Bowles – The Old Guy Phd

Has American Decided Its Future?

G’Day!

No, there is still the opportunity to influence our future! While it is not possible for me to adequately describe my disappointment, disbelief, and initial unhappiness with the results in this election, a free people in a free society expressed their current desire for a popular President to continue to transform our country into a centrally controlled socialist welfare state. If this new nation evolves, our country will be very different from the America in which I have long lived, long enjoyed, and hoped to endow to my children. Fortunately, we live in a country where it is possible for an election as divisive is this one to take place peacefully and without violence and there will be another Congressional election in only two years. We now know (or should know) exactly what the next four years are likely to bring unless we strive to change it.

On its current track America faces a looming financial & economic collapse, unsustainable deficits & National Debt, higher taxes and healthcare costs, the ultimate failure of our important social safety nets, continued energy dependence on nations that do not like us, and a Foreign Policy of appeasement, apology, & withdrawal that has encouraged terrorists & enemies of the US and our allies. If Iran does create a nuclear weapon and the “Arab Spring” continues to deteriorate, it is unlikely that our best ally in the Middle East, Israel, will survive without resolute US support. Without a course correction, the America and freedoms I know and love are probably doomed. In my opinion, our only hope is that Obama reverses nearly all of his policies (unlikely) or the Republicans and Democrats in Congress can find a bipartisan way to resolve our country’s multiple crises quickly (possible). It is now time for all of us on both sides of the issues to work together to save our country. It can be done!

John F. Kennedy at his inauguration said, “My fellow Americans, ask not what your country can do for you, ask what you can do for your country!” This was not only inspirational but an accurate indication of our country’s culture of independence, freedom, and opportunity at the time. Since those words were spoken, our nation has experienced a gradual erosion of our freedoms, a huge increase in the size of our government, and increased welfare and dependency by citizens on government. We must regain our spirit of personal responsibility, mutual cooperation, and independence from a government that increasingly seems to believe (with apologies to JFK), “My fellow dependents, ask not what you can do for yourselves; ask what your government can do for you!” Let’s all endeavor to reestablish a culture of unity not divisiveness, compromise not partisanship, progress not gridlock, and independence not welfare. We are all Americans!

I believe the Republicans can and should take the lead in proposing new solutions to the major crisis of our time: the impending financial collapse of our federal government and our economy. My two principal suggestions for initial Congressional action are: 1) In the lame duck session extend the “Bush Tax Cuts” for 6-12 months to avoid the “Fiscal Cliff” and give Congress a reasonable opportunity to properly deal with the real reforms necessary and 2) As the first priority in 2013 pass the Bowles-Simpson proposal in the House with added entitlement reform as the appropriate framework for a permanent solution and submit this to the Senate for review and actual vote. (see “Bowles & Simpson Have it Right!” “Obama Ignores Bowles-Simpson Debt Reduction Commission-Again!” “Debt Reduction: Bowles & Simpson Have it Right-Redux!” “Debt Crisis-Whatever happened to Bowles-Simpson?”) Simply “Taxing the Rich” cannot work. If the “Rich” were taxed at 100% and paid it (unlikely), there is not enough tax revenue available to pay for and sustain our government for the future. What is required is renewing the growing private-sector economy necessary to create the jobs needed to move individuals from permanent dependency to employment and personal independence. In other words, “Save the American Dream!”

Longer term Republicans need to properly and practically address with positive programs the issue of Latinos in America (+40% voting edge for Obama), Women’s issues (+11% voting edge for Obama), and the lack of under age 30 youth support (+20% voting edge for Obama). Without broadening the party’s appeal to these constituencies, it will become increasingly difficult for Republicans to win future elections.

The challenge facing our future is getting our government to work together to correct its self-inflicted path of fiscal insanity, unsupportable debt, unsustainable entitlements, and individual dependency on government by a combination of economic growth policies, major business and individual tax reform to increase tax revenues, cuts in unnecessary federal discretionary spending, and reforms required to make our social safety nets and entitlement programs sustainable for future generations. We can do this! Let’s get to work!

The Old Guy PhD

Debt Reduction: Bowles & Simpson Have it Right – Redux!

G’Day!

On April 1, I posted the article, “Bowles & Simpson Have it Right!”, suggesting that the Bowles-Simpson Debt Reduction Commission’s proposal was a good solution to our country’s deficit and debt crises. Subsequent articles have repeatedly referred to this proposal as a reasonable bipartisan way to address our federal fiscal problems, especially long-term debt, (see “Obama Ignores Bowles-Simpson Debt Reduction Commission – AGAIN!”, “Is Obama Really Serious about Debt Reduction?”, “Fiscal and Debt Crises – Tax Reform Essential!”). Approximately eight months after publishing the Commission’s preliminary report and 5 months after formal submission to President Obama, the “Gang of Six” in the Senate finally appears to be considering it. Perhaps there is some intelligent life in Washington after all. I hope so.

To resolve our unsustainable deficit and debt crises, we need significant comprehensive changes to improve revenues through comprehensive tax reform, to reduce discretionary spending including defense, and reduction/reform in entitlement programs for Medicare, Medicaid, and Social Security. All of these reforms: taxation, government spending, and entitlements, are essential to a comprehensive solution for our country’s problems and ALL must be addressed if we are to succeed.

