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April 30, 2010

BUDGET BS: THE COST OF UNEMPLOYMENT AND THE $180 BILLION IN OTHER EXPENSES





Unemployment, or as the Obama Administration calls it “income security,” saw a huge jump in 2009 as the recession forced states to tap into the federal government to fund their unemployment programs.  Despite this huge jump in 2009, “income security” expenses will not decrease by more than 10% over the next five years.



While unemployment costs are expected to decrease over the next five years, most of these decreases are offset by government retirement plans and “other” expenses.  First, why aren’t government employees on Social Security?  With the massive number of jobs the federal government is creating, how are the taxpayers going to pay for their retirements twenty or thirty years down the road?  If Social Security is the solution, I propose all federal employees be solely on that program.
Next, what in the world is going on with $180 billion in “other expenses?”  I did a little research on the matter and saw a jump in the “other” section of expenses in 1975.  Could this be related to the Employee Retirement Income Security Act of 1974? It could be, however, in researching the topic I could not find what in the bill caused this explosion of costs, with the exception of one possibility.
THE INTERNAL REVENUE SERVICE?
Could the $180 billion refer to the operating expenses of the IRS?  A check of the IRS website found that IRS expenses for 2009 were about $15 billion.  The only thing I can imagine is that these $180 billion are various pension requirements and tax breaks for organizations that have certain types of pensions set up.  If anyone in the readership can find a reference to the “other” segment of income security, please pass this along to me.
THE FUTURE OF “INCOME SECURITY”
The income security expense line has increased from $431 billion in 2008 to $547 billion in 2010 and it is expected to drop to a low in 2012 and continue flat through 2014 at just under $520 billion per year.  While the left may argue that we “need” these levels of spending, I believe that the increase is due to the failures of the state unemployment funding models.  While this may seem necessary, what isn’t necessary is the government spending $30 per month to give a family $16 per month in food stamp aid.  This example is prevalent in this section of the federal budget and will be featured further this May when Common Sense Capitalism debuts its “Welfare in America” series.
Like Medicare, Medicaid, and Social Security, income security is another entitlement wrought with wasteful spending on the dime of the taxpayer.
Income Security as a whole accounts for a $1,484 in liabilities for the average taxpayer in 2010.
From the Obama spending increases, the average taxpayer’s liability has increased by $300 this year and $1,105 through 2014.  To date, the Budget BS series has exposed $828 in increased liabilities to the average taxpayer in 2010 and $4,663 through the 2014 budget as a direct result of President Obama’s increased spending.

April 28, 2010

BUDGET BS: THE COST OF HEALTHCARE



The discussion on health care has been extremely popular over the last year as the Obama administration has made health care reform top priority.  However, little has been discussed about the true costs of these entitlements.  Let’s examine what the costs will be for Medicare and Medicaid over the next five years.




The government paid out $671 billion in health care costs in 2008.  From 2009 to 2014, the projected costs are as follows (in Billions).
Type
2009
2010
2011
2012
2013
2014
Medicare
$353.4
$389.0
$372.4
$382.5
$406.2
$426.9
Medicaid
$430.8
$457.8
$502.0
$512.0
$570.2
$635.9
Total
$784.2
$846.8
$874.4
$894.5
$976.3
$1,062.8

I want to note that these numbers are from the budget that the Obama Administration put together before the health care bill passed.  Since the bill has passed, the administration has put out a new budget that looks forward to 2015 and gives new estimates on health care costs.  These projected figures reflect the passage of the health care bill.  Does the new bill control costs?
Let’s compare Medicaid and Medicare added together in the new budget and calculate the savings.
Budget
2010
2011
2012
2013
2014
2015
Old
$846.8
$874.4
$894.5
$976.3
$1,062.8
N/A
New
$829.5
$898.0
$878.5
$950.8
$1,037.1
$1,088.3
Savings
$17.3
-$23.6
$16.0
$25.5
$25.7
N/A

