Freedom Line Blog

After being called back to Washington, D.C. from Congress’ August recess by Speaker Nancy Pelosi, the House of Representatives yesterday passed a $26 billion “jobs bill” that is in large part a bailout for teachers unions. 

Prior to the vote, Congressman Tom McClintock (R-CA) summed up what the House was up to during a must-read floor speech:

Mr. Speaker:  Many people are asking why Congress is here today.  I think the answer’s pretty simple: we’re not bankrupting the country fast enough and so we need to come back and spend more.

In the merciful week that Congress was not in session, my constituents had one message: STOP THE SPENDING.  Obviously, Congress isn’t listening.

Over the past two years, this administration and this Congress have increased spending by nearly 18 percent and run up more debt in two years than the irresponsible Bush administration did in all of its eight years combined.  Meanwhile, unemployment has increased from 7.6 to 9.5 percent.  Yet the problem in the view of House Democrats is that we just haven’t spent enough.   So we gather here today to shovel another $26 billion at the problem. …

Mr. Speaker, with the nation now some 13.2 trillion in debt – 93 percent of the entire economy – it is time to invoke the first law of holes: when you’re in one – stop digging.  And if Congress doesn’t invoke that law now, I can all but guarantee you the American people will invoke it in November.

Read and watch Rep. McClintock’s entire floor speech here.

Already navigating a turbulent economic sea, Americans are bracing for the single largest tax increase in history this January 1.

Democrats fighting for their political lives believe they have a winner soaking “the rich,” but we’ve noted the destructive effect that raising taxes on the top bracket will have on the struggling economy.  Not only will they hit small businesses (which create most new jobs in America) particularly hard, but individuals in that bracket carry a disproportionate burden of consumer spending, which makes up 70% of our overall economy.   In this video clip from CNBC, even often left-leaning Don Peebles considers tax increases for the highest income bracket a destructive idea:

If we spend more money paying taxes, then we will have less money to invest, less money to employ workers…  We can’t take a bad situation and make it worse by taxing people more at a difficult time.”

Liberals cannot win this debate on the substance, so they instead hope to win on the rhetoric by framing the issue as “the Bush tax cuts.”  But Bush will have been gone from the White House for two full years by the time the tax increases hit.  We’re not debating new tax cuts, and Bush is long gone.  Rather, what we’re talking about are looming tax increases.  Namely, Obama’s tax increases.

Earlier this month, we noted the sad irony that leaders from welfare states like Germany now lecture President Obama about fiscal discipline.  At the recent G-20 summit in Toronto, Obama attempted to strongarm other industrialized nations into more of the deficit-inflating “stimulus” spending that has failed here, but to no avail. Germany has actually announced budget cuts, whereas Obama admitted that this year’s $1.5 trillion deficit will exceed even last year’s $1.4 trillion pit.

Yesterday, German labor market data provided additional evidence that they were right, and Obama was wrong.  For the thirteenth consecutive month, German unemployment fell, and Germany has now recovered its jobs lost during the recession.  Meanwhile, U.S. unemployment remains near its recessionary high at 9.5%, compared to Germany’s 7.6%.  Obama continues to employ his mindless “jobs saved or created” talking point, but Germany suggests that fiscal discipline and spending restraint are the better course.

Perhaps Obama can go on the German version of “The View” and explain to them why his agenda works better despite the stark evidence.

Remember when Barack Obama preposterously claimed that ObamaCare would reduce the deficit, rather than exacerbate it?  Last week, in admitting that this year’s total budget deficit will exceed last year’s, the Obama Administration included a noteworthy admission.  Namely, that ObamaCare is already adding to his unsustainable deficits.  As reported by The Wall Street Journal:

The White House said the health-care law, heralded as a powerful deficit-tamer in the long term, is expected to add $51 billion of debt between now and fiscal 2012. Those increases more than offset modest savings through 2020.”

Reasonable people knew it was just a matter of time until even Obama admitted that ObamaCare compounds the nation’s deficit.  But who knew that would only take four months?

