We Can’t Afford the Payroll Tax Cut Extension

December 22, 2011

Americans should be used to the high political drama coming out of Washington.  Oh, there are the stories of marital infidelities, disappearing Congressional aids, toe-tapping senators and the like.  Then there are the great debates where both sides of an issue scrap and claw their way to political pay dirt.  Healthcare reform and the recent battles on raising the debt ceiling come to mind.  Funny how things always come together at the 11th hour?

Currently on the docket is the payroll tax cut extension. Passed in 2011, the payroll tax cut reduced a taxpayer’s contribution toward Social Security from 6.2 percent to 4.2 percent.  The goal of the legislation was to put more money in taxpayers’ hands in order to stimulate the economy.  The measure expires on December 31, 2011.

Now, the drama comes in because the Democratic controlled Senate approved a two month extension to the measure while the Republican controlled House rejected the Senate plan in favor of a one year extension.  Democrats are bent on their bill and Republicans on theirs with time quickly running out.  If an extension is not approved by December 31, 148 million Americans will see their taxes go up – at least that is the story coming out of the White House.

In the first place the name of the measure is a bit of a misnomer intended I am sure to confuse many taxpayers.  The payroll tax cut is not a cut to a worker’s income tax amount.  It is a reduction in the amount that workers pay into the so-called Social Security Trust Fund.  In other words, it is akin to paying less on a retirement annuity each month but still maintain eligibility for full retirement benefits under the original policy.  An annuity holder would never expect this allowance.  For the life of me, I can’t understand how the average taxpayer would – unless they have been confused.

Secondly, the propaganda pundits on the MSM are claiming that if the tax cut is not extended it will potentially push the U.S. economy into a recession.  Of course, that is the knee-jerk reaction of all Keynesians when it comes to government intervention in the economy.  They believe in the more the better with no regard for tomorrow since “in the long run we are all dead”.

And essentially this tax cut extension is a Keynesian spending program because the tax pays for an entitlement that has to be paid to retirees.  With a drop in tax revenues the government will have to print money in order to meet Social Security obligations.  Those obligations simply aren’t going away and have to be met.

The problem with more spending is that it doesn’t work to stimulate the economy out of recession.  Since January 2009 the federal government has spent $4.5 trillion. Unemployment is higher, food stamp rolls are at an all-time high, and many Americans are still losing their homes.  When is enough enough?

Lastly, how smart is it to cut funding for a program that is already bankrupt?  The Social Security Trust Fund already pays out more than it receives in tax revenues.  Future unfunded obligations for both Social Security and Medicare are over $50 trillion.  Given the program is not going to end anytime soon, putting it in even worse fiscal condition borders on the criminal.

The payroll tax cut is nothing more than another something for nothing proposition.  It has not helped the economy so far and an extension would further devastate the fragile balance sheet of Social Security and Medicare.  Once again Washington is offering the world – more free money, Social Security intact, no spending cuts, and a blind eye to trouble down the road.  It is amazing that Congress and the President can’t find a measly $100 billion to cut from the enormously bloated federal budget to pay for the plan.  With leadership like that in Washington it will be a miracle if the economy doesn’t eventually fall over a cliff.  But have no fear, I am sure Congress and the President will get together at the 11th hour to produce the tax cut extension.

Article first published as We Can’t Afford the Payroll Tax Cut Extension on Blogcritics.

Kenn Jacobine teaches internationally and maintains a summer residence in North Carolina


Politicians Just Can’t Admit Failure

January 15, 2011

It’s a funny thing, but politicians more than any other group seem to have an incredibly hard time admitting failure when it comes to programs and policies they support.  Take congressional housing kingpin Representative Barney Frank for example.  A devout proponent of Fannie Mae and Freddie Mac, Frank never saw the collapse of the two Government Sponsored Entities coming.  In fact, he made proclamations on at least one occasion before Congress that, “Fannie and Freddie are not in crisis”.  Of course, both were in a crisis ultimately requiring a huge taxpayer bailout.

Then there were Fed Chief Ben Bernanke’s constant denials that a housing bubble wasn’t forming and the economic joyride produced by his and his predecessor’s easy money policies was going to last forever.  The housing bubble was so bad that almost 3 years after it popped home values are still falling.

