Freedom Line Blog

James Pethokoukis of AEI argues that the new House GOP budget puts too much emphasis on cutting the deficit and not enough on increasing economic growth.

“Indeed, the entire thrust of the budget seems to be that the federal debt is America’s biggest problem,” he writes. “But where’s the evidence? Low interest rates are hardly signaling investor alarm. And not only is the federal debt issued in U.S. dollars, our currency is the world’s reserve. The U.S. is not Greece. The big economic danger here isn’t a debt-driven financial crisis. It’s chronic slow growth from having to sharply raise taxes if we don’t restructure entitlements in a way that promotes saving and work.”

Of course, House budget writers do intend to reform entitlement spending drivers like Medicare and Medicaid – and eventually, one hopes, Social Security. So from at least this standpoint Pethokoukis and the House Budget Committee seem to be in agreement that structural fixes are needed to get entitlement spending on a sustainable trajectory.

What seems to divide them, however, is the motivation for doing so. For the budget drafters it may be containing and reducing an exploding deficit. For Pethokoukis and others, it’s kick-starting the economy to generate more wealth up-and-down the income ladder.

One of these two motivations will ultimately decide what conservative entitlement reform looks like. It will be interesting to see which prevails in the run-up to 2016.

Amid all the legitimate privacy concerns with ObamaCare’s regulatory apparatus – in particular the proposed data hub that allows agencies like the IRS, Social Security Administration and HHS to share reams of information about individual citizens with each other, states and insurance companies – it’s been taken for granted that the liberals in charge of this grand social experiment at least had the technical competency to build the necessary infrastructure.

But the facts say otherwise.

“Of the roughly 8 million Americans now signed up for coverage this year under the health care law, about 5.5 million are in the federal insurance exchange,” reports the Washington Post. “And according to internal documents, more than half of them – about 3 million – have an application containing at least one kind of inconsistency.”

The Post says the most frequent inconsistency is a discrepancy in the income reported on an ObamaCare application and the income reported to the IRS. This type of inconsistency is present on between 1.1 million and 1.5 million applications. To their credit, citizens have sent in “about 650,000 pieces of ‘proof’” to justify their asserted income.

Because of the level of detail required when filling out the 20-plus page ObamaCare application, it’s no surprise many people mistakenly enter something wrong; especially when considering that most people get help on their taxes from either a certified professional or software that easily finds all the right deductions. Neither option was readily available to the vast majority of ObamaCare applicants.

What is astonishing, however, is the federal government’s complete inability to process and verify corrections digitally. “Because the computer capability does not yet exist, the work will start by hand, according to two people familiar with the plans,” says the Post. (Emphasis added)

ObamaCare subsidies are the essential ingredient for claiming that ObamaCare insurance is “affordable” since they at least partially offset the increased cost of coverage. Failing to launch a website capable of verifying income claims that determine whether a person qualifies for subsidies is inexcusable.

If there is any silver lining to this latest blunder it’s that Serco – the federal contractor accused last week of billing HHS $1 billion while hiring employees literally to do nothing – is now on the hook for correcting the inconsistencies. Small comfort though, since apparently Serco gets paid based on the number of employees it hires rather than the efficiency of its work product. Requiring the company to sort paper applications by hand seems almost too awful to be true.

In an interview with CFIF, Pete Sepp, Executive Vice President of the National Taxpayers Union, discusses Social Security, President Obama’s 2013 Budget proposal and the need for tax reform.

Listen to the interview here.

Over the weekend, Newsday’s Lane Filler had a terrific editorial piece on one of the absolute worst trends in modern American politics: Government’s growing tendency towards preventing failure (read: insulating people from the consequences of their actions).

But as Filler correctly points out, this trend isn’t just limited to big financial firms on Wall Street. We only pay special attention to “too big to fail” because it’s a relatively new development. In many ways, our entire social contract has come to be defined by the same ethos. An excerpt:

Every social program, as much good as it might do, strikes a blow against moral hazard. Unemployment insurance, which many people have received for as long as two years during the current recession, helps folks get through tough times, but economists agree it also keeps some of them from taking jobs. Few people would take $300 per week to trim hedges if they can get $300 per week to not trim hedges while they wait for a wage offer they can actually live, or even better, thrive, on. Take away the $300, though, and that bad job starts to look better. Extended unemployment benefits aren’t the only reason there are 3.4 million unfilled jobs in the United States, but they are a reason.