The Obama Administration now acknowledges that this year’s budget deficit will exceed last year’s.  Their 2010 $1.5 trillion deficit constitutes 10% of gross domestic product (GDP), up from 9.9% last year.   The administration also raised its 2011 deficit forecast to $1.4 trillion, up from its previous $1.267 trillion projection.

Barack Obama repeatedly – and falsely – seeks to escape blame by scapegoating his predecessor for last year’s $1.4 trillion deficit.  He promised as a candidate to address the deficit, but instead more than tripled it in his first year with such things as his failed $1 trillion “stimulus.”  So what will be his alibi for this year’s deficit?  And for 2011’s?

Is there no expiration date on “Blame Bush?”

Another falsehood that Obama advances is that he and Congressional Democrats were simply handed this deficit on January 20, 2009.  The truth, however, is that Nancy Pelosi, Harry Reid and Democrats recaptured Congress (which controls spending under the Constitution) in November 2006, when the deficit was merely $248 billion.  In just four years, they’ve managed to multiply that number by six.

Senate Majority Leader (for the time being, at least)  Harry Reid (D – Nevada) mistakenly believes that he’s got a winning card with his scheduled vote today on yet another unemployment benefit extension.  Reid, along with co-conspirators Nancy Pelosi and President Obama, predictably mischaracterize Republican opposition to the vote that will immediately follow the introduction of replacement West Virginia Senator Carte Goodwin.

But here are some facts.  First, Senate Republicans only request that unemployment benefit extensions be offset with cuts in other forms of runaway federal spending.  Second, Harry Reid’s proposed extension will add $30 billion to this year’s projected $1.4 trillion deficit.  Third, unemployment benefits already stretch for 99 weeks – almost two full years.  Fourth, there have already been seven extensions in unemployment benefits during the period in which Obama’s $1 trillion “stimulus” spending has instead managed to stifle what should be a robust cyclical rebound by this point.  Fifth, even Obama’s own economic advisers have proclaimed that jobless benefits actually perpetuate and exacerbate unemployment itself.

Here’s the better policy prescription:  prevent upcoming tax increases, slow the federal government’s breakneck spending expansion and reduce the threat of anti-growth regulatory uncertainty.  When we implemented those prescriptions during the Reagan Administration, we witnessed astounding two-year gross domestic product growth of approximately 7% over eight consecutive quarters in 1983-1984.  How much longer will it take Harry Reid, Nancy Pelosi and Barack Obama to finally learn that simple lesson?

There is a strange element of humor when an international bureaucracy attempts to instruct the most prosperous and powerful nation in human history how to boost its economy.  The United States, after all, reached its status by maximizing economic freedom, not by following dynamism-sapping international norms.

Ignoring this reality, the International Monetary Fund (IMF) issued a statement yesterday instructing the U.S. to – you guessed it – raise taxes.  The IMF statement rightfully expressed concern over the nation’s debt that Obama is growing like a gigantic Chia Pet.  Unsurprisingly, however, the IMF failed to recognize this as an overspending problem, not an undertaxation problem.  More specifically, the IMF suggested “cuts in deductions, particularly for mortgage interest; higher taxes on energy; a national consumption tax; or a financial activities tax.”

Note how closely the IMF’s growth-killing prescription matches the Obama-Pelosi-Reid agenda, although at least the IMF didn’t take their “all of the above” position.  Regardless, the IMF (just like liberals in this country) apparently remains oblivious to the fact that incoming federal revenues actually reached their all-time high following the 2003 tax cuts, since lower taxes trigger economic growth, which in turn paradoxically increases revenues.  This is obviously a lesson that the “international community” still needs to learn along with Obama, Reid and Pelosi, but this episode provides yet another illustration why America is better off when it decides to be less like, rather than more like, the rest of the world.

Take a look at Table 2.1, “Receipts by Source: 1934-2015” here on the White House Office of Management and Budget website.  For the year 2009, the federal government took in $915 billion in income tax receipts.  Then take a look at this Congressional Budget Office report that the Obama “stimulus,” which was originally estimated to cost $787 billion, in fact cost $862 billion.