Now, add Nevada Senator Harry Reid to the list of failure denying politicians.  His cause – the third rail, the fourth estate, the system bearing the name that makes all statists smile.  Of course, I speak of Social Security.  Last Sunday on Meet the Press, the following exchange took place between host David Gregory and Reid:

SEN. REID:  One of the things that always troubles me is, when we start talking about the debt, the first thing people do is run to Social Security. Social Security is a program that works, and it’s going to be–it’s fully funded for the next 40 years.  Stop picking on Social Security.  There are a lot places we can go to…

MR. GREGORY:  Senator, you’re really saying the arithmetic on Social Security works?

SEN. REID:  I’m saying the arithmetic on Social Security works.  I have no doubt it does.

MR. GREGORY:  It’s not in crisis?

SEN. REID:  No, it’s not in crisis.  This is, this is, this is something that’s perpetuated by people who don’t like government.  Social Security is fine.  Are there things we can do to improve Social Security?  Of course.

Even the lover of state power host David Gregory couldn’t believe the temerity of Reid’s comments about Social Security.

So, why was Reid’s description of Social Security so inaccurate?  Well, according to the Congressional Budget Office (CBO), benefit outlays under current law will begin to exceed tax revenues on a regular basis starting in 2016.  Additionally, the CBO projects that the disability benefits portion of the “trust fund” will run out of funds in fiscal year 2018 and the old age retirement “trust fund” will be exhausted in 2042.  The CBO’s projections take into account baby boomer mass retirement and dispute Reid’s claim that Social Security is “fully funded for the next 40 years”.  And this doesn’t even take into account the fact that the Social Security “Trust Fund” currently has IOUs totally about $2.5 trillion because spendthrift politicians have raided it over the years to fund the rest of the warfare/welfare state.

The truth is Social Security faces insolvency because it is a Ponzi Scheme.  In fact, it’s a larger Ponzi Scheme than Bernie Madoff’s.  His was estimated to be in the hundreds of billions, Social Security’s is in the trillions.  You see Social Security is unlike other have paid retirement programs in that you don’t technically own your contributions to the fund and the fund is not invested in anything tangible.  As a matter of fact, the Supreme Court ruled in Flemming v. Nestor 1960 that the federal government is not even contractually obligated to pay you benefits even though you may paid into the program all your life.  Some deal, uh?  Yet Harry Reid maintains that it is I am sure because he doesn’t pay into it.

We are all aware of the devastation caused by the policies and programs supported by the likes of Barney Frank and Ben Bernanke.  Fannie and Freddie collapsed and the housing market popped in spite of the positive sentiments expressed by the dynamic duo.  Certainly, other examples can be found where politicians refused to admit failure and danger could have been avoided.  Hopefully, some other leader in Washington will have more sense than Harry Reid and work to do something to prevent the coming Social Security crisis.

It is Always Something for Nothing in Washington

December 14, 2010

Our political leaders in Washington are the biggest bunch of cowards.  At every opportunity they weasel out of making any tough decisions.  Now, you might be thinking that everybody knows that running away from hard choices is what politicians are especially good at, but ours have made it an art form.

Take the whole debate over extending the Bush-era tax cuts for instance.  It has turned into a complete joke.  In the first place, renewing current tax rates is not a new reduction in taxes for anybody.  Only in Washington, is extending tax rates at current levels considered a tax cut.

Then we have Larry Summers, Obama’s chief economic advisor, coming out warning that if the tax cuts don’t go through we will have a double-dip recession.  Then why didn’t the Administration extend tax rates a long time ago?  They had the entire federal government under their control and could have done it.

Other Washington economists are making outrageous claims that the compromise package between the President and congressional Republicans will actually produce millions of jobs and add 1 percent onto our yearly GDP.  This could be believed if Washington was actually cutting income tax rates.  But, it’s not.  The bill would actually cut employees’ portion of the Social Security tax from 6.2 percent to 4.2 percent.  But, to finance the rate cut Uncle Scam will borrow over $100 billion.  This borrowing will be inflationary and will limit the supply of capital available for American business to expand and begin hiring workers again.  Thus, any positive effects of the rate cut will be negated by the consequences of government borrowing.

Make no mistake about it, this whole debate on extending the Bush-era tax rates is the epitome of what is wrong with the federal government.  It’s all about making easy choices and stretching the truth about how those choices are great for the country.  In essence, it boils down to another something for nothing failed economic policy.

Look, the Bush-era tax rates should have been renewed a long time ago.  This would have eliminated any uncertainty facing business and allowed them to plan long term and perhaps hire workers.  Instead, Congress and the President have waited due to political expediency until the 11th hour to act.