Let people know that if their income is low enough, the government will give them food, and they won’t have nearly as much inclination to earn food money as they would if they were down to carpet-lint soup. Provide shelter to those who can’t provide their own, and folks feel less desire to hustle for housing than they would if an underpass in Cleveland were their winter home.

As Filler goes on to note, the same criticism applies to Social Security and Medicare, both of which provide far more in benefits than beneficiaries ever pay in.

None of this, of course, is to argue against a basic safety net. But as many conservative wags have been noting of late, the safety net is coming to look a lot more like a hammock.

Failure, uncomfortable as it often is, is the finishing school of success. Having weakened its instructive powers, we should not be surprised to find ourselves living in a nation of adolescents.

With the end of the year only about a month away, Republicans on Capitol Hill are stuck in a bit of a quandary. Under current law, the dawning of 2012 will bring with it the expiration of the payroll tax cuts passed last year, which dropped employee rates from 6.2 to 4.2 percent.

As I’ve written before, the payroll tax cuts get you less bang for your buck than virtually any alternative. The  savings for an average American are about $40 per paycheck — not nothing, but certainly not enough for even the most dyed-in-the-wool Keynesian to think aggregate demand will shift, particularly because the program’s temporary nature means that it is not altering long-term plans. Also, remember that the payroll tax is there to finance Social Security and Medicare, so pulling money out of those accounts only hastens the day of fiscal reckoning for both of those programs. Finally, there’s the fact that there’s only a cut to the employee’s chunk of the payroll tax, not the employer’s. That means it does absolutely nothing to galvanize hiring.

Savvy congressional Republicans have made these points, but voting to end the break would put them in the unusual position of defending an increase in taxes at a time of extreme economic weakness. While the payroll rate will eventually have to return to the status quo, the GOP is thus stuck looking for something to plug the hole in in the interim.

Kudos, then, to the Republican leadership, who, according to Politico, are looking to pay for the continued tax break by extending a salary freeze for federal employees and lawmakers, a move that would save about $100 billion. While the country’s biggest economic need is a wholesale overhaul of tax policy and regulatory policy combined with a dramatic reduction in federal spending, that won’t happen in the current atmosphere of political polarization in Washington. If we have to muddle through in the interim, this is a fairly reasonable way to do it — don’t increase the debt and let the Washington crowd foot the bill for the everyday Americans they’ve so badly misserved.

Byron York breaks down a CNN poll showing that Republican voters 65 and older (i.e. eligible to receive Social Security) favor Texas Governor Rick Perry for president more than any other GOP candidate.

This flies in the face of the current criticism of Perry’s widely discussed comment at last week’s debate that Social Security is a “Ponzi scheme.”  As far as I can tell, no one has yet shown that Perry is incorrect since in both Social Security and a Ponzi scheme the money from later investors (or taxpayers) goes to benefit earlier investors (or taxpayers).

If anything, Perry should be applauded for speaking the kind of tax-and-spend truths necessary to get a handle on the nation’s fiscal problems so we can begin to fix them.

Admittedly, there is one noticeable difference between the programs that Cato’s Michael Tanner explains perfectly:

Of course, Social Security and Ponzi schemes are not perfectly analogous. Ponzi, after all, had to rely on what people were willing to voluntarily invest with him. Once he couldn’t convince enough new investors to join his scheme, it collapsed. Social Security, on the other hand, can rely on the power of the government to tax. As the shrinking number of workers paying into the system makes it harder to continue to sustain benefits, the government can just force young people to pay even more into the system.

In fact, Social Security taxes have been raised some 40 times since the program began. The initial Social Security tax was 2 percent (split between the employer and employee), capped at $3,000 of earnings. That made for a maximum tax of $60. Today, the tax is 12.4 percent, capped at $106,800, for a maximum tax of $13,234. Even adjusting for inflation, that represents more than an 800 percent increase.

In addition, at least until the final collapse of his scheme, Ponzi was more or less obligated to pay his early investors what he promised them. With Social Security, on the other hand, Congress is always able to change or cut those benefits in order to keep the scheme going.

Recently, I wrote about the Social Security Trust Fund being a piggy bank for other federal spending programs.  In return, federal spenders put worthless IOUs back in piggy with an implied promise to pay back the debt with higher taxes in future years.