And to what effect?  The Obama White House promised that his “stimulus” would keep unemployment below 8%, but we’ve instead suffered months of approximately 10% unemployment.  Gross domestic product reports are tepid and often revised downward, and the Labor Department reported this week that unemployment claims increased just as Obama and Biden embarked on their “Recovery Summer” tour.

Obama’s “stimulus” has only succeeded in adding almost $1 trillion to our nation’s unsustainable debt, while failing in its stated goals.  For the same cost, we could have completely eliminated the income tax for an entire year.  That’s right – no income tax at all for 2009.  Imagine the real-world stimulative effect that would have had.  Unfortunately, Obama and liberals prefer more government spending and control of taxpayer dollars to the true stimulative effect that the income tax elimination would have instead provided.  They know that once Americans suddenly saw those dollars in their pockets, it would be nearly impossible to corral them back into Washington’s usual tax-and-borrow-and-spend ranch.

That’s the conclusion of former Federal Reserve Chairman Alan Greenspan, who, in an op-ed published today in The Wall Street Journal, warned that “perceptions of a large U.S. borrowing capacity are misleading,” and “an urgency to rein in budget deficits” can’t come soon enough.

Greenspan notes that public debt has soared out-of-control in the last 18 months, from $5.5 trillion to $8.6 trillion.  Yet, “the typical symptoms of fiscal excess,” notably inflation and a drastic rise in long-term interest rates, remain “remarkably subdued.” The former Fed Chairman writes that such a phenomenon is “regrettable, because it is fostering a sense of complacency that can have dire consequences. … Beneath the calm, there are market signals that do not bode well for the future.”

Greenspan isn’t the first person, nor will he be last, to warn that the nation’s “current federal debt explosion is being driven by an inability to stem new spending initiatives” and that merely “incremental change” in fiscal policy “will not be adequate.” Indeed, everyday Americans concerned about the U.S. debt crisis and who have never before engaged in the political process are literally taking to the streets demanding a policy of fiscal restraint.

If only the Obama Administration and Congress would listen.   As Greenspan put it, the United States “is in need of a tectonic shift in fiscal policy. … Our economy cannot afford a major mistake in underestimating the corrosive momentum of this fiscal crisis.”

With apologies to John Derbyshire, that’s the conclusion it’s difficult to avoid reading the latest from Derb’s National Review colleague, Kevin Williamson. In a piece entitled “The Other National Debt“, Williamson looks at all of the extra liabilities that don’t make their way into the conventional tally of a $14 trillion national debt. His conclusions are hair-raising.

On state and local debt:

Beyond the official federal debt, there is another $2.5 trillion or so in state and local debt, according to Federal Reserve figures. Why so much? A lot of that debt comes from spending that is extraordinarily stupid and wasteful, even by government standards. Because state and local authorities can issue tax-free securities — municipal bonds — there’s a lot of appetite for their debt on the marketplace, and a whole platoon of local special-interest hustlers looking to get a piece. This results in a lot of misallocated capital: By shacking up with your local economic-development authority, you can build yourself a new major-league sports stadium with tax-free bonds, but you have to use old-fashioned financing, with no tax benefits, if you want to build a factory — which is to say, you can use tax-free municipal bonds to help create jobs, so long as those jobs are selling hot dogs to sports fans.

On exploding public pensions:

States aren’t going to be able to make up those pension shortfalls out of general tax revenue, at least not at current levels of taxation. In Ohio, for instance, the benefit payments in 2031 would total 55 percent of projected 2031 tax revenues. For most states, pension payments will total more than a quarter of all tax revenues in the years after they run out of money. Most of those pensions cannot be modified: Illinois, for instance, has a constitutional provision that prevents reducing them. Unless there is a radical restructuring of these programs, and soon, states will either have to subsidize their pension systems with onerous new taxes or seek a bailout from Washington.