The vote should also have been a straight up or down vote with no other measures like extending unemployment benefits and cutting Social Security rates attached.  The political games that are played by attaching multiple measures to bills serve no good purpose.  It only increases the budget deficit and provides the allusion that Washington can provide everything to all people without costs.

And that is exactly what this entire package is: something for everyone with no worries about the costs.  Republicans get tax rate retention for all.  They also get a reduction in the Social Security tax rate.  Democrats get an extension of unemployment benefits for another 13 months to folks who have already been collecting for close to two years.  Of course, both sides will also get dozens of earmarks just to sweeten the pot.  How any of this will be paid for has naturally not been discussed.  And don’t look for the mainstream media to bring up that question.  The report of the President’s debt commission is not even dry and Congress is contemplating spending an additional $800 billion.  One commentator had it right when they labeled the compromise package nothing more than a backdoor stimulus package.  Given how unsuccessful the trillions in stimulus money we have already spent has been don’t look for this one to produce new jobs or economic growth either.

In terms of the additional measures attached to the tax rate retention bill, namely the cut in Social Security tax rates and extension of unemployment benefits, one should be done with corresponding cuts in spending while the other shouldn’t be done on the grounds it will do more harm than good to the prospects of the unemployed finding a job.  To cut funding for a program that faces tens of trillions of dollars in future unfunded obligations is incredibly irresponsible.  What’s even more irresponsible is to cut funding and not make any alterations to outlays.  Given that average life expectancy has risen by ten years since the inception of Social Security Congress could reasonably raise the retirement age for recipients to at least 70 from 65.  I mean Americans are going to have to give up some things in order for our financial ruin to be avoided.  If Congress and the President don’t even have that little bit of courage then we are far worse off than can be imagined.

Perhaps the Republicans and Democrats are fearful that any interruption of federal largess to any one group of Americans could produce riots that have been seen in Greece and more recently in Great Britain.  Perhaps they are fearful of doing something to jeopardize their own reelections.  Whatever the reason, it doesn’t matter.  The bipartisan bill to extend the Bush-era tax rates is hardly a compromise.  Neither side had to really give up anything.  It is the epitome of how the federal government works and why our nation is bankrupt – you can always get something for nothing in Washington.

It Should be Easy to Balance the Federal Budget

November 20, 2010

In spite of the recommendations for tackling the federal budget deficit and national debt of Obama’s Debt Commission, which included a combination of tax hikes and spending cuts, a new poll released by  Rasmussen Reports finds that 51 percent of likely voters polled believe it is possible to balance the federal budget without raising taxes.  This is not surprising since approaching where to cut federal spending is like a glutton deciding where to start eating at an all you can eat buffet.  In other words, there are so many things that should be cut from the federal budget the hardest decision is where to begin.

There are so many things the federal government finances that are unconstitutional it would take a treatise to list them all.  So, instead I will just “nibble” at the edges, which in itself will save a bunch of dough.

First of all, how about abolishing a few bastions of corporate welfare?  I speak of the departments of agriculture and commerce.  In 1910, over 30 percent of Americans farmed.  Today, less than 3 percent of us till the soil, yet the Department of Agriculture’s budget has ballooned to be one of the largest in the Executive Branch at $95 billion per annum.  According to the Heritage Foundation, farm subsidies distributed by the department are meant to lessen the poverty of family farmers, but in reality the majority of payments go to big commercial farms with average yearly incomes of $200,000 and net worths of close to $2 million.   Keep in mind that these subsidies not only are a waste because they go to big agribusiness, but they are responsible for high food prices. Clearly, farm policy in America does not promote the general welfare.  Abolish the Department of Agriculture and save almost $100 billion annually.

Another corporate welfare enclave is the Department of Commerce.  At $6.5 billion a year this wouldn’t save that much but should be an easy target to unite the constitutionalist right with the socialist left.  The goal of the department is to essentially promote American business abroad.  Not just those on the right or left but all Americans should know that that is the job of corporate marketing departments.  The department is just another gross example of corporate welfare run amok.