Now, there is word that Social Security Disability Insurance – yet another expense drawn from the empty retirement Trust Fund – will go bankrupt by 2017.  The reason for the rapid insolvency of disability insurance is simple: eligibility for disability can begin before reaching retirement age.  Per the Associated Press:

Applications are up nearly 50 percent over a decade ago as people with disabilities lose their jobs and can’t find new ones in an economy that has shed nearly 7 million jobs.

The more President Obama’s Washington dithers on enacting policies to spur economic growth, the more unemployed people will be forced to find money wherever they can.  The vast majority of Americans want to work, but Obama’s job-killing policies just aren’t giving them the chance.

It would be an unnecessary irony if a liberal like Obama presided over an austerity government that not only raised taxes, but also cut services like Social Security that liberals love.  Yet that is the path we’re on as a recessed economy lurches from market plunges to debt downgrades to a contracting job market.

We need an “opportunity president,” and this one surely isn’t it.

Today,  Budget Committee Chairman Paul Ryan and the House Republican majority are introducing their much-anticipated 2012 budget plan.  The bold proposal — “The Path to Prosperity” — is refreshingly comprehensive in addressing the nation’s debt crisis and promoting economic prosperity.  According to Congressman Ryan:

For starters, it cuts $6.2 trillion in spending from the president’s budget over the next 10 years, reduces the debt as a percentage of the economy, and puts the nation on a path to actually pay off our national debt. Our proposal brings federal spending to below 20% of gross domestic product (GDP), consistent with the postwar average, and reduces deficits by $4.4 trillion.

A study just released by the Heritage Center for Data Analysis projects that The Path to Prosperity will help create nearly one million new private-sector jobs next year, bring the unemployment rate down to 4% by 2015, and result in 2.5 million additional private-sector jobs in the last year of the decade. It spurs economic growth, with $1.5 trillion in additional real GDP over the decade. According to Heritage’s analysis, it would result in $1.1 trillion in higher wages and an average of $1,000 in additional family income each year.

Furthermore, Ryan’s budget cuts taxes and strengthens to the social safety net with commonsense reforms to Medicare and Medicaid and by advancing the discussion to sure up Social Security for future generations.

Simply put, the proposal is a real and comprehensive solution to a grave spending and debt crisis that threatens America’s future.  Failure to act to right the nation’s fiscal ship, and now, is no longer an option.  The Path to Prosperity budget deserves serious consideration, not the partisan politics as usual that has already begun.

Read more details on Ryan’s budget plan here.  For the complete plan, click here (.pdf).

Republicans in Congress are currently split on whether to accept incremental budget cuts in the name of political pragmatism or to hold a hard line — and face the possibility of a government shutdown or a freeze in the debt ceiling — in the name of principle. Freshman Florida Senator Marco Rubio takes to the editorial pages of the Wednesday edition of the Wall Street Journal with a message that leaves no doubt where he stands:

“Raising America’s debt limit is a sign of leadership failure.” So said then-Sen. Obama in 2006, when he voted against raising the debt ceiling by less than $800 billion to a new limit of $8.965 trillion. As America’s debt now approaches its current $14.29 trillion limit, we are witnessing leadership failure of epic proportions.

I will vote to defeat an increase in the debt limit unless it is the last one we ever authorize and is accompanied by a plan for fundamental tax reform, an overhaul of our regulatory structure, a cut to discretionary spending, a balanced-budget amendment, and reforms to save Social Security, Medicare and Medicaid.

For months now, we’ve heard “sober” politicians tell us that it’s time to have “an adult conversation” about the size and cost of government in which “everything is on the table”. It looks like Marco Rubio is calling their bluff.

Yesterday, CFIF Senior Fellow Troy Senik described the different approaches Senators Richard Lugar (R-IN) and Orrin Hatch (R-UT) are taking toward their state’s Tea Party movements.  Hatch is accommodating while Lugar is dismissive.

Count Senator Olympia Snowe (R-ME) in the Hatch camp.  The Maine moderate is raising the eyebrow of one home-state commentator by giving a lengthy response to questions about opposing Sharia law, repealing ObamaCare, increasing the debt ceiling, and Social Security spending, among other issues.

Snowe should get credit for answering those questions publicly and in-depth.  Time will tell if it helps her win another term in 2012.