And — the death shot — entitlements:

The debt numbers start to get really hairy when you add in liabilities under Social Security and Medicare— in other words, when you account for the present value of those future payments in the same way that businesses have to account for the obligations they incur. Start with the entitlements and those numbers get run-for-the-hills ugly in a hurry: a combined $106 trillion in liabilities for Social Security and Medicare, or more than five times the total federal, state, and local debt we’ve totaled up so far. In real terms, what that means is that we’d need $106 trillion in real, investable capital, earning 6 percent a year, on hand, today, to meet the obligations we have under those entitlement programs. For perspective, that’s about twice the total private net worth of the United States. (A little more, in fact.)

These numbers underscore the need for real change, quickly advanced. Keep your eyes fixed to CFIF, where we’ll soon be unveiling a campaign to corral the runaway spending.

One of the pillars of Barack Obama’s 2008 campaign was that America had become too didactic toward the rest of the world, particularly toward the more anti-American elements of Europe.  A kinder, gentler Obama would be the ointment to soothe all international discord, they promised.

But the Obama Administration has proven even more didactic than the Bush Administration.  The primary difference is that Obama bows to antagonists like Russia and the Palestinians, while disrespecting friends like Israel.

Now, Obama is even reneging on his “reset” stance toward Europe and self-righteously instructing them on how to pilot their economies.  Consider this opening paragraph from today’s Wall Street Journal front-page article entitled “U.S. Chides Europe’s Crisis Response:”

U.S. Treasury Secretary Timothy Geithner landed in Europe and reasserted a traditional American role of dispenser of financial advice to the world, telling European governments to get their fiscal houses in order.”

That’s pretty amusing stuff from an administration that quadrupled America’s deficit in its very first year.  What’s worse, his administration is insisting on more of the very policies that caused Europe’s economic and budgetary maladies.  Greece’s welfare spending required a $1 trillion bailout, and Portugal, Spain and England may not be far behind. Despite this self-evident reality, the Obama Administration instructs them to pursue more of the same.  According to the report, Geithner admonished European leaders “to keep pumping stimulus into their economies.”

This prompts the question of whether there exists any remaining tether whatsoever between the Obama Administration and reality.  The euro has plummeted following Greece’s bailout, and even the American Dow Jones Industrial Average fell below 10,000 yesterday on fears that the contagion will spread.

A word of advice to Europe:  reconsider your love affair with Obama before he steers you toward even greater catastrophe.

This was Barack Obama’s official campaign website on September 9, 2008:

Today, we learned that Washington has run up a record budget deficit of $407 billion this year…  Obama will bring real change by cutting taxes for middle-class families and small businesses, paying for all his proposals to reduce the deficit, and will put America on a path towards fiscal responsibility and a stronger economy.”

Pretty bold stuff.  Reasonable minds knew then that an Obama victory would only exacerbate the nation’s deficit, even if the fawning mainstream media was refusing to press him on tough questions.  But even skeptics didn’t foresee just how bad and how rapidly he would do so.  Today, we received sobering news that the national debt surpassed the $13 trillion mark overnight.  That’s now $42,000 per American citizen, and $118,000 per American taxpayer.

And that $407 billion deficit that Obama cavalierly promised to reduce in September 2008?  He’s now raised it from $400 billion to $1.4 trillion.

That’s the type of change for which only America’s enemies could have hoped.

… can be found in the pages of today’s USA Today. Behold four of the clearest, most incontrovertible, and most horrifying paragraphs you’ll ever read in print:

Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year, a USA TODAY analysis of government data finds.

At the same time, government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs — rose to a record high during the first three months of 2010.

Those records reflect a long-term trend accelerated by the recession and the federal stimulus program to counteract the downturn. The result is a major shift in the source of personal income from private wages to government programs.

The trend is not sustainable, says University of Michigan economist Donald Grimes. Reason: The federal government depends on private wages to generate income taxes to pay for its ever-more-expensive programs. Government-generated income is taxed at lower rates or not at all, he says. “This is really important,” Grimes says.