From 2010 to 2014, the health care bill estimates a cost decrease of a little more than $60 billion.  It appears that the costs have been decreased by 2%.  While this is something, I have been unable to find the true cause of this cost decrease or how the administration is calculating this.  What I do know is that any increases in costs or cost pressures will be financed with higher taxes.
I believe that we can improve the burden of healthcare on our economy by addressing the cost side.  The administration recognizes the cost issues surrounding these programs, however, I believe that by creating a new entitlement program for 32 million people, we are creating a risk that these costs could balloon much higher than their projections over the next decade.   In addition to this, the administration is looking into bringing millions of illegal immigrants onto the citizen scrolls, effectively making them eligible for government health care.
The average taxpayer is paying $2,295 in taxes for health care this year which is a $166 increase from 2008.
Over the next five years, the average Americans increased taxpayer liability is $2,000.  This means that if the Obama administration cannot freeze or reduce health care costs over the next five years, it costs the average taxpayer $2,000.
Since the 'Budget BS' series has started, we have discovered the average taxpayer’s liability for 2010 has increased by $528 and by $3,558 through 2014thanks to the Obama Administration. 




April 26, 2010

BUDGET BS: COULD EDUCATION BE THE NEXT ENTITLEMENT?




I believe there are few sectors in this country more important than education.  The quality of our children’s education determines their academic performance, their collegiate opportunities, their career opportunities, and ultimately their income.  A child’s life can easily be defined by the exposure they have to the education system.
Is it the federal government’s responsibility to educate our children?
How much federal money should be spent on public education?
We could defer to the constitutional argument as to why the federal government should not be involved in education, but we would get the Rep. Hare response from the left (for those who don’t know Rep. Phil Hare recently said he did not care about the constitution).  So, let's argue about the spending side of education.
BACKGROUND OF EDUCATION SPENDING



Education spending first exploded with Bush Administration and its failed policy of No Child Left Behind.  This initiative has been criticized by both sides of the aisle since the law was enacted.  I believe everyone can agree that the No Child Left Behind Act is a prime example of how massive amounts of government spending cannot achieve improvement.
Or can it?
GRADES AND DOLLARS



I believe that while test scores have somewhat improved over the past several years, they are not a direct (or maybe indirect) result of increased funding.  The ACT chart seems more mirrored to the condition of the economy than anything else.  This would make sense considering a 17 year old is under more pressure and stress to work when the economy is bad than they are in a good economy.
So does President Obama agree with our analysis?



Apparently, he does not.  Most of the increase in education spending over the next five years involves public schools.  Ironically, it just so happens that the funding is going towards the pro-labor portion of the budget.  Not only do I believe that dollars and performance are not linked, the chart above appears to make that argument for me.
It appears as if in 2009, higher education expenses were virtually nothing.  How can that be?  How can higher education survive without federal government funding?  What’s happening?  I’m not sure, but because the music did not stop on our country’s colleges and universities without federal funding last year, one could conclude that our public schools could operate with less. 
A NOTE AGAINST NATIONALIZATION
There are 77 million secondary children in the United States.  That means that the 2010 budget covers $1,000 per child.  Since it costs about $10,000 per child per year, we can reasonably deduce that federal spending in 2010 will cover 10% of the costs.  This means that in order to nationalize the education system, we would need to spend an additional $700 billion per year.  And taxpayers should not expect their local property taxes to go down as state and local governments would find alternative sources for that revenue (infrastructure, perhaps?)
In addition to this, if you (as a parent) have a problem with the way your child is educated, you may no longer be able to go to a School Board.  Under nationalized education, concerned parents would have to take these issues up with their Congressman or go all the way to DC to voice their concerns directly with the executive branch.
The bottom line is that while the dollar increase is large, the effect is little.  Going from 5% to 10% cost coverage per child does little to influence a child’s education.  The only true effect this has is increasing the likelihood the child will have to pay more taxes for these expenses in the future.
Education spending costs the average taxpayer $365 this year and $1,450 over the next five years with the Obama increase being about $170 this year and $840 over the next five years.  To date, the budget BS series has shown the average taxpayer has $362 more in tax liabilities this year and $1,558 over the next five years as a direct result of President Obama’s budgetary plans.