Bowles-Simpson, which is still an appropriate bipartisan starting point, addresses all of these issues and was approved by 61% of the commission members. I hope it now gets the attention it deserves. The “Gang of Six” and Bowles-Simpson have identified nearly $4 Trillion in deficit reductions over ten years with an immediate reduction of $500 Billion. Both plans rely on government spending cuts and tax reform to lower tax rates, broaden the tax base, and increase tax revenues. These are all good initial actions and I would also suggest the addition of the House “Cut, Cap, and Balance Act, which specifically “Caps” government spending relative to GDP and includes a “Balanced Budget Amendment” provision to insure that our government performs its future fiscal requirements in a responsible way. Currently, polls indicate that over two-thirds of the American people want a “Balanced Budget Amendment” and do not want a further increase in our National Debt. Now is an appropriate time to deal with these issues to insure not only our own future but also more importantly, the future of our children.

If Congress and the President had seriously considered Bowles-Simpson earlier in the year, the debt crisis could already be resolved. We must bring responsibility to the country back into our government and significantly reduce its size.

The Old Guy PhD

Note: The original Bowles-Simpson article with “links” is repeated below for those who missed it.

Bowles & Simpson Have it Right!

In my previous posts, “Big Government IS Our Problem” and “Is Our Government Broken”, I laid out the current and projected fiscal and debt problems facing our nation and argued that significant contraction in government spending is immediately essential. Also essential is tax reform. Our taxes MUST be simplified, the tax base broadened, and tax rates reduced (especially business taxes), if we are to be able to compete in a global economy.

The Debt Reduction Commission’s “Co-Chair’s Proposal” released in December 2010 by the Co-Chairs, Democrat Erskine Bowles and Republican Alan Simpson and submitted to the President in February 2011, is an excellent and understandable overview of the recommendations, which, with minor modification, were approved by 11 of the 18 bipartisan members (61% approval) in December 2010. Unfortunately, the final vote fell short of the 14 votes necessary for the “Supermajority” needed to directly submit the recommendations to Congress. While the Co-Chair’s Draft Proposal differs slightly from the final report submitted to the President, it is worth reviewing for its importance, focus, clarity, and brevity. They have done an excellent job and their proposal deserves the immediate attention of the President and Congress. While no one will be fully happy with all of the commission’s proposals, rational behavior combined with cooperation and compromise by our elected government is necessary if we are to remain a solvent and great nation. The time for government to act is NOW!

The bipartisan Debt Reduction Commission worked from April – December 2010 to develop and present overall comprehensive recommendations to solve our country’s short and long term fiscal and debt crises. They have done their work well. The report addresses all the necessary areas required to resolve the issues including setting out ten (10) objectives, “Guiding Principles and Values”, beginning with “#1-We have a patriotic duty to come together on a plan that will make America better off tomorrow than it is today”; and “#2-The Problem is REAL – the Solution is Painful – There’s no Easy Way Out – Everything Must Be On the Table – and Washington Must Lead”. The other 8 can be read by clicking the link in paragraph above. After establishing the Guiding Principles, the following comprehensive “Five Part Plan” is recommended:

1.Enact tough discretionary spending caps and provide $200 billion in illustrative domestic and defense savings in 2015.

Pass tax reform that dramatically reduces rates, simplifies the code, broadens the base, and reduces the deficit.
Address the “Doc Fix” not through deficit spending but through savings from payment reforms, cost-sharing, and malpractice reform, and long-term measures to control health care cost growth.
Achieve mandatory savings from farm subsidies, military and civil service retirement.
Ensure Social Security solvency for the next 75 years while reducing poverty among seniors.

Implementation of the comprehensive Five Part Plan is projected to achieve nearly $4 trillion in deficit reduction through 2020, in addition to other specific improvements in debt and budget reductions summarized below:

Achieves nearly $4 trillion in deficit reduction through 2020: 50+ specific ways to cut outdated programs and strengthen competitiveness by making Washington cut and invest, not borrow and spend.
Reduces the deficit to 2.2% of GDP by 2015, exceeding President’s goal of primary balance (about 3% of GDP).
Reduces tax rates, abolishes the AMT, and cuts backdoor spending in the tax code.
Caps revenue at or below 21% of GDP and gets spending down to 22% and eventually to 21%.
Stabilizes debt by 2014 and reduces debt to 60% of GDP by 2024 and 40% by 2037.
Ensures lasting Social Security solvency, prevents projected 22% cuts in 2037, reduces elderly poverty, and distributes burden fairly.

The proposal outlines how to achieve the above results through specific recommended actions to improve revenues through “Comprehensive Tax Reform” alternatives, to reduce spending through “Discretionary Budget Options” including Defense cuts, reductions for entitlement programs through “Mandatory Budget Options” for healthcare and “Reforming Social Security”. All of these reforms: taxation, government spending, entitlements for healthcare and social security, are essential to a comprehensive solution for our country’s problems and all must be addressed if we are to succeed.

The Co-Chair’s Proposal is controversial but responsible, realistic, and deserves the serious consideration of the President and Congress, who are currently engaged in irrelevant political bickering over trivial spending cuts instead of the substantive fiscal and debt problems we face. Congress and the President should get together, agree on or revise as appropriate the “Guiding Principles and Values” above, and start to work for the American people and our country. Political posturing for re-election is NOT a valid course of action.

Currently, neither the Congress nor the President is addressing our fiscal and debt crises with any sense of urgency. The President and the Democrats are not only totally ignoring the problem but are fighting to avoid even minimal reductions from the inflated budget spending of the last 2-3 years. Federal Budget inflation nearly tripled our federal deficit from $0.459 trillion in 2008 to $1.3 trillion in 2010 and is expected to increase again to $1.7 trillion this fiscal year. Obama’s recent budget proposal for 2012 continues spending at $3.7 trillion and the deficit at $1.6 trillion. Additionally, Obama’s new budget projects a further cumulative deficit of $7.2 trillion for the next ten years – bringing our debt to approximately $22 trillion! This is not leadership; it is madness! Only the Republicans are even attempting to address the issue and, to date, their proposals are woefully inadequate. To be fair, the House Republicans through Representative Paul Ryan are promising to present a comprehensive budget in April that does address the looming long-term catastrophe we face. I hope they deliver.