Let’s review: you cannot have a welfare state without a private sector vibrant enough to fund it. You cannot have a private sector vibrant enough to fund it unless government allows the market to function relatively unimpeded. And the market can’t function relatively unimpeded unless the welfare state stays modest in scope. What exactly don’t the folks in Washington, Sacramento, and Athens understand?

The May special election for the seat Rep. John Murtha (D-PA) vacated when he died in February is nearing its conclusion, setting itself up as a potential bellwether for the November 2010 midterm elections.  The main issue is spending.  Loyal readers will recall CFIF’s earlier commentary on the race; specifically the focus on Murtha’s legacy for creating jobs with pork barrel spending.

His former aide and Democratic hopeful Mark Critz continues to promise more of the same.  If elected, he’s promising to “keep important economic development initiatives moving forward.”  At some point, the district’s voters must realize that jobs funded by other peoples’ tax money aren’t free, or unlimited.  If Republican challenger Tim Burns can convince the people of Johnstown, PA, to vote for fiscal sanity, then Democrats nationwide are in for a world of hurt in November.

Two weeks ago, in a commentary entitled Obama’s Big Fat Greek Bailout, we noted the alarming parallels between Greece’s meltdown and America’s trajectory.  Following years of unsustainable welfare-state spending, Greece’s deficit stands at 13% of gross domestic product (GDP), and its cumulative debt stands at 110% of GDP.  Unfortunately, America isn’t far off, with a deficit approaching 11% of GDP and cumulative debt under Obama heading toward 90% of GDP.

Well, other observers are beginning to draw the same parallel we did.  Robert Samuelson notes his commentary The Welfare State’s Death Spiral that “virtually every advanced nation, including the United States, faces the same prospect.”  Pat Buchanan echoes our observation in his commentary The End of La Dolce Vita:

For the nations of Europe have made commitments beyond their capacity to keep, given their growing debts and aging populations.  And America is not all that far behind.  While the federal deficit is not 14% of GDP, it was 10% in 2009 and may reach 11% in 2010.  Trillion-dollar deficits are projected through the decade, bringing the public debt – held by citizens, companies, foreign governments and sovereign wealth funds – close to 100% of GDP.  And the unfunded liabilities of Social Security, Medicare and federal pensions rival those of Western Europe.  States like California and New York, larger than Greece, look a lot like Greece.”

And today, we wake up to the news that Fannie Mae seeks yet another $8.4 billion federal lifeline.  Fannie was originally rescued by the federal government in September 2008, but at least that bailout was capped at $400 billion.  Last year, however, the Obama Administration agreed to remove even that limit, pledging unlimited loss coverage. Fannie’s total now stands at $83.6 billion, with Fannie Mae’s and Freddie Mac’s cumulative bailout costing American taxpayers $145 billion.

But just like Greece, whose original bailout estimate of $45 billion has now risen to $1 trillion, there is no end in sight for Fannie, Freddie or the United States.  Who knows how many more bailouts will be sought by Fannie and Freddie, not to mention other dysfunctional states like California and industries dominated by unions whose bosses are on Obama’s speed dial?

Can you hear the Greek wedding music growing louder?

Even after recent declines, the level of unemployment claims is higher than one would expect it to be if private nonfarm payrolls were really poised to begin sustained gains.”

That is the observation of Joshua Shapiro, an economist at MFR Inc., speaking about the employment and economic climate more than one year after Barack Obama’s trillion-dollar borrow-and-tax-and-spend “stimulus.”

Mr. Shapiro’s assessment echoes a a survey of economists released by the National Association of Business Economics (NABE) this week.  Almost 75% of surveyed economists reported that Obama’s “stimulus” had no effect on the nation’s natural economic healing cycle or employment:

About 73% of those surveyed said employment at their company is neither higher nor lower as a result of the $787 billion Recovery Act, which the White House’s Council of Economic Advisers says is on track to create or save 3.5 million jobs by the end of the year.  That sentiment is shared for the recently passed $17.7 billion jobs bill that calls for tax breaks for businesses that hire and additional infrastructure spending.  More than two-thirds of those polled believe the measure won’t affect payrolls, while 30% expect it to boost hiring ‘moderately.'”