And while we are talking gross examples of corporate welfare, there is no better example than the federal agency known as the Overseas Private Investment Corporation (OPIC).  The agency’s mission is to provide political risk insurance, loans, and loan guarantees for U.S. private capital in less developed countries.  In other words, the agency helps facilitate the transplanting of American jobs to foreign countries by giving financial aid to American business and by insuring those businesses against potential losses due to political upheavals and the like in their country of operation.    Granted the abolition of OPIC would only save tens of millions, but why should American workers pay for the exportation of their jobs overseas?  Doesn’t this also cut into valuable tax revenues? End the injustice, take the risk of doing business in a distant land off the taxpayer and place it back where it belongs on the business, abolish OPIC.

Next on the chopping block should be the boondoggles better known as the Departments of Education and Energy.  Brought into existence under Jimmy Carter in the late 70s, the Department of Education was nothing more than a gift from the president to the teacher’s union for supporting his presidential run in 1976.  Education has not improved in America since its founding, thus at a price tag of $70 billion a year abolition of the department is a no-brainer.

Likewise, the other Carter era department – Energy, should also be axed.  Its goal when it was founded in the late 1970s was to reduce American dependence on foreign oil.  It has failed miserably in that endeavor.  In the early 1970s, America imported
24 percent of Her oil.  Today She imports over 65 percent of Her oil.  By pulling the plug on Energy another $23 billion annually would be saved.

Again, because of my desire to keep this article at a reasonable length, I cannot get into all of the cuts I would propose of the unconstitutional and wasteful things the federal government spends money on.  But, I would be remiss if I didn’t include a discussion of the largest portions of the federal budget – namely Social Security/Medicare and defense.

The U.S. Government Accounting Office (GAO) in 2008 announced that because of the retiring Baby Boomer Generation unfunded future obligations for Medicare and Social Security total almost $41 trillion.  Many experts agree that to fund the programs into the future will require raising FICA tax rates enormously.  More than likely, those rates will bankrupt American companies and force many to relocate overseas.  The resulting unemployment will lower the standard of living for all Americans.  Something radical needs to be done.

In 1935, when Social Security started if you reached age 21 you could expect to live to age 65.  The retirement age for Social Security was initially set at 65.  In the last 75 years life expectancy has risen by 12 years to 77 years of age, yet the retirement age for Social Security remains at 65 years of age!  How insane is that?  In the short term to sustain those currently on the system and to save trillions the retirement age for both Social Security and Medicare should be raised to 75 years of age.  In the meantime, we should work toward transitioning to a time when socialized retirement does not exist.  Social Security has been continuously broken and reformed because it is a flawed concept.  Medicare has probably done more to raise the cost of healthcare for all Americans than any other “entitlement” program.  More than the well-being of seniors is at stake here.  The very financial solvency of the country is at stake and this affects all of us.

Lastly, the defense portion of the budget must undergo huge cuts.  Washington spends over $1 trillion annually on defense related expenditures.  We have our troops in over 150 countries.  Why is it that we have invested so much money and personnel in our security and yet still not feel safe?  It seems like the government’s national threat level is perpetually stuck at Yellow or Elevated.

Besides that, who are we competing against militarily?  We spend about six times more on defense than the next highest spending country – China.  Do we really need to spend a trillion dollars a year to defeat Al Qaeda?

The United States is in a similar position to what faced the Soviet Union in the late 1980s.  With a bankrupt economy, Soviet leaders continued to spend lavishly on its military industrial complex.  The result was the breakup of the empire.  The lesson was and is that bloated defense budgets can break the bank.  We can no longer afford to finance a worldwide empire that doesn’t even make us safe.  It is beyond the time to bring the troops home and cut the war budget by at least half.  To not do so puts our national security in greater risk than if we continue to spend trillions.

There is so much in the federal budget that can be cut that it should be relatively easy to balance the books.  At the end of the day the U.S. government must cut back drastically or face financial insolvency.   A majority of Americans realize that the solution is in cuts and not tax increases.  The problem is Americans have gotten use to feeding at the federal trough.  Big business will oppose abolishing federal departments that give them subsidies and eliminate competition.  The teachers’ unions will fight tooth and nail to preserve a department that perpetuates their failed monopoly over our education system.  The AARP will scream bloody murder about any changes to Social Security and Medicare.  And of course, defense contractors and military brass will mount a campaign of fear and hatred to protect their gravy train.  In the end, what it will come down to is the courage of our elected leaders.  Given their historic track record, it won’t be easy.