Given the magnitude of our fiscal and debt problems, the current congressional squabbling is an inappropriate distraction from solving the overall crises facing our nation! Without an agreement on debt limits and/or spending cuts by April 8, our government may shut down. As noted in “Is Our Government Broken”, except for national security and some essential services, shutting down might actually be a good thing. Our government is too big, too irresponsible, and too self-centered. Can’t our Congress or Administration do math?

Where is President Obama’s leadership in all of this? Actually, at the time of this writing he’s currently travelling again and making speeches at a Democratic Party Fundraiser – big surprise. As usual, when leadership and responsibility for our country are required, Obama is absent. Last week with a national debt deadline imminent, Congress took a week off rather than stay in session to attempt to resolve the current national debt limit issue. Brilliant! Our elected representatives need to make financial solvency and economic growth a priority and get to work NOW!

We are on unsustainable fiscal and debt crises that, if not corrected quickly, will lead to potential financial and economic disaster for our country. Our government is oppressive and out of control, its growth must be stopped, and its intrusion in our lives and businesses reversed. We MUST maintain the entrepreneurial spirit necessary for economic growth and global competitiveness. We need to bring back the constitutional freedoms and personal liberties that led us to become the greatest nation on earth. Our government should immediately take up the Bowles-Simpson Co-Chairs’ Proposal.

The Old Guy PhD

Is Our Government Broken? – Redux!

G’Day!

Nothing has really changed since my earlier post “Is Our Government Broken” on March 16. If anything, the situation is now worse and potentially more detrimental to our country’s international reputation and the growth of our economy. Obama and the Democrats appear to be determined to ignore the problem and demagogue any efforts by the Republicans to actually confront and attempt to resolve our fiscal and debt crises. While there will probably be an extension of the debt ceiling this summer, it will more than likely be another temporary fix and will just “kick the can” further down the road. As I have repeatedly said, this is madness and intolerable behavior for Congress and the President.

The good news is we now have three rational proposals available, any one of which would start to solve our problems. The bad news is that neither the President nor Congress is seriously considering any of them. The proposals available are: 1) the bipartisan Bowles-Simpson Debt Reduction Commission report, “The Moment of Truth”; 2) the Paul Ryan 2012 Budget Proposal, “The Path to Prosperity: Restoring the American Dream”; and 3) the recent Heritage Foundation Special Report, “Saving the American Dream: The Heritage Plan to Fix the Debt, Cut Spending, and Restore Prosperity”. The Bowles-Simpson report and The Heritage Foundation Special Report are fully comprehensive proposals dealing with all sectors of our economy, including desperately needed tax reform, entitlement reform, and cuts in discretionary government spending (including defense). The Bowles-Simpson report was approved by 61% of the members of the commission but for unexplainable reasons, has been ignored by the President and Congress. Paul Ryan’s proposal, which was passed by the House but rejected by Democrats in the Senate, is reasonably comprehensive but does not address Social Security and, in my opinion, does not adequately address Defense spending. In addition to the proposals above, the GAO report “Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue” has already identified unnecessary duplication, overlap, or fragmentation existing across our Federal Government totaling BILLIONS of dollars in ANNUAL SAVINGS. This is also a good place to start.

I have referred to each of these reports in several previous posts on this website and, for the sake of brevity, provide appropriate links below:

The first two (2) paragraphs in my initial post on this subject are still relevant:

“Yes, our government is currently broken and it needs to GET TO WORK! The events taking place in our national government and some states do not represent the principles of elected representative government upon which America was founded. We elected our officials to serve the needs of the people, not the desires of their political party, big business, or unions.”

“President Obama, both Democrat and Republican Congressional Representatives and Senators (with minor exceptions) are not currently working for the long-term benefit of America. Nearly all are posturing and working for what they perceive as the good of their political party and personal reelection. Citizens have common sense and know that we have fiscal and debt crises that are too large and unsustainable. We must get our State and Federal Governments in order.”

Our federal government is out of control and has grown to be too large, too self-oriented, and is not performing their duty to be responsible to the American people. To date the Democrats have proposed absolutely no specific plan to elevate our fiscal and debt crises (other than increase tax rates) and have not passed a budget in over 700 days! President Obama is also not exercising leadership in this crisis and, as indicated recently, is “leading from behind”. Our President is already in full campaign mode in preparation for the 2012 election (which can’t come soon enough!) and is engaged in travelling, golfing, and political speeches. Obama’s proposed 2012 budget is an embarrassment given the magnitude of our country’s ongoing financial problems and projects spending next year of another $3.7 trillion and an addition to the deficit of $1.6 trillion. Over the next 10 years the new Obama budget proposal is expected to produce a further cumulative deficit of $7.2 trillion, bringing our overall national debt to approximately $22 trillion. Again, this is madness and irresponsible and does not serve the interests of the American people!

Most of the Americans now realize “Big Government is Our Problem”! Let’s fix it and put our country back on a solid jobs and economic growth foundation! Adopt one or a combination of the above proposals and let’s get to work.

The Old Guy PhD

Fiscal & Debt Crises – Tax Reform Essential!

G’Day!