In other words, Obama pointlessly heaped almost $1 trillion more upon our nation’s unsustainable debt to be repaid via some toxic combination of future borrowing and higher taxes.  In pushing that “stimulus,” he promised that it would keep unemployment under 8%, but unemployment continues to fester at 10% and economists say that the “stimulus” had no effect on employment or the natural cyclical recovery.

Recall the flimsy, grand promises that candidate Barack Obama used to get himself elected in 2008:

We’ve been living beyond our means, and we’re going to have to make some adjustments.  Now, what I’ve done throughout this campaign is to propose a net spending cut.”

Obama made that promise during the third presidential debate in October 2008, well after the onset of the financial crisis that he now uses as an all-purpose alibi.  Accordingly, Obama’s apologists cannot claim that current realities were unforeseen when he made that statement.  Indeed, Obama himself pronounced during that same debate, “I think everybody understands at this point that we are experiencing the worst financial crisis since the Great Depression.”  One wonders whether Obama thought for even a moment about what would happen if he ultimately won and was forced to make good on his “hope and change” promises.

Regardless, the collision between Obama’s frivolous promises and reality continued this week.  The Treasury Department has announced that March 2010 marked a record 18th consecutive month in which the federal government posted a budget deficit.  This despite the fact that federal “bailout” spending has declined, meaning not even that can be scapegoated by the Obama Administration.  March’s $65 billion deficit also exceeded the Congressional Budget Office’s projected $62 billion deficit, and the first half 2010 fiscal year deficit now stands at $717 billion, only slightly below last year’s $781 billion first half deficit.

We’re witnessing “change,” but certainly not of the “hopeful” variety.

Perhaps nothing symbolizes our nation’s sad state of political affairs than the fact that government-town Washington, D.C. thrives relative to other major American cities.

As noted by a recent Wall Street Journal report, home prices in the D.C. area rose 2% in 2009, compared to a 3% decline in 20 areas covered by the S&P/Case-Shiller Index.  The capital’s unemployment rate stands at 6.9% compared to 9.7% nationally, and restaurants have added workers in D.C. while other metropolitan areas bleed such jobs.  The reason?  Federal government employment in the area increased by over 20,000, whereas approximately 100,000 private-sector jobs were lost there.  Not only has our bloated federal government increased its employment rolls even as the rest of our society cuts back, but $78.5 billion in federal contract work and the flurry of bureaucratic activity brings domestic and foreign visitors to town.

Americans everywhere have had to trim their budgets and expectations during the downturn, but not the expanding federal government.  What sad, albeit fitting, symbolism.

How much longer will Obama’s escalating deficits still be blamed on Bush?

This week, the Treasury Department reported a $221 billion monthly deficit for February 2010, the largest ever.  This compares to a $194 billion deficit for February 2009, and the year-to-date 2010 deficit has now reached $652 billion, also an all-time high.  Consequently, the projected 2010 annual deficit now appears likely to exceed last year’s $1.4 trillion dollar record.

Obama continues to blame his budgetary irresponsibility on Bush, but at least when Bush was President we counted the deficit in billions, not trillions.  Further, the Treasury Department data points to the true culprit:  spending for February 2010 increased some 17% over February 2009 spending, to $328 billion.  That’s certainly not Bush’s spending.

To paraphrase the increasingly-popular bumper sticker, please don’t tell Obama what comes after “trillion.”

Saturday marked the 99th anniversary of Ronald Reagan’s birth.  It was also the day on which “Snowmageddon” dumped two feet of snow on Washington, D.C., closing government agencies into this week.

Coincidence?  Or yet another win for the Gipper?

After all, Reagan once lamented the federal government’s counterproductive overactivity:

“We have all heard that if you build a better mousetrap, the world will beat a path to your door.  Today, if you build a better mousetrap, the government comes along with a better mouse.”

Well, let’s consider this a symbolic reverse birthday gift from President Reagan, since every day on which the federal government is shut down is a day on which it isn’t devising a better mouse to unleash on us all.