As Usual, Campaign Full of Hype, but Short on Details

November 3, 2010

Given all the hype about this year’s midterm elections, you’d think that the results are actually going to make a difference in the lives of Americans.  Oh, we’ve all heard the hyperbole.  Both sides are talking about how this is an election for “the soul of America”.  Democrats are warning Americans that we can’t go back to the failed policies of the Bush Administration by electing Republicans to Congress.  Republicans, bolstered by the Tea Partiers, are screaming bloody murder about the president’s socialist policies and his reckless spending.  It seems like both sides have wasted a huge amount of time and money with these worthless arguments when they should have been talking details about some issues that will really affect Americans.

For starters, let’s talk about the War on Drugs? Since its inception, government at all levels has spent an enormous amount of money on drug eradication, policing, prosecutions, and imprisonment.  Within the last year we passed the milestone of having one in every one-hundred Americans behind bars.  Many are incarcerated for non-violent drug offenses.  But, besides the cost of this failed war it has also caused a huge problem on our southern border – incredible violence.  Actually there is a civil war going on in Mexico that is spilling over into Arizona, New Mexico, and Texas.  It’s all fueled by the enormous profits reaped from illegal drugs.  The “rebels” in Mexico have turned huge profits into murderous rampages of police, judges, and mayors in Mexico and Americans in Arizona and Texas.  With all the carnage caused by the War on Drugs there has been hardly any debate amongst the candidates about what should be done.  I am hard pressed to come up with a candidate who has called for an end to the madness by decriminalizing drugs and treating the situation like the pubic heath problem that it is.  It is a disgrace that an issue so important to the safety of Americans, our border integrity and fiscal sanity has been totally ignored.

As much as Tea Partiers like to denounce federal spending they have not made eliminating wasteful federal departments a part of their platform.  Take the Department of Energy for instance.  Its goal when it was founded in the late 1970s was to reduce American dependence on foreign oil.  It has failed miserably in that endeavor.  In the early 1970s, America imported 24 percent of Her oil.  Today She imports over 65 percent of Her oil.  With a $23 billion annual budget, should we continue to subsidize this failure?  Unfortunately, no candidates addressed this question during the campaign.

Naturally, politicians want to win elections, so any discussion about making hard choices with regard to Social Security and Medicare was off the table during the campaign.  Unfortunately, with millions of baby boomers hitting retirement these two “entitlement” programs more than anything else will break the federal budget. The U.S. Government Accounting Office (GAO) in 2008 announced that unfunded obligations for Medicare and Social Security totaled almost $41 trillion.  Yet, very little discussion was had during the campaign about raising the retirement age or privatizing the system.  How can an issue with such huge implications for the future of the country get so little attention?

Last, but certainly not least, little attention has been given in this campaign to the institution most responsible for the financial crisis, the institution which controls the supply of our currency yet operates in absolute secrecy, and the institution which has and is about to again give billions of dollars in backdoor bailout funds to shyster banks.  I am of course referring to the Federal Reserve Bank.  Ben Bernanke and his Federal Open Market Committee are arguably the most powerful economic policymakers in the world and as recently as a couple of weeks ago Fed policymakers were expressing their belief that inflation was “too low”.  In other words, the prices you pay for goods and services are not high enough to spur economic recovery.  Now, this rhetoric would be tolerable if it was simply professorial theorizing, but these same policymakers actually have the power to print more dollars and make prices go up even further.  What’s so amazing is that Tea Party candidates have made reckless government spending their mantra issue, yet almost none have lambasted the Fed for its role in monetizing the debt.

Chances are good that the midterm elections of 2010 will result in a political shift of power in the Congress.  So, what?  Even in their “Pledge to America” published in September the Republicans committed to cut spending by only $100 billion.  This is loose change compared to the enormous debt we are facing down the road.  Since they love war there is no chance they will end the violence caused by the War on Drugs.  Because they lack courage, Social Security and Medicare will doom us to financial ruin.  And the Federal Reserve will remain safe under Republican rule in Congress since it is the mechanism which makes all the reckless spending possible.  After Republicans screw up the next two years, maybe then Americans will be ready to vote for third parties.  Hopefully, it won’t be too late.

Most Agree, Under Obama the Country is Headed in the Wrong Direction

May 29, 2010

While liberal pundits and media types this week had their hissy fit over Rand Paul’s spot on comments about how a portion of the Civil rights Act of 1964 is unconstitutional and un-American, those of us that really care about the future of the United States took notice of how the current administration is destroying it. 