April 24, 2010

SPECIAL REPORT: XXX at the SEC


While watching today's shocking video about porn at the SEC, there should be several questions.

1) Will the people directly involved be fired?

2) Will the head of the SEC be held accountable?

3) Will this agency be able to stop the next bubble?

4) Will the agency and the President blame Bush as a policy response?

April 23, 2010

BUDGET BS: FEDERAL TRANSPORTATION BUDGET IS ROAD KILL



“Why can we add tens of billions to the federal transportation program, but we cannot put a dent in the U.S. infrastructure problem?”
As a part of the stimulus package, the Obama Administration threw tens of billions of dollars into a variety of road and transportation infrastructure projects.  Besides the fact that unemployment in the construction industry remained at all-time highs, it is becoming increasingly apparent that the increase in transportation spending is a giant waste, whether past, present, or future.
In 2008, the federal government spent $77 billion on transportation.  In 2010, the federal government is projected to increase spending to about $107 billion.  Interestingly enough, the Obama administration believes it can exercise the discretionary budget freeze in transportation. 



If the massive stimulus spending spree created construction jobs, a decrease in federal spending would reduce those jobs, would it not?  Do you believe that the construction unions will allow this to happen?  The only reason the President and the construction union would allow this decrease to occur is if they acknowledge the fact that employment is not dependent on funding.
If the administration seriously believes this economic voodoo it has been spewing, look for the government to maintain the transportation budget over $100 billion over the next several years, using jobs as the primary excuse.  I’m not sure how many jobs can be added with this increased funding between this year and 2014, but the increases will add $58 billion to the federal debt over the next 4 years.
Finally, before the recession, there were several studies conducted that revealed that the United States had a multi-trillion dollar infrastructure.  This “infrastructure deficit” includes poor bridges, water/sewer, electrical, etc.  A mayoral study on this massively growing problem can be found here.  A second, more in-depth study can be found on BNet.
With the infrastructure problems we are having, that leaves one final question, why did we spend all that money to pave roadways?
The average taxpayer is spending $290 on transportation this year, which is up $72 annually from 2008.  Taking in all the transportation increases over the next five years and the average taxpayer is looking a $144 increase.  To date, the Budget BS series has exposed $192 in 2010 liability increases for the average taxpayer and $718 over the next five years as a result of the Obama Administration’s out of control spending.





April 21, 2010

More Government Waste on Energy and Climate Spending


Since the Obama Administration has come into being, there has been discussion of some sort of Energy Policy.  While the goal of many Americans is to have energy independence, the Obama Administration believes that this cannot be achieved without their direct involvement.  While I applaud the President’s decision to increase drilling offshore, I believe this needs to be increased nationwide.
The government historically has spent less than $1 billion per year on energy.  Most of the government actions in the past have involved subsidized loans to various energy providers.  When the government lends money, it does not record the loan as an expense in the federal government budget, instead it records the interest payments as a surplus.  However, if a company defaults on the loan and files for bankruptcy, the government does recognize those losses as a budget expense.
Subsidizing Energy
While the President is on the right track by allowing more nuclear power plants in the United States, the methodology of subsidized government loans to build them is not responsible.  While I do not have information on the company that is building these nuclear plants, I have learned that green energy companies that get flushed with government subsidies have had severe leadership deficiencies that have led to bankruptcies and economic disruptions in the localities they operate in.
For example, in Woodford County, Illinois, there are multiple wind turbine projects underway.  The company that started these projects was Navitas Energy.  Navitas was heavily dependent on government subsidies and had a reckless management structure.  The government did not have any accountability structure set up on these funds.  The result was Chapter 11 bankruptcy.  While that may not seem like a big deal, the taxpayer had to take losses on their subsidized loans.
In addition to the losses, the local economy is Woodford County was affected.  Farmers who had set aside hundreds of acres of land to lease for wind farms were left with useless land.  In some cases, construction had started, but was stalled because of the bankruptcy procedures.  If you go to the Navitas Wind Projects site, you can see all of the projects that had been handed over as a result of the bankruptcy.
There are stories like these across the country.  Do we really want billions to be lent to the same types of companies for nuclear power?
The Energy Budget
Now that we’ve dealt with the truth behind energy subsidies, let’s focus on the Obama Energy budget.