So maybe the era of big government really wasn’t over when former President Bill Clinton declared it so.  Jim MacDougald of the Free Enterprise Nation explains that the balanced budget Clinton delivered was the product of a shell game with the Social Security Trust Fund, not a profile in political courage.  From a blog entry discussing the history of Social Security and Medicare:

The federal government recognized that beginning in about 2011 the transfer payment system wouldn’t work. There would be too many recipients of benefits and not enough workers to take money from to pay for it. To avoid the financial catastrophe that loomed ahead, in 1983 the government substantially increased employer and employee contribution requirements to (at least partially) pre-fund for 2011 and thereafter.

Planning ahead for an event that would occur 28 years in the future was a commendable and far-sighted act by our elected officials. “Baby-boomers,” who made up the majority of our workforce, were subsequently “taxed twice,” with matching contributions from employers. One portion of their tax was to pay for those on Social Security who had already retired, the second portion was to pre-fund a part of their own retirement benefits.

Congress took this excess tax revenue and put it in a “trust fund” to pay future benefits. But the trust fund they established was an enormous shell game because the money was treated as general revenues…a huge windfall to the federal government. It enabled President Clinton to announce at a State of the Union address, that the deficit was “exactly zero.” Even today, people are still congratulating Presidents Clinton and H.W. Bush for having balanced budgets and reducing national debt. But Congress had accomplished that feat by taking and spending all of the “excess revenue” that was coming in from payroll taxes for Social Security, and there was a lot of it to spend! From 1983 to 2008, the federal government took $2.5 trillion more than required to pay current Medicare and Social Security recipients, and they “bought Treasuries” with it. In other words, they spent it all.

Now, it makes a lot more sense how the federal government could “balance” the budget so quickly with nary a squeal heard from entrenched interests.  As MacDougald makes clear in the rest of his article, starting next year there are no more games to play.  The 2011 budget for Social Security and Medicare is $1.22 TRILLION – more than all of the federal income taxes paid by all of the workers in America last year.  In order to pay for the payments owed to Baby Boomers (who, as a cohort, begin reaching 65 in 2011), every American worker will have to pay at least $10,000 in new federal taxes every year.

Add this to the cost of ObamaCare and….pass the tryptophan and bring on the food coma.

Today’s quote of the day comes from former Clinton Labor Secretary Robert Reich, who — in a remarkably dishonest attack on conservative economics at the Huffington Post — pulls out one of the oldest rhetorical tricks in the book, making a prediction he’ll never be held accountable for:

Look, I used to be a trustee of the Social Security trust fund. Believe me when I tell you Social Security is basically okay. It may need a little fine tuning but I guarantee you’ll receive your Social Security check by the time you retire even if that’s forty years from now.

Put aside that the substance of Reich’s argument is “trust me”. The 64-year old Reich is writing a check that his actuarial table can’t cash. May Secretary Reich live to be 104. That’s a good age for humility to kick in.

Hugh Hewitt is out today with a sobering call for young public school teachers to buck their union bosses and vote for education reform.  Consider this bizarro-world scenario facing the newest generation of classroom teachers:

The Obama-Pelosi-Reid Democrats and their state counterparts have been dining on the seed corn, running up bills that can only be paid by the taxes of people under 40 working until they are 80 and then retiring on 50 percent of what their older colleagues receive now, if that.

Indeed, that kind of generation theft what is being offered to every twentysomething public employee these days.  Younger workers already get that Social Security won’t be around to help them in retirement.  If the message sinks in that their lavish pensions are also a mirage, we could be in for a major shift in public policy after the November midterm elections.

As usual, Jay Cost has an eyebrow raising piece of analysis – today discussing in Technicolor detail how President Barack Obama’s narrow geographic popularity foretold of a need to govern from the center of the country; not the center of his party.

What he should have done instead was disarm his opponents. If he had built initial policy proposals from the middle, he could have wooed the moderate flank of the Republican party, marginalized the conservatives, and alleviated the concerns of those gettable voters in the South and the Midwest. This is precisely what Bill Clinton did between 1995 and 2000, and it is what the President’s promises of “post-partisanship” suggested.

Our system of government can only produce policy when geographically broad coalitions favor it. The Senate, more than any other institution, forces such breadth. Obama created breadth the wrong way. He watered down initially liberal legislation to prompt just enough moderate Democrats to sign on. Instead, he should have built policy from the center, then worked to pick up enough votes on either side. The left would have been disappointed, but the right would have been marginalized and, most importantly, Independent voters – who have abandoned the President in droves – might still be on board.