Now, before you say this is just another rant by a fire breathing libertarian bent on desecrating the good name of the president, read on.  In a recent Rasmussen poll, 67 percent of Americans agree with me that the nation is on the wrong track.  Only 28 percent think things are honky dory.  Of course, the president’s approval rating continues to languish below fifty percent.  Even with his success in passing nationalized health care, he just can’t seem to enjoy the support of a majority of Americans.

So, what specifically is wrong with the direction of the country?  For one thing, the government just reported that it passed the $13 trillion debt mark.  Now, many will say, so what?  “We have had higher debt to GDP ratios in our nation’s history and our economy is big enough to weather the storm.”  That could be the feelings of the president as well since in just 16 months in office he is responsible for nearly $2.4 trillion of that total.  And it is true that just after World War II our debt to GDP ratio was higher (120 percent) than it is now.  But, honestly our national debt is much higher than $13 trillion that Uncle Scam reports.  We have to take into account the future unfunded liabilities of Social Security and Medicare.  When those future commitments are added in the current debt to GDP ratio is off the chart at 435 percent.  Even if we only consider the bogus government debt number of $13 trillion, when Bernanke and his counterfeiters at the Fed eventually raise interest rates significantly to combat the hyper-inflation caused by their fraudulent acts the interest on the debt alone will bust the federal treasury.  Foreign lenders will disappear and the French Revolution will look like a walk in the park compared to what will happen on American streets.

And after President Obama is done making most Americans dependent on Washington the austerity measures that will have to be enacted will cause serious civil unrest from coast to coast.  It was reported by USA Today this week that pay from private business decreased to its smallest share of personal income in U.S. history in the first three months of this year (so much for economic recovery).  Meanwhile, during the same time period government programs like Social Security, unemployment insurance, and food stamps rose to record highs.  I understand that we have just experienced the worst economic downturn since the Great Depression and these numbers should not be unexpected, but according to the administration we have been in a recovery for some time now, thus I would think the number of folks on welfare should be lessening not still increasing. 

The reason they are increasing is because the Obama Administration has a goal to build the welfare state like we have never seen it before.  Remember when Bill Clinton proclaimed, “We’ve ended welfare as we know it”?  That was a lie, but at least his reforms put time limits and other restrictions on receiving welfare.  Since the legislation was passed in 1996 welfare caseloads have decreased by 70 percent, child-poverty rates have dropped, and teen pregnancies are down.  Folks from across the political spectrum agree that Clinton’s reforms have helped the poor get on their feet in a humane manner. 

While the restrictions are still in place, starting with his so-called $862 billion stimulus package last year Obama has changed the way states receive welfare subsidies from Washington.  The Feds now pay states 80 percent of the cost for each new family added to the welfare rolls.  No longer do states have an incentive to drive welfare recipients into the job market.  To prove further that Obama wants a permanent underclass in America his budget projections show that he intends to spend $10.3 trillion on welfare for the 10 year period FY 2009 to FY 2018.  The question that has to be asked is: why is Obama so bent on destroying successful welfare reform and putting so many more folks on the public dole at a time when our treasury is so busted?  Perhaps this question and why it is that he wants to grant citizenship to illegal aliens have the same answer – to make the Democratic party the dominant party in American politics for a long time to come.  In any event, when the collapse comes all those on government benefits will have to find sustenance elsewhere.  Recent events in Greece are a preview of what could be coming to America.

Gargantuan debt and an expanding welfare state are just two reasons a large majority of Americans believe the country under Obama is on the wrong track.  Then, there are also the matters of illegal immigrants and expanded wars in the Middle East.  If only the liberal pundits and media would focus on the events that are destroying America instead of a gotcha interview with a Republican nominee for the Senate.  Then again, maybe that was the liberal establishment’s ploy all along – to distract the rest of us from reality?    

Article first published as Most Agree, Obama is Heading the Country the Wrong Direction on Blogcritics.

Government’s Benevolence Equals Higher Costs

July 31, 2009

Have you ever noticed that our federal government is always venturing out of its jurisdiction in trying to make things more affordable for all of us?  Our paternal/maternal leaders in D.C. never pass up a chance to try to do something to make our lives easier.  Their examples of benevolence are many and always end up in disaster.