Energy conservation is the largest increasing component in the budget for the short term.  This is likely money the government is paying out for appliance and window energy efficiency credits.  Energy supply is clean energy grants (different from subsidies as these are handouts not loans) and the proposed climate bill.  The cost of the supply section of the energy budget is the fastest growing component from 2011-2014.
What I don’t understand is why we should support a climate bill that clearly increases in cost over the next five years?  Do we really need this bill while there is a $1.5 trillion budget or can we wait for our fiscal situation is stable?  Should we continue to provide subsidies to newly formed energy companies without accountability?
Cost to the Average Taxpayer
For the $23 billion in energy spending in 2010, the cost to the average taxpayer is a $60 increase annually and $238 over the next five years.  To date, the Budget BS series has exposed a $120 increase in the average taxpayer’s cost for 2010 and $578 over the next five years.  This is only the second in 12 parts to this series.  How much will it cost in the end?  Stay tuned.

April 19, 2010

Government Waste Gone Global: International Aid Spending Doubles in Two Years


As we kickoff our series on spending excesses in the federal government, we should be reminded about what President Obama is saying about our federal budget woes.
"Just as a family has to make hard choices about where to spend and where to save, so do we, as a government.  You know, there are times where you can afford to redecorate your house and there are times where you need to focus on rebuilding its  foundation. Today, we have to focus on foundations."
-President Obama, February 2009 (source)



The international segment of the federal budget consists of humanitarian, security, conduct, information, and financing programs.  The financing programs usually reduced the spending as it represented interest collected on foreign loans.  In 2011, the financing segment will run a deficit for the first time in at least a decade, thus increasing the international affairs budget by about $500 million, but that does not explain the near-doubling of the budget from $29 billion in 2008 to $50 billion in 2010.  International spending is expected to continue to increase steadily to $65 billion by 2014.
Humanitarian aid is the biggest component to increase in this budget.  It represented $14 billion in 2008, $24 billion this year, and will run a $33 billion tab in 2014.  Was the United States really doing poorly in the area of international aid before President Obama took office?  Even if it had, does it justify being on the positive end of tough decisions.  Finally, what sacrifices were made in the budget to account for this $30 billion annual increase, or $175 billion over the next five years?
It’s difficult to determine where this money is going to be spent.  Therefore, I believe it is safe to assume that this money will be used to “beef up” existing initiatives.  It is also important to note that any direct aid given by the U.S. likely has to go through the governments of these existing nations.  As you will see from today’s video, this hurts the countries we are trying to help.  All the money in the world cannot help many of these developing nations if they do not have a democratic government and an open economy.
As for your expense share of the international affairs section of the President’s budget, I took the average number of hours worked (34) and multiplied that by average hourly earnings ($22.47) to get average weekly earnings.  Annualized, this equals $39,727 in income before any income taxes.  This “average American” pays 25% of their income in federal income taxes, according to Moneychimp.com’s tax bracket.  This will be used to calculate the average taxpayers share of government expenses.
For international aid, the average American’s share is $136 per year.  Take the 2014 figure into account and the average citizen will be paying $176 per year by then.  Under this President, the average American’s share has increased by about $60 per year (so far).  While this may not seem excessive, as we move across the spectrum of spending throughout this series, we will all see that each of these initiatives adds up.
Total Increase in Spending: $21 billion per year, $ 168 billion over 5 years
Total Exposed in Budget BS series: Same
Average American share increase: $60 per year, $340 over the next 5 years
Avg American Increase Exposed So Far: Same

April 17, 2010

Introducing our Budget BS Series with a Music Video!