One of the great ironies of liberal politicians is that they so often discount the yen of conservative intellectuals to participate in policy making.  People like Rep. Paul Ryan (R-WI) and former House Speaker Newt Gingrich (R-GA) are driven by ideas, and enjoy the process of fashioning policies that get as many of them enacted as possible.

But they are not necessarily “my-way-or-the-highway” types.  Ryan’s Roadmap for America’s Future is a multi-decade plan for balancing the budget.  Implicit in its longevity is Ryan’s willingness to work out compromises that preserve Social Security and Medicare while making them fiscally sound.  For his part, Gingrich has always been the kind of politician willing to hammer out solutions with the other side, as he attempted to do with Bill Clinton.

People wonder why we don’t have bipartisan breakthroughs anymore.  In part, it’s because politicians like Barack Obama don’t have the political sense to “spread the success around” turning their adversaries into cooperators.

As discussed previously by CFIF, Representative Paul Ryan (R-WI) is getting some much deserved attention for his path breaking proposal, “A Roadmap for America’s Future.”  The Roadmap lays out a comprehensive vision for matching spending on federal entitlements like Medicare, Medicaid, and Social Security with tax receipts.  In other words, it offers specifics on the GOP’s long-stated aim to make government live within its means.

Of course, proposing an elegant, tough-minded legislative solution in an election year doesn’t win many co-sponsors.  In Ryan’s case, he’s got 9.  The folks at Newsweek noticed and are calling out Republicans for their lack of agreement on a substantive way forward.  Being a man of substance and conviction isn’t easy in Washington, D.C., especially for a member of Congress.  That Paul Ryan is willing to put his policies where his rhetoric is deserves not only a nod, but broad based conservative support as well.

Well, not yet.  But this week Congressional Budget Office (CBO) Director Doug Elmendorf issued a sobering report on the state of the nation’s finances.

The largest problem by far?  Entitlements … those “popular” little nuggets of government largesse that everyone enjoys receiving but no one (maybe some liberals) enjoys paying for out of their paycheck.  For example, Medicare and Medicaid are projected to grow by 80% over the next 25 years, while Social Security will only grow 20%.

As Elmendorf notes, the nation simply can’t continue to run up the national debt, currently at almost $12 trillion.  He alludes to possible crises down the road: a drastic drop in the dollar, an increase in interest rates and massive tax hikes.

His conclusion:

[F]iscal policy is on an unsustainable path to an extent that cannot be solved by minor tinkering. The country faces a fundamental disconnect between the services the people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues that people are willing to send to the government to finance those services. That fundamental disconnect will have to be addressed in some way if the budget is to be placed on a sustainable course.

Some people have a knack for recognizing a decisive moment before it occurs. Even fewer have the insight to choose (or guess) which way is best when it happens. Count Martin Heinrich, freshman Democrat from New Mexico, as one of the folks who didn’t migrate from column A to column B. When discussing his support for comprehensive health care “reform” over the weekend, Congressman Heinrich said:

This is an opportunity to do something as big Social Security,” he added. “And me, personally, I don’t want to be on the wrong side of history.”

Regrettably, far too many liberal politicians think being first (or biggest) is the same as being right. With this in mind, replicating the biggest social welfare boondoggle in American history becomes not only historic, but right, and voting for it ensures supporters of their implied inclusion in whatever laudatory blurb finds its way into next decade’s high school civics books.

However, there is another way to interpret the “historic” moment facing the nation and the Democratic Party. In the aftermath of World War II, England voted for a weaker presence abroad, and a much enhanced social safety net at home. The plan came to be known as the “post war consensus” and can be characterized as:

…a belief in Keynesian economics, a mixed economy with the nationalization of major industries, the establishment of the National Health Service and the creation of the modern welfare state in Britain. The policies were instituted by all governments (both Labour and Conservative) during the post-war period.” (Emphasis added)

Sound familiar? Much like Nancy Pelosi and Harry Reid, the leader of the consensus, Clement Attlee, was an unremarkable politician except for the fact he helped create the National Health Service. This put Britain on the path of unsustainable spending and deficits all in the name of a health program that expands coverage while castrating care.

Welcome to infamy, Rep. Heinrich. Here you’ll find no end to self-indulgent paternalism and the undying belief that free people need “free” services from government.