Like our government, our federal tax system is broken (see “Is Our Government Broken?”). Our tax code is complex, unfair, damaging to our economy, and its thousands of pages of code are completely beyond understanding by all but a few highly specialized lawyers and accountants! On national television recently it was disclosed that 51% of AMERICAN HOUSEHOLDS PAID NO FEDERAL INCOME TAX last year, the so-called “rich” paid 76% of all income taxes, and 31% of households not only paid no income taxes but receive monetary benefits from the government. Less than half of households are paying for the services and benefits for the all the American people. Our federal tax system is broken and must be reformed as part of the solution to our fiscal and debt crisis. The basic goals of this reform should to stimulate our economy, simplify the tax code and its administration, broaden the taxable base so that all except those in real poverty pay federal tax, and is fair to the American people.

For over a century, federal income taxes were unconstitutional because our Founding Fathers believed that Federal Government should be limited. They believed (correctly as it turned out) that a direct tax on incomes would provide revenues that bureaucrats would find increasing ways to spend, triggering the desire for bigger and bigger government and more and more taxes! Our federal government successfully served the American people from the founding of our nation until 1913 without an income tax, fought several major wars, and we survived and prospered. It required the passage of a Constitutional Amendment (Article XVI) in 1913 to initiate the mess we currently have. In 1913 seven (7) tax brackets with rates from 1-7% were introduced. Five short years later under President Wilson, the top tax rate was 77%! President Coolidge reduced the top rate to 25% by 1925, avoided a post-war recession, and America enjoyed nearly a decade of prosperity. In the Great Depression under F.D. Roosevelt (FDR), while the economy stagnated, taxes were increased to a top rate of 81% by 1940 and reached 94% by the end of WW II.

History since 1913 has repeatedly shown that when income TAX RATES ARE REDUCED, the economy is stimulated, economic growth occurs, and FEDERAL REVENUES INCREASE! President Coolidge in the 1920s, President Kennedy in the early 1960s, President Reagan in the 1980s, and President Bush in the 2000s demonstrated this. The deficit problems following the more recent Kennedy, Reagan, and Bush tax cuts resulted from government spending that increased faster the increasing tax revenues. This provides further support to the original concern of our Founding Fathers that increased tax revenues lead to bigger government bureaucracy and control over economic and individual freedoms.

Our current and worsening fiscal and debt crises requires a comprehensive solution including significant reductions in government spending, major entitlement reform, and desperately needed tax reform to accomplish the goals above. Reform alternatives must consider sales (consumption) taxes, personal and business income taxes, social taxes (those designed to regulate behavior such as “sin” taxes and redistribution of income), “tax expenditures” (legal/loophole tax deductions for businesses and individuals), and government subsidies. The Congressional Democrats have no specific tax reform plan and Obama’s only consideration is raising taxes on the so-called “rich”, which is neither rational nor fair, will harm growth of our country, and cannot solve our deficit problem. Simply taxing business and the “rich” and giving revenues to the government to be redistributed is inefficient, wasteful, detrimental to job and economic growth, and encourages more companies and individuals to move offshore or find lawyers to “game” the system. Last year GE, with $14 Billion in worldwide profits, paid NO federal income tax, because of “tax expenditures” and government subsidies. This is crazy! Big businesses with big legal departments and lobbyists in Washington get tax relief and subsidies while the small businesses, which are the job creation engine of our country’s growth and future prosperity, are stuck with the high tax rates and no funding (unless you have friends in government or are part of stimulus plan).

Overly simplified, there are three basic reform alternatives to consider.

1) Retain but simplify our current “Progressive” tax system (the more you make, the higher the tax rate), eliminate or significantly reduce the deductions and government subsidies (thereby broadening the tax base), significantly reduce all the tax rates for both individuals and business, and eliminate the Alternative Minimum Tax (AMT). Our current system with extensive and complicated deductions also represents a “double taxation” on income, first at business level and again at personal level when profits or gains are distributed. It is important to realize that the US business tax rate is currently the highest in the developed world at 35% (China is 25%, Russia is 20%, Germany is 15%, Ireland is 12.5%) and foreign profits repatriated back to the US are penalized by being taxed at the higher US rate. The current system encourages businesses to move offshore where taxes are lower and to retain profits abroad rather than returning them to America for investment or distribution. This is a job killer not a job creator and leads to wealth creation abroad not in the US. Frankly, I believe business “income (profit)” taxes should be abolished or at minimum reduced to levels consistent with those countries with whom we compete. Reform of the current “Progressive” tax system is the basis for alternatives in the Bowles-Simpson Deficit Reduction Commission Report, “The Moment of Truth”, and ignored to date by President Obama and the Democrats (see Bowles-Simpson Have it Right!). Republican Paul Ryan’s House of Representatives’ approved 2012 Budget Plan, “The Path to Prosperity”, is also based on this approach. (My reservations with the Ryan budget are that it does not address Social Security reform and does not adequately address Defense spending.)

2) Adopt a “Flat Tax” (one low tax rate paid by all) combined with the elimination or significant reduction of deductions and government subsidies above and the establishment of a single low tax rate for individuals and business. It is neither “Progressive” nor “Regressive” based on income and does not penalize one class of citizens over another. Steve Forbes, Arthur Laffer, and Stephen Moore, among others, have proposed a “Flat Tax”. A low “Flat Tax” could accomplish all the goals above and reduce costs and increase compliance with the tax code by significantly simplifying both tax filing and administration. The tax reform in The Heritage Foundation comprehensive proposal “Saving the American Dream” is essentially a “Flat Tax” system based on income sources spent on consumption with an initial single low rate of 18.5% and deductions limited to education, charitable donations, and mortgage interest protection plus protection for low-income earners.