I hope you enjoy the new site design! I am currently working on the forum and tweeking the site. Any suggestions are welcome.




Make sure you come back every Monday, Wednesday, and Friday over the next four weeks while we break-down the wasteful government spending and create our own Common Sense budget to propose to the American people.

April 16, 2010

TAX TIME: WHAT THE BUSH TAX CUT EXPIRATION MEANS FOR YOU



During the last recession, President Bush passed two rounds of tax cuts designed to create more disposable income for working Americans and stimulate the economy.  The left, since the laws were passed, argued that the tax cuts were only for the rich.  While the rich may have benefited greater from the tax cuts (because they make more income), the expiration of the Bush tax cuts looks to hurt all working Americans.
President Obama’s latest budget openly calls for the expiration of the Bush tax cuts, but then states, “we extend middle-class tax cuts in this budget.”  This coming from the very person who stated Bush left the middle class out of his tax cuts.  The reason I am presenting this point is because it goes straight to the heart of our current President’s taxation credibility.
So what really happens when the Bush tax cuts expire?
1)      Oil companies would lose $39 billion in tax breaks.
Many in the middle class may laud this tax increase, however, an important law of microeconomics emerges from this.  When taxes are increased for a business, they always adjust their internal management accounting to increased prices.  If the entire industry gets taxed, these price increases are easier to make.
So, by increasing the cost for oil companies to operate are we increasing or decreasing our fuel prices? 
Not only this, but less oil company profit means less investment in critical infrastructure such as more drilling, pipeline maintenance, and better logistics.  All this translates to less oil supply and higher prices.  Additionally, does anyone know if this will increase or decrease oil’s desire to hire? 
2)       Investment managers would see a $24 billion increase in their taxes.
Investment managers make their money in fees paid by their investors.  When you buy a mutual fund, a certain percentage of your investment is given to the person who manages the fund each year.  I have a personal policy of buying mutual funds whose management fees are under 1% per year.  Do you think there will be more or less of these funds after this tax increase is enacted?  Again, if you apply simple microeconomics, you should know the answer to that.  According to icifactbook.org, 92 million Americans own mutual funds, so only 92 million people’s costs are going to rise.
3)      Capital gains taxes will increase from 15% to 20% (although some reference 27%).
As the Springfield News Sun put it, If you make $75,000 a year and sell a stock for a profit, next year you’ll pay a higher capital gains tax.”  Does anyone here consider $75,000 to be rich?  That’s greater than most government employment pensions!  What about people living in urban areas like Chicago and New York City?  Could this have an effect on the stock market if investors know a large tax increase is in the pipeline? Maybe.
4)     Other Tax Increases
If you make $75K or more (which apparently is down from $200K in 2008 as the definition of “rich”), your child tax credit will decrease from $1,000 to $500. 
The death tax will return with the expiration of the Bush tax cuts.  This will tax income from inheritance that essentially was already taxed when the original holder acquired that wealth.
Not All Democrats Agree
Henry Paulson (Democrat-Goldman Sachs) on Meet the Press regarding the Bush tax cuts expiring:
“Well, I've got to say, anything right now that is going to, that is going to, in effect, be a, a, a tax increase has got to be--has got to be questioned. And an expiring tax cut is a tax increase. But I'm going beyond that, because I really do believe that we are going to need a--to take a different approach to a number of things--taxes being one of them, housing policies being another.”
Rep. Gerry Connolly (D-VA) from the Nasdaq website:
"I think there is a certain logic to leaving well-enough alone for now, given the fragility of the economic recovery.  It's a question of prudent judgment and timing."
Additionally, according to McClatchy, “income taxes will increase for all taxpayers.” 
One thing we can all agree on, it looks like the start of 2011 will not mean fewer taxes for anyone.

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