in densely populated areas of France and Japan where people drive less because gas prices are twice as high as in the U.S., and many foreign intercity highways levy tolls.

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CPAC Day 1: The Two Donalds

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The two best speeches from day 1 of CPAC came from two Donalds: Trump and Rumsfeld.

Trump’s speech was very strong. There are still a lot of questions about a Trump candidacy, but this was a very compelling speech:

Of course, Rummy was Rummy. Secretary Rumsfeld was introduced by the greatest Vice President in American history, Dick Cheney. Rumsfeld was at CPAC to receive the American Conservative Union’s “Defender of the Constitution” award:

IBD Editorial: Obama’s Big Lie On Taxes

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A large and ongoing problem with our public discourse is the dishonesty and disinformation foisted on an unsuspecting public. That’s certainly the case when it comes to taxes.

Sometimes, politicians claim things that just make you turn your head and say, “huh?” That’s what happened last Sunday when President Obama, in a pre-Super Bowl interview with Fox TV’s Bill O’Reilly, said the following:

“I didn’t raise taxes once. I lowered taxes over the last two years. I lowered taxes for the last two years.”

It was a great quote, very dramatic and emphatic. It was also quite wrong. Tax watchdog groups and think tanks have looked at the record and found just the opposite — that Obama has raised taxes numerous times, and that taxes did in fact rise during the first two years of his presidency.

Indeed, in 2009 one of the first things Obama did after entering office was to slap a 156% increase in the federal tax on tobacco — about 62 cents a pack — to pay for the children’s health insurance program.

Whether you think this is a good idea or not, it is a tax.

Please recall the president’s solemn promise in the 2008 campaign that families earning less than $250,000 a year wouldn’t see “any form of tax increase.” As Americans for Tax Reform (ATR) noted, the median income of smokers is “just over $36,000.”

But the granddaddy of them all was the health care bill that the president signed into law last March.

ObamaCare, the Heritage Foundation calculates, “contains 18 separate tax increases that will cost taxpayers $503 billion between 2010 and 2019.” And at least seven of those tax hikes are clear violations of the president’s vow not to raise taxes on the middle class.

So the president not only raised taxes more than once, he raised them massively to help fund his unpopular takeover of health care.

In further assessing Obama’s tax record, one also must look at intent. The White House and Democrats in Congress had explored the possibility of letting all the Bush tax cuts expire last year, which would have been a huge tax hike on all Americans.

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Reaganomics: What We Learned

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From today’s Wall Street Journal:

By ARTHUR B. LAFFER

For 16 years prior to Ronald Reagan’s presidency, the U.S. economy was in a tailspin—a result of bipartisan ignorance that resulted in tax increases, dollar devaluations, wage and price controls, minimum-wage hikes, misguided spending, pandering to unions, protectionist measures and other policy mistakes.

In the late 1970s and early ’80s, 10-year bond yields and inflation both were in the low double digits. The “misery index”—the sum of consumer price inflation plus the unemployment rate—peaked at well over 20%. The real value of the S&P 500 stock price index had declined at an average annual rate of 6% from early 1966 to August 1982.

For anyone old enough today, memories of the Arab oil embargo and price shocks—followed by price controls and rationing and long lines at gas stations—are traumatic. The U.S. share of world output was on a steady course downward.

Then Reagan entered center stage. His first tax bill was enacted in August 1981. It included a sweeping cut in marginal income tax rates, reducing the top rate to 50% from 70% and the lowest rate to 11% from 14%. The House vote was 238 to 195, with 48 Democrats on the winning side and only one Republican with the losers. The Senate vote was 89 to 11, with 37 Democrats voting aye and only one Republican voting nay. Reaganomics had officially begun.

President Reagan was not alone in changing America’s domestic economic agenda. Federal Reserve Chairman Paul Volcker, first appointed by Jimmy Carter, deserves enormous credit for bringing inflation down to 3.2% in 1983 from 13.5% in 1981 with a tight-money policy. There were other heroes of the tax-cutting movement, such as Wisconsin Republican Rep. Bill Steiger and Wyoming Republican Sen. Clifford Hansen, the two main sponsors of an important capital gains tax cut in 1978.
What the Reagan Revolution did was to move America toward lower, flatter tax rates, sound money, freer trade and less regulation. The key to Reaganomics was to change people’s behavior with respect to working, investing and producing. To do this, personal income tax rates not only decreased significantly, but they were also indexed for inflation in 1985. The highest tax rate on “unearned” (i.e., non-wage) income dropped to 28% from 70%. The corporate tax rate also fell to 34% from 46%. And tax brackets were pushed out, so that taxpayers wouldn’t cross the threshold until their incomes were far higher.

Changing tax rates changed behavior, and changed behavior affected tax revenues. Reagan understood that lowering tax rates led to static revenue losses. But he also understood that lowering tax rates also increased taxable income, whether by increasing output or by causing less use of tax shelters and less cheating on taxes.

Moreover, Reagan knew from personal experience in making movies that once he was in the highest tax bracket, he’d stop making movies for the rest of the year. In other words, a lower tax rate could increase revenues. And so it was with his tax cuts. The highest 1% of income earners paid more in taxes as a share of GDP in 1988 at lower tax rates than they had in 1980 at higher tax rates. To Reagan, what’s been called the “Laffer Curve” (a concept that originated centuries ago and which I had been using without the name in my classes at the University of Chicago) was pure common sense.

There was also, in Reagan’s first year, his response to an illegal strike by federal air traffic controllers. The president fired and replaced them with military personnel until permanent replacements could be found. Given union power in the economy, this was a dramatic act—especially considering the well-known fact that the air traffic controllers union, Patco, had backed Reagan in the 1980 presidential election.