3) Adopt the “Fair Tax” (a tax on sales or consumption, not income), which abolishes income taxes on business and individuals and eliminates the need for the Internal Revenue Service (IRS). The US is the only developed country in the world without a broad national sales tax, usually called VAT. Currently a “Fair Tax” proposal in Congress would replace all federal income taxes on individuals and businesses, the Internal Revenue Service (IRS) would be abolished (a huge saving in administration expenses), and income tax withholding from wages would be eliminated. The new “Fair Tax” would be collected at the point of purchase like the current state and local sales tax. A “prebate” (advance monthly tax rebate) would be given to households on purchases up to the poverty level. Initially the tax would be levied at 23%. A “Fair Tax” treats everyone equally, would substantially reduce administration and compliance costs, greatly simplify the tax process, and allow more freedom of choice for consumers in purchasing and saving decisions. Equally important is the fact that a federal sales tax broadens the taxpayer base to include federal tax revenues from all non-citizens (including illegal immigrants) as well as US citizens making purchases within the country. A “Fair Tax” also encourages savings rather than consumption. “Americans for Fair Taxation” and Republican Presidential Candidate Herman Cain support this proposal.

Any of these proposals or a rational combination of them will accomplish the goals for tax reform stated above and stimulate economic and job growth for our country. Fortunately as noted above, there are several specific proposals available to accomplish this and adoption of any of them would be an improvement over the current system. I personally prefer alternative 3), the “Fair Tax”, followed closely by alternative 2), the “Flat Tax”, but neither may be politically viable. The “Fair Tax” in combination with either alternatives 1) or 2) is also a preferred option.

Tax reform is a vital part of any successful comprehensive plan to resolve our fiscal and debt problems. Let’s encourage our government to stop political bickering, get back to work, adopt one of the above, and get job growth and our economy back on track!

The Old Guy PhD

Is Obama Really Serious about Debt Reduction?

G’Day!

The answer is apparently “NO”, based on the 1^st & 2^nd Obama budget proposals for 2012 and the Democrats tooth-and-nail fight before agreeing to a miniscule and questionable $38 billion (a mere 3-4 days) in spending cuts this year from a current projected deficit of $1.7 trillion for 2011! However, they are serious about political posturing, fear mongering, and demagoguery against Paul Ryan and the Republicans for even proposing an earnest plan to resolve the crisis. As indicated last week in “Obama Ignores Bowles-Simpson Debt Reduction Commission – AGAIN!”, their answer is SPEND, SPEND, SPEND and TAX the success of the real investors and hard-working small businesses who are the genuine creators of economic growth, job creation, and wealth in our country. Their only solution is to tax the “Rich” when approximately 45% of the households pay no federal income taxes at all and the “Rich” (Top 2%, incomes over $250,000) already pay over 40% of the total! Tax reform is necessary but Obama’s proposals are neither the serious leadership our country needs nor even a nod of recognition for the fiscal and debt crises we face.

The Fed can’t print enough money to solve this problem without major devaluation of our currency and significant increases in inflation and interest rates. History has repeatedly shown that excessive government spending financed by debt combined with extreme increases in money supply usually results in a collapsed economy and crisis in government. Many other nations have tried this and failed miserably. For example, France tried this before and during the French Revolution and it ultimately led to the collapse of their currency, their economy, the failure of their government, and the rise of Napoleon as dictator. Germany tried this after WWI and it lead to the collapse of their currency, their economy, the failure of their government, and the rise of Hitler as dictator. For more information about financial crises see, “This Time is Different: Eight Centuries of Financial Folly”, by Carmen M. Reinhart & Kenneth S. Rogoff, who analyze financial crises in 66 countries in their 2009 book. Regarding “This Time is Different” they conclude, “It almost never is.”

America is not immune to the workings of economic forces and cannot continue as a great nation if we do not put our bloated and inefficient government spending on a sound fiscal path, cap government spending as a percentage of GDP, and appropriately modify (not eliminate) our currently unsustainable entitlement and social programs for long-term viability. Recent history suggests the sustainable level for federal government spending has been approximately 20% of GDP. Federal government spending was 20.7% of GDP in 2008, 23.8% in 2010, and is expected to be over 25.5% in the current year (the highest level in history, other than WWII). This is a +5% increase in the size of our federal government in the first 2-3 years of the Obama Administration! This is madness and must be corrected!

There is no question that many (but not all) government social programs are desirable; they are just not affordable or consistent with a vibrant, innovative, expanding economy, and rising standard of living for the American people. As I said last week, “We cannot continue as a great nation if we base economic policies on the failed socialistic principles of taking from those who work hard and succeed and redistributing their earnings to those who don’t.” Most other developed nations, including Russia, have learned the incentives and benefits of free market capitalism and our government needs to relearn them as well.

If President Obama was sincere about debt reduction, he would be listening to and acting on the recommendations from the bipartisan Debt Reduction Commission he established. The Bowles-Simpson Co-Chairs’ Proposal outlines how to achieve results through comprehensive and specific actions to improve revenues through tax reform, to reduce government discretionary spending including defense, and to reduce entitlement programs through healthcare and social security reform. All of these reforms: taxation, discretionary spending, entitlements for healthcare and social security are essential to a comprehensive solution for our country’s problems and, if we are to succeed, ALL must be addressed.

Our fiscal and debt problems are correctable if our government seriously addresses the needs of the country and not their political desires for reelection. If Obama, Democrats, and Republicans can’t agree on comprehensive legislation to reduce government spending and bring the size of government back to sustainable levels consistent with a growth economy, our country faces a potential sovereign debt crisis similar to those described in the book by Reinhart & Rogoff referenced above. I agree with Standard & Poor’s downgrading of the “outlook” for US Debt based on the political turmoil in our Government. The outlook for a government solution before the 2012 election is not good and I don’t believe Obama and the Democrats want a real solution. Currently, it appears Obama and the Democrats believe the American people are not intelligent enough to see the need for real government spending reform and are too self-interested to revise the social programs to sustainable levels. I do not agree with this view. I believe the American people are intelligent and don’t want to leave to future generations of Americans a damaged economy with an authoritarian bureaucratic government controlling our lives.