Take education for instance.  Uncle Sam has lavished grants and loans on us in an effort to make a college education affordable for most Americans.  However, has the price of college decreased? Ever?  The answer is no and in fact it can be argued that government grants and loans have actually contributed to the perennial increase in college tuitions.  When students qualify for federal largess it makes them less likely to comparison shop based on cost.  By eliminating cost competition in the college market institutions of higher learning have less incentive to lower costs.  Perhaps this is why the rate of defaults on student loans is so high.  Like subprime mortgages, instead of shopping around for economy, people commit to loans that they ultimately can’t afford to pay. 

Then, there is Washington’s attempt to make retirement years more affordable.  Social Security checks are mailed to millions of Americans every month to provide supplemental income to seniors.  Because the program has been played up as the greatest thing since sliced bread by the Establishment many Americans have been deluded into believing that they can retire on Social Security alone.  They forego saving for retirement and find when they retire that the monthly payment hardly makes ends meet.  Perhaps this is the reason why many elderly folks sell their homes because they just don’t have the funds to pay the ever increasing costs of property taxes.  Taking into account that the Social Security Trust Fund is empty and estimates for future obligations are about $45 trillion imagine the inflation that will eat further into Social Security income when the Federal Reserve must print dollars to monetize government checks.

By now, we should all be familiar with Uncle Sam’s attempt to make home ownership more affordable for all of us.  This has been primarily attempted through cheap money from the Federal Reserve and loan guarantees from Fannie Mae and Freddie Mac.  But, believe it or not, low rates and easy guarantees increased the demand for housing thereby raising prices and shutting out millions of home seekers.  Of course, in the end, artificially low interest rates and the benevolence of government caused the bubble which popped and placed millions more Americans into foreclosure.

Lastly, and more germane to the topic of this article, is the attempt of Washington to make medical care more affordable for many Americans.  The two major programs to deliver this service since 1966 have been Medicare and Medicaid.  Coincidently, since 1966, healthcare costs have skyrocketed by an incredible 1800 percent!  Naturally, all the costs cannot be blamed on these government programs – our population has aged and new technologies are expensive. But, certainly, since healthcare is the biggest expenditure as a percentage of GDP of the federal government, Washington’s payments through Medicare and Medicaid have required the printing of new dollars which in turn have bid up the price of medicines and medical care.

Now Obama and his fellow statists in Congress want to implement a total takeover by Uncle Sam of our healthcare system in order to make healthcare affordable for every person in the U.S.  The plan would cover everyone including the slothful and those in the country illegally.  It would cost at least $2 trillion over the next decade and probably more given demographics and the inefficiencies inherent in all government programs. As usual, the politicians are talking compassionately while totally ignoring the real causes of the problem.

The fact is that there are tens of thousands of regulations and mandates that health providers and insurance companies must follow.  The costs of adhering to these regulations are staggering.  For instance, all states mandate coverage of certain diseases and disabilities in insurance plans.  This raises the costs of coverage and limits choice for consumers.  Regulations should be reduced and coverage mandates repealed to help contain healthcare costs.

The Food and Drug Administration (FDA) is a major culprit contributing to the healthcare crisis.  To get a drug approved for consumption takes on average twelve years and over $350 million.  This cost and time commitment squelches competition because many small drug firms do not have the long term funding to survive the process.  The FDA should be abolished and replaced with a private Underwriters Laboratories type rating organization.  A private system would encourage efficiency, increase competition, and lower costs.

The third party payer system has not served us well.  Because either the government or insurance companies pay most of the costs of our healthcare there is no incentive for us to shop around for the most efficient health services.  Medical savings accounts (MSA) would allow taxpayers to save money tax free and be able to withdraw it to pay for medical bills.  These plans could allow individuals to save up to $7500 (the per capita amount government spends on healthcare) a year tax free.  Individuals would be responsible for their own medical expenses up to that amount and could opt for a catastrophic plan beyond that.  This would ensure comparison shopping, thereby lowing costs.  Additionally, consumers could save premium dollars by only needing to purchase insurance that covers hospitalization and long-term care.

Lastly, it is no surprise that an article by this writer would not be complete without a call for sound money.  A commodity backed currency would restrain costs in healthcare because the government would be forced to live within its means.  The Federal Reserve would not be able to monetize infinite amounts of debt and this would contain price inflation especially in high demand sectors like healthcare.

Yes, Washington has failed miserably at making anything affordable for Americans.  From education to retirement to housing, everything the politicians touch increases in cost.  You would think Obama, Conrad, Reid, and Pelosi would realize this and scrape their grandiose plan to make healthcare more affordable.