Infrastructure!

Yet again, President Obama is calling for more spending on infrastructure.  The $800 billion stimulus was such a glowing success (it projected an unemployment rate under 5% by now) despite the president eventually admitted, somewhat sheepishly, that shovel ready wasn't as shovel ready as he thought.  Better still, he says that additional spending won't add a dime to the deficit.  Sigh.  Really?  Is he going to sell this same snake oil again?  The only good thing about this new stimulus plan is that it is a tiny fraction ($21 billion) of the original.

 

As I have mentioned before, the government has no money.  Every dime that the government spends, it must first extract from taxpayers.  Now, if that money was left with those taxpayers, what would they do with it?  Presumably they would spend it, save it, or invest it.  And since it is the taxpayer's money, he will probably use it wisely to get value for his money (i.e. he probably won't fund a Star Trek parody like the IRS did, or fund a lavish Las Vegas conference like the GAO, etc.).

 

Imagine a man with two wallets: one in his right pocket (we'll call that his private wallet) and one in his left pocket (we'll call that his government wallet).  If he transfers half the money from his private wallet to his government wallet, then stimulates his private wallet by transferring money from his government wallet, is he richer?  Obviously not, but politicians will argue otherwise, because they control the government wallet.  The government cannot create wealth, only transfer it.  All wealth creation must come from the private sector.

 

How does this added spending not add to the deficit?  If you spend more, the deficit must rise.  It is like saying we will add 5 to 100 but the result will be 100, not 105.  Huh?  Are we subtracting 5 somewhere along the line?  No.  Is there a tax increase of 5 to make up for the added spending? No.  Then the deficit MUST go up.  As the president has said on other subjects, it's simple math.

Much Ado About Nothing

The president is painting a picture of apocalypse if the sequestration is allowed to happen.  This is a strange change from November of 2011 when he announced that he would veto any bill that sought to prevent the automatic cuts.  Of course, these aren't even cuts.  The sequestration is actually $15 billion more spending than last year.  Preventing the sequestration would be $100 billion in more spending.  Strange, no?

This gets to the trick of Washington accounting.  All budgets are scheduled to grow year after year.  So, let us suppose that all budgets are automatically set to rise by 10% each year.  Thus, if the Pentagon is getting $600 billion this year, it will get $660 billion next year and $726 billion the year after that.  Instead, sequestration 'slashes' the budget 'to the bone' by only spending $630 billion next year and $693 billion the following year.  Oh, the humanity!  There are no cuts, only reductions in the rate of growth.

Here is an interesting note.  What if we didn't cut or increase but just spent the same as last year's budget.  Oh, there was no budget last year.  Or the year before that.  Or the year before that.  Okay, let's skip back to the 2008 budget.  Suppose we just spent that same budget for the last 5 years.  What would the deficit be today?  $279 billion, far below the trillon dollar deficit we have.  We are spending $800 billion more a year today than we were in 2008 and yet can't afford to 'cut' a mere $85 billion?  Really?

Government is greedy.  It wants all of your money.  It will continue to take your money and spend your money.  It will tell you that the world will be thrown into a Great Depression and the sky will fall if you force the government to cut back the way most people have been forced to cut back.  A reduction of 2.4% in its spending is unacceptable.  Even after Obama got his $600 billion tax hike in the Fiscal Cliff, he can't give up $85 billion in spending.  It's because he wants a 'balanced approach' that 'asks millionaires and billionaires' to pay more while government doesn't give up one thin dime.  Balance!

Debt Crisis Ignored by Democrats

I check the US Debt Clock (link in the left column) about once a week.  I first learned of it in November of 2009, when US debt broke $12 trillion, per citizen debt was $39,000, and per taxpayer debt was $111,000.  Things are much worse now:

• US National Debt: $15.7 trillion (source: US Treasury)
• Gross Debt to GDP Ratio: 104% (US Treasury)
• Debt per citizen: $50,827 (US Treasury)
• Debt per Taxpayer: $139,890 (US Treasury; Federal Reserve)
• Budget Deficit: $1.27 trillion (Congressional Budget Office)
• Net Interest on the Debt: $225 billion a year (US Treasury)
• Social Security Liability: $15.8 trillion (Federal Reserve)
• Prescription Drug Liability: $21 trillion (Federal Reserve)
• Medicare Liability: $83 trillion (Federal Reserve)
• US Unfunded Liabilities: $120 trillion (Federal Reserve)
• Liability per Taxpayer: $1,052,598 (Federal Reserve)

These are dire numbers that don't include a fully implemented Obamacare.  The anemic economy, high unemployment, and expanded use of social services make the situation that much worse.  VP nominee Paul Ryan proposed a plan to bring this under control, making spending sustainable.  He has been savaged as a radical and extremist by President Obama and the Democrats.  The President has proposed raising taxes on those making $250K or more a year, which might sate the class warriors but will do nothing for the debt crisis.

According to the numbers, my 6 week-old sons are each $51K in hock and it will get vastly worse when they become taxpayers: $1.2 million.  None of these social programs will survive long enough for them to benefit; in fact, on the current trajectory, they won't survive for me to benefit.  They will pay for them though, through high taxes or a crippled economy.

The Buffet Rule

The president has become a broken record about the Buffet Rule. Used to be that he claimed Warren Buffet wanted to pay more taxes than his secretary. Now Obama tells us that Ronald Reagan would be on his side in this. I rather doubt that. There was talk of this as a deficit-reduction measure but then someone ran the numbers. The rule would - provided the targets didn't modify their behavior once the tax was passed - raise $47 billion over the next ten years.

Quick math: $47 billion divide by 10 years = $4.7 billion a year. The deficit is somewhere north of $1 trillion dollars, making this less than 0.5% of the deficit. $1.3 trillion becomes $1.295 trillion. Yeah, that's much better. The government is currently spending $3.5 trillion a year. A 0.5% cut (1 penny out of every $2) across the board would reduce the deficit by $17 billion a year, more than triple the impact of the Buffet Rule. Sounds like the Buffet Rule is an election year gimmick that will have no real impact but certainly fuels a class war.

Gimmicky tax increases will not resolve our fiscal problems. However, they might help Obama get re-elected. It serves as yet another distraction from the sputtering economy. There will be no end to the distractions because Obama cannot run on the state of the economy.