In my first post on this website, “Big Government IS Our Problem!”, I described in more detail the current Administration’s trend toward big government collectivism and the dangerous omens it portends for the future of our lives and our nation. In the 2 months since that posting, the situation has become worse and the socialist agenda of our President and the Democrats has become very clear. They do not appear to be serious about debt reduction or reducing government spending. If we are to have a successful and prosperous country in the future, we must take back our country and reestablish the principles of limited government, free markets, individual liberties, and sound fiscal & monetary policies. Get “Big Brother” out of the way and off our backs, reform taxation & spending, and our economy will recover faster and the future of our nation will be assured.

The Old Guy PhD

Obama Ignores Bowles-Simpson Debt Reduction Commission – Again!

G’Day!

Spend and Tax! Tax and Spend! Spend, Spend, Spend! This is the clearly defined policy framework outlined in Wednesday’s political speech by President Barack Hussein Obama. As noted in a previous post, “Big Government IS Our Problem!”. Unless we replace Obama and the Senate Democrats in 2012, big government, reduced personal freedoms, and unsustainable economic policies will continue to be with us for the foreseeable future. Why does the President continue to reject the bipartisan comprehensive proposal by the Debt Reduction Commission, (“Bowles & Simpson have It Right!”)? Can’t Obama and the Democrats do math?

In President Obama’s speech presenting his 2^nd new 2012 budget proposal in two months, he again, as usual, failed to exercise leadership by trashing the serious Republican debt-reduction budget plan of Paul Ryan, and by again refusing to incorporate important recommendations from the Debt Reduction Commission’s proposal. The President’s theme was to incorrectly accuse Republicans of taking money from Senior Citizens and Medicare to provide tax cuts for the “wealthy”. Obama knows better and, as President, should be ashamed of his attempt to mislead the American people. The Bowles-Simpson Debt Reduction Commission’s proposal is excellent and the President, the Democrats, and the Republicans should immediately and seriously pursue this comprehensive bipartisan recommendation, which was approved by a majority (61%) of the commission members. Our economic, fiscal, and debt problems cannot be solved by half-hearted and halfway measures. Everything must be on the table, considered, and acted on through an overall, thoughtful, bipartisan solution that benefits the American people not the political ambitions of the politicians.

In this regard, Obama’s speech was disappointing and pure politics, apparently intended to support his announcement to rerun for President in 2012 (hopefully unsuccessfully). The speech essentially ignored the Debt Reduction Commission’s recommendations and lacked real substance or specifics. In response to the Republican’s budget, Obama did propose to reduce the fiscal deficit from his 1^st 2012 budget by promising to raise taxes on the successful job-creators in our economy – not a good idea for growth and innovation if you understand economics. The speech primarily engaged in inaccurate political demagoguery aimed at Republican Paul Ryan’s 2012 budget proposal. VP Joe Biden was so impressed that he dozed off during the President’s delivery! The prospect of either the 1^st or 2^nd Obama 2012 budget proposal is potentially the same: a larger, bankrupt nanny-state in a slow-growth economy with lower than possible living standards, and a devalued currency with entitlements for non-producers supported by the few motivated and successful business managers, investors, and job-creators. Obama’s plan is an arrow aimed at the heart of entrepreneurs, innovators, and commerce.

In 2-3 short years Obama has increased government spending from an annual rate of $2.9 trillion in 2008 to an expected $3.8 trillion in 2011, increased our budget deficits by over $4 trillion and increased our National Debt by approximately 40% to nearly $14.3 trillion (over $1 trillion owed to China). In addition to this massive increase in the size and scope of government (which Obama now wants to “lock in”, not reverse), he has reduced our individual freedoms in healthcare choices (Obamacare), increased government control over our financial and consumer markets (Financial Regulation Bill including the powerful new Consumer Financial Protection Bureau), taken over private companies, halted domestic oil development, and expanded unsustainable fiscal and monetary policies. Obama is eroding virtually all the policies in which I personally believe and which made our country great, (see “Is Obama Our Worst President or Just the Weakest?”). How did we ever allow ourselves to believe his campaign rhetoric and fail to see through his lack of experience, leadership, and knowledge of the workings of an economy and foreign relations?

What is now quite clear is Obama’s personal commitment to increasing an already bloated and inefficient federal government and expanding bureaucratic control over our lives and our economy. He is attempting to change our entrepreneurial spirit of independence and freedom into a socialist state of citizens dependent on government handouts for our very survival. I would not be totally surprised if Obama adopted Herbert Hoover’s campaign slogan, “A chicken in every pot and a car in every garage”, with this addition: “Paid for by the US Government”.

We cannot continue as a great nation if we base economic policies on the failed socialistic principles of taking from those who work hard and succeed and redistributing their earnings to those who don’t. Even Russia learned that Karl Marx was wrong when he said, “From each, according to his ability; to each, according to his need.” History has shown that socialist policies, if pursued to their ultimate end, result in reduced individual incentive, slower economic growth, lower living standards, and domination by state bureaucrats over the lives of people, (see Nobel Prize Winner in Economics, “The Road to Serfdom”, F. A. Hayek). Obama and the Democrats do not appear to have learned this yet. They appear to have the elitist belief that government bureaucrats can make better decisions for the people than people can make for themselves. Capitalism and democracy aren’t perfect but they are far better than a government-controlled command economy and authoritarianism.