On the regulatory front, the number of pages in the Federal Register dropped to less than 48,000 in 1986 from over 80,000 in 1980. With no increase in the minimum wage over his full eight years in office, the negative impact of this price floor on employment was lessened.

And, of course, there was the decontrol of oil markets. Price controls at gas stations were lifted in January 1981, as were well-head price controls for domestic oil producers. Domestic output increased and prices fell. President Carter’s excess profits tax on oil companies was repealed in 1988.

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Is Harper headed for a majority?

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Former National Citizens Coalition vice-president Gerry Nicholls seems to think so, and I’d have to agree given how much in disarray the Canadian Liberal Party is:

After much pondering, I have come to the conclusion that if we do have a federal election this spring, the result will be a Conservative majority.

Now I realize this forecast goes against conventional political wisdom.

Many pundits, using current public opinion polls as evidence, are arguing no party currently has enough voter support to win a majority.

Columnist Lorne Gunter has written, “Party standings would probably end the campaign at more or less their current levels. There is almost certainly no majority available to any party.”

And former Liberal strategist Warren Kinsella has declared, “Harper is still far from a majority.”

Really?

Gunter and Kinsella are forgetting one simple fact: Canadians are not yet politically engaged.

The Liberals recently released a poll, for instance, which showed only 15 per cent of Canadians are even paying attention to federal politics. (By the way, that’s completely normal. The average person rarely cares about the goings on in Ottawa. They would rather watch American Idol than The National. And who can blame them?)

But once an election is actually called Canadians will get focused on politics. They will start paying attention.

And what will these focused Canadians see when they start paying attention?

Well for one thing they will see a Prime Minister in Stephen Harper who is at the peak of his political powers.

A battle-hardened veteran of three national election campaigns and two leadership races, Harper is a wily political tactician who leads a united, well-disciplined and wealthy party.

The Liberals, on the other hand, are in a sorry state.

Their leader, Michael Ignatieff, is intelligent but a rookie when it comes to running a national campaign. He has only one national race under his belt, a Liberal leadership contest, which he lost.

Nor has he shown any evidence that he is a good campaigner or that he possesses good political instincts or that he can come up with a message that will resonate with Canadians.

His party is also demoralized and cash-poor.

[...]

However, all things being equal, we should expect 2011 to mark the true beginning of the Harper dynasty.

No Eugene Robinson, Democrats are NOT the Party of Reagan

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In yesterday’s Washington Post, Eugene Robinson wrote an incredibly disingenuous pieces on Ronald Reagan, claiming that today’s Democrats are the party Reagan, because the GOP has moved so far to the right.

First, Robinson cited Reagan’s record as governor of California:

When he took office as governor of California in 1967, the state faced a huge budget deficit. Reagan promptly raised taxes by $1 billion – at a time when the entire state budget amounted to just $6 billion. It was then the biggest state tax increase in history.

When Ronald Reagan became Governor of California, the state faced an enormous budget shortfall. Reagan’s predecessor, Jerry Brown, used slight-of-hand bookkeeping tricks to hide the enormity of the state’s budget crisis. By the time Reagan took the helm, he had six months to balance California’s books. In order to clean-up the Democrats mess, Reagan was forced to raise taxes in his first year as Governor. However, it was not a position he enjoyed supporting:

It was not an enjoyable speech to make. I’d campaigned on a promise to keep the lid on taxes, now I was asking for an increase. But I swallowed hard and said that as soon as I could, I’d make sure we gave the people some of their money back to them.
(Am American Life p.165)

In fact, Reagan cut taxes four times as Governor, including a 1968 tax rebate of $100 million, the first in California history. The rebate was made possible by Governor Reagan’s budget surplus.

Next, Robinson claimed that as President, Ronald Reagan was not a real tax cutter:

What eludes the GOP’s selective memory is that Reagan subsequently raised taxes 11 times, beginning with the Tax Equity and Fiscal Responsibility Act of 1982. All told, he took back roughly half of that hallowed 1981 tax cut. Why? Because he realized that the United States needed an effective federal government – and that to be effective, the government needed more money.

On this one, Robinson is again wrong. To get the facts straight, in 1980 the top marginal tax rate was 70%. In 1989, the top marginal rate had been cut down to 28%. As for the Tax Equity and Fiscal Responsibility Act of 1982, President Reagan absolutely did not sign it because “he realized that the United States needed an effective federal government – and that to be effective, the government needed more money.” It seems as though this explanation was invented out of thin air by Robinson.

Ronald Reagan dealt with a Democratic House his entire time in office, with a Senate going back and forth. As such, President Reagan was forced to negotiate with the Democrats. One such example was the Tax Equity and Fiscal Responsibility Act of 1982. While President Reagan opposed raising taxes, the Democrats promised him that for every $1 in tax hikes, there would be $3 in spending cuts. Under these pretenses, President Reagan acquiesced to a tax hike. The Democrats did not keep up their end of the bargain – for every dollar in tax increases the Democrats only cut spending by 27 cents. After this mistake, President Reagan never again raised taxes. In fact, in 1986 Reagan signed into law the most sweeping tax rate reduction in history.

Perhaps Robinson and his ilk forget who Ronald Reagan really was. After the 1964 election, where Barry Goldwater lost in a landslide to Lyndon Johnson, Ronald Reagan said:

“We don’t intend to turn the Republican Party over to the traitors in the battle just ended. We will have no more of those candidates who are pledged to the same goals as our opposition and who seek our support. Turning the Party over to the so-called moderates wouldn’t make any sense at all.”

No matter what liberals now claim, Ronald Reagan was not a ‘moderate Republican.’ Ronald Reagan was a conservative champion. The attempt to whitewash his record is an attempt to deny the great successes of conservatism. Ronald Reagan communicated and implemented great ideas; conservative solutions that that still apply today.