The incentives of capitalism combined with free markets, individual freedoms, and limited government are the best ways to achieve economic growth, prosperity, improved living standards, AND to remain competitive in the global economy. Our US Constitution supposedly protects these fundamental principles but they appear to be increasingly in jeopardy through the actions of our current government. Let’s stop this decay, get back to our traditional foundations, and correct the trend as soon as possible.

The Old Guy PhD

Government Shutdown, Who’s to Blame?

G’Day!

Our federal government is facing the distinct possibility of a shutdown this week. If the government is shut down, President Obama and the Democrats will have no one to blame for the crisis other than themselves.

Last year Obama and the Democrats devoted their time and effort on passing an ill-advised and budget-busting healthcare bill, which added significantly to an already unsustainable debt problem for our country. During this same period, President Obama and the Democrats, with total control of Congress and the Administration did not even pass a budget for our current 2011 Federal Fiscal Year!! This is not leadership and represents a total disregard of their responsibility to our country. If Obama and Democrats had performed their duties to the American people last year, the current budget crisis would have been avoided and there would be no possibility of a government shut down this week. They have NOT performed responsibly and did not fulfill their obligations to the nation.

As bad as last year’s performance was, it is now history and must be corrected by the new Congress with the old President. So, what has happened in 2011 to handle the current Democrat-created budget crisis? The new Republican-led House of Representatives passed a bill over 40 days ago repealing the Obamacare healthcare fiscal disaster, passed a bill calling for only $61 billion in spending reductions this year (approximately 6 days of government spending, see “Is Our Government Broken?”), agreed to Continuing Resolutions to keep our government functioning until April 8, and have just proposed another Continuing Resolution to avoid a government shutdown.

On the Democrat’s side, Obama submitted his 2012 Budget to Congress (an irresponsible fiscal and debt-busting budget disaster), which ADDS an expected $1.6 trillion to the deficit next year and $7.2 trillion over the next 10 years (see “Is Our Government Broken?”). The President’s 2012 Budget Proposal includes NONE of the suggestions from the Bowles-Simpson Debt Reduction Commission Proposal submitted in December, (see “Bowles & Simpson Have it Right!”). Until this week when, at the 12^th hour, he finally called Congressional Leaders together, Obama has been absent from the process of resolving this critical problem. Even the Democrats have complained about his lack of leadership on this issue. In addition, Obama has rejected the current Republican’s proposal for another Continuing Resolution beyond April 8. Obama has, however, found sufficient time during the first 3 months of 2011 to engage in golf, political speeches and fundraisers, and “Presidential Tourism”, while displaying a remarkable lack of leadership in the various Middle East crises, especially Libya. For their part, the Democrats in the Senate have failed to pass ANY bills regarding the budget problem, have stifled any progress on legislation to resolve it, and have engaged in political posturing by persistently blaming Republicans, especially the “Tea Party”, for the stalemate. Specifically, they did initially offer $10 billion in spending reductions this year (1 day’s government spending) and, reportedly are now offering a “non-specific” reduction of $33 billion (3 day’s government spending). It is important to repeat that the Senate, under the direction of Harry Reid (D-NV), has FAILED TO PASS a single piece of legislation on this year’s budget issue except the Continuing Resolutions, which end April 8. The House, under the direction of John Boehner (R-OH), passed legislation over 40 days ago.

It seems absolutely clear that President Obama and the Congressional Democrats are not serious about resolving the issue of this year’s spending and resolving the limit on our National Debt. My suspicions are they want a government shutdown and expect the Republicans will get the blame. I believe the history and facts are clear, if non-essential government services are forced to close, President Obama and Democrats in the Senate are fully responsible for the closure. I also believe that the American people are sufficiently intelligent and informed to recognize this and will properly hold President Obama and the Democratic Party accountable at the next election in 2012.

Frankly, as I have said before, other than national defense and essential services, shutting down the Federal Government might be a good thing. Certainly our government is too big and its growth, especially under Obama and the Democrats, is out of control. If all “non-essential” government workers were furloughed, we should have a clear indication of what size our government should be. By definition, “non-essential” means unnecessary. A case can always be made for “desirable” but “unnecessary” services. The key is the cost to the American taxpayer of the “desirable” service provided. The American people cannot afford to pay for every “desirable” idea and should not be forced to do so through taxation.

“Big Government Is Our Problem” and we MUST stop its growth and reduce its size. We need to return to our nation’s principles of free markets, sound fiscal and monetary policy, and limited government. Let’s elect national and state leaders that support these views.

The Old Guy PhD

Bowles & Simpson Have it Right!

G’Day!

Enact tough discretionary spending caps and provide $200 billion in illustrative domestic and defense savings in 2015.
Pass tax reform that dramatically reduces rates, simplifies the code, broadens the base, and reduces the deficit.
Address the “Doc Fix” not through deficit spending but through savings from payment reforms, cost-sharing, and malpractice reform, and long-term measures to control health care cost growth.
Achieve mandatory savings from farm subsidies, military and civil service retirement.
Ensure Social Security solvency for the next 75 years while reducing poverty among seniors.

Achieves nearly $4 trillion in deficit reduction through 2020: 50+ specific ways to cut outdated programs and strengthen competitiveness by making Washington cut and invest, not borrow and spend.
Reduces the deficit to 2.2% of GDP by 2015, exceeding President’s goal of primary balance (about 3% of GDP).
Reduces tax rates, abolishes the AMT, and cuts backdoor spending in the tax code.
Caps revenue at or below 21% of GDP and gets spending down to 22% and eventually to 21%.
Stabilizes debt by 2014 and reduces debt to 60% of GDP by 2024 and 40% by 2037.
Ensures lasting Social Security solvency, prevents projected 22% cuts in 2037, reduces elderly poverty, and distributes burden fairly.

The Old Guy PhD

Is Our Government Broken?

G’Day!

Yes, our government is currently broken and it needs to GET TO WORK! The events taking place in our national government and some states do not represent the principles of elected representative government upon which America was founded. We elected our officials to serve the needs of the people, not the desires of their political party, big business, or unions.

President Obama, both Democrat and Republican Congressional Representatives and Senators (with minor exceptions) are not currently working for the long-term benefit of America. Nearly all are posturing and working for what they perceive as the good of their political party and personal reelection. Citizens have common sense and know that we have fiscal and debt crises that are too large and unsustainable. We must get our State and Federal Governments in order.

Our overall national debt is currently $14.2 trillion and growing. It is nearly the size of our annual GDP. Disturbingly, over $1 trillion of this debt is held by China, not our most reliable or friendly partner. Our fiscal deficit in 2008 was $0.459 trillion, by 2010 it nearly tripled to $1.3 trillion, and the expected deficit in 2011 is $1.7 trillion. Additionally, we currently have unfunded “entitlement” liabilities for Social Security of $14.8 trillion, Prescription Drugs of $19.6 trillion, & Medicare of $78.1 trillion. This is a total current obligation for future generations of $112.5 trillion, nearly 8 times our total annual output and just over $1.0 MILLION per current taxpayer. This is madness and is crippling our economy and economic growth.

We actually have NO FEDERAL BUDGET for 2011! Obama’s unapproved 2011 “budget” is expected to reach $3.7 trillion this year. This amounts to $10.1 BILLION PER DAY. In the current congressional debate concerning raising the debt ceiling, Democrats have offered “real” cuts for the remainder of the fiscal year of $10 billion (1 day’s spending) and the Republicans are offering approximately $60 billion (only 6 day’s spending). Neither proposal even remotely addresses the magnitude of our problem. If agreement can’t be reached in Congress, the Federal Government may be forced to shut down. Frankly, except for national security and some essential services, this might actually be a good thing. Our government is too big, too irresponsible, and too self-oriented. Can you imagine what the Founding Fathers would think of what is happening in our government today? A temporary shut down might force us to be more responsible and self-reliant, as the founders of our nation and our Constitution intended.

As noted, the magnitude of our nation’s financial problem is enormous, increasing, and untenable! So what is our government doing to correct the crisis? Last year, the Democrats, who controlled the Administration, the Senate, and the House of Representatives, failed to even pass a Federal Budget for fiscal 2011. They were, however, able to compound our future fiscal and debt problems by passing a massive and unpopular healthcare bill and a financial reform bill, both of which further increase the size of government, with more regulations and control over important sectors of our lives. This legislation further erodes our liberties and free-market economy. Do we really want to become a collectivist country with the government dictating our lives?

For his part, President Obama has virtually abdicated all leadership in this crisis by proposing a new budget for next year projecting spending of another $3.7 trillion and an addition to the deficit of $1.6 trillion. Over the next 10 years the new Obama budget proposal is expected to produce a further cumulative deficit of $7.2 trillion, bringing our overall national debt to approximately $22 trillion. President Obama is spending (pun intended) his time travelling, golfing, and giving political speeches; and his proposed budget is an embarrassment given the magnitude of our country’s ongoing financial problems.

In Congress only the Republicans are even attempting to deal with the fiscal and debt problem and so far they are dealing with trivial, not real spending or fiscal reform (although it is promised). The Democrats are essentially ignoring the problem and blocking even the inconsequential cuts proposed by Republicans for the remainder of this year (see above). When real leadership is essential, Obama and Congress have abdicated their responsibility to the nation and chosen posturing and rhetoric over work and accomplishment for the American people.

At the State level a few Governors are trying to deal with similar budget issues, but some Democrats have deserted their State Houses and fled their elected responsibilities (see “State Democrats Shun Democratic Process!”). Unions are sponsoring demonstrations in several states, which are disrupting our democratic processes and interfering with the ability of our democratically elected representatives (when present) to perform their legislative duties. This is a travesty and is not the way our democracy is intended to work.

Yes, our government is currently broken and it’s time to get to work. What should they be doing? First, after quickly resolving the ridiculous political stalemate over the debt limit and budget for the rest of this year, they should NOT make the fiscal situation worse and the government’s out-of-control spending and inefficiencies should be eliminated as soon as possible. The GAO report “Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue” has already identified unnecessary duplication, overlap, or fragmentation existing across our Federal Government totaling BILLIONS of dollars in ANNUAL SAVINGS. This is a good place to start.

Second, they should employ proven strategic management techniques. Any basic management course indicates that solving problems and capturing opportunities requires: setting long-term goals, reviewing historical performance to identify strengths and weaknesses, identifying and prioritizing alternative “comprehensive” solutions, acting on the best “comprehensive” solutions, and measuring and correcting course to improve performance. Our government needs to follow this agenda. The Bowles-Simpson, Co-Chairs Draft Report, “National Commission on Fiscal Responsibility”, is a reasonable draft proposal for identifying and establishing these goals and actions (some painful) to resolve the long-term financial crisis we face as a nation. It addresses all areas of government including its size, spending, and revenues and suggests major reform in income taxation and entitlement programs. This is also a good place to start. To date, neither President Obama nor Congress appears to be seriously considering the information and recommendations in either report.

“Big Government is Our Problem”! Let’s fix it and put our country back on a solid foundation with individual freedom, free markets, sound fiscal and monetary policy, economic growth, and limited government!

The Old Guy PhD