James Pethokoukis

Politics and policy from inside Washington

That $250 check for seniors is a bad idea

Oct 15, 2009 17:56 UTC

The liberal Center on Budget and Policy Priorities comes out against that $250 payment to seniors:

Under current law, there will be no cost-of-living adjustment (COLA) in Social Security in 2010 — the first time that has happened since automatic cost-of-living adjustments began in 1975. Several bills before Congress would grant a special increase in Social Security payments for 2010.

The inflation data, however, do not support an increase: overall consumer prices have fallen significantly in the past year and are not expected to return to their earlier peak until mid-2011. In addition, when no Social Security COLA is provided, Medicare Part B premiums — which are deducted from Social Security checks — are frozen for most beneficiaries so that the Social Security checks do not drop (see the box on page 5).

If policymakers nevertheless choose to act, they should grant a flat, one-time payment as an economic stimulus measure rather than an across-the-board percentage increase that undermines the mechanics and purpose of Social Security’s indexing provisions.

Me: I think that $250 actually depresses me more than the $1.5 trillion spent over the past year to deal with the downturn.  A total lack of willingness to be straight with America about its fiscal situation.

Stan Collender has some thoughts on this:

My recollection is that the automatic cost-of-living adjustment for Social Security was put in place so that members of Congress would not be tempted to adopt legislation that provided a larger-than-inflation increase every year.  That temptation proved to too much for most members so the “look ma no hands” approach was adopted.

Does anyone think that this won’t be the most bipartisan vote of the year in the House and Senate?

I’m guessing 430 to 5 in the House and 96 to 3 in the Senate.

COMMENT

Something is better than nothing right. As pointed out here, http://www.savingtoinvest.com/2009/10/ex tra-250-for-social-security.html , the new benefit would be $250 – or equivalent to a 2 percent increase in benefits for the average Social Security retiree beneficiary

Actually, you don’t have to raise taxes to pay for healthcare

Oct 15, 2009 17:37 UTC

Great piece of analysis from the Tax Foundation:

A new analysis by us finds that over a 20-year period, the health care bill written by Sen. Baucus and passed Tuesday by the Senate Finance Committee includes enough spending cuts in Medicare and other current government health programs to reduce the budget deficit over the long term, even without a proposed excise tax on “Cadillac” health plans.

CBO projects that cuts in Medicare and other health programs would save $404 billion between fiscal year 2010 and 2019. Assuming the savings from Medicare cuts continue growing at the same rate beyond 2019, savings could reach a total of $1.8 trillion over the next 10-year period, 2020-2029, for a total deficit reduction of up to $988 billion over 20 years. If Congress were considering a 20-year budget window instead of ten years, Chairman Baucus’s proposed excise tax on Cadillac health plans would not be necessary to pay for the plan.

Me: Of course the spending may not happen, while the tax increases most assuredly will. Such is the way of Washington.

Would Obama’s new regulator ban ObamaCare?

Oct 15, 2009 16:57 UTC

Would the Baucus healthcare reform plan pass muster with the Consumer Financial Protection Agency? That’s the new regulator the Obama White House wants to create to protect Americans from deceptive or confusing mortgages, loans and credit card agreements that contain hidden fees, costs, rates or other time bombs potentially harmful to one’s financial health.

Good thing for Democrats that the proposed consumer agency — some incarnation of which will almost certainly make it into law — won’t have health insurance  as part of its regulatory portfolio. If it did, it might ban BaucusCare.

Its cost structure, for instance, is reminiscent of a teaser-rate mortgage. The whole deal seems affordable at first — but then costs skyrocket.

The Congressional Budget Office assigned a 10-year cost estimate  of $829 billion to the preliminary version of the Baucus bill. As such, it meets the president’s goal of a bill of $900 billion or less – and avoiding a $1 trillion price tag sure to cause sticker shock among voters.

It accomplishes this financial feat, however, through budgetary trickery. The plan includes a start year of 2010, even though no money is spent that year and just $14 billion through 2013. Cost the plan out from 2011 through 2020 and it suddenly morphs into a trillion-dollar plan. Indeed, the average annual cost from 2015 through 2019 is $150 billion a year

Democrats, to be sure, have powerful rejoinder: the bill may cost a lot, but it actually saves moneycompared with  doing nothing. The CBO projects $81 billion in savings over the first decade and then “the added revenues and cost savings are projected to grow more rapidly than the cost of the coverage expansion.”

Great news. But those savings will materialize only if Congress actually cuts a projected $400 billion in government healthcare spending — including Medicare reimbursements to hospitals, doctors and other providers –  over 10 years.

Skepticism here is warranted. Previous congressional promises to cut reimbursements haven’t panned out. And Senator Debbie Stabenow, a Michigan Democrat, has just introduced a bill that would actually increase Medicare fees to doctors by $247 billion over the next decade  That $247 billion should, by all rights, be added to the cost of the Baucus bill. (Interestingly, if Congress actually stuck to the cuts, the tax increases would not be necessary, according to the Tax Foundation.)

Then there are the hidden fees. The Baucus bill imposes a $200 billion excise tax on expensive insurance plans. That’s a cost insurers will certainly pass onto consumers, nearly 90 percent of whom would make under $200,000, according to the Joint Committee on Taxation.  That kind of sounds like a stealth middle-class tax increase.

And you can be sure few taxpayers understand that a catch accompanies new government subsidies to cover the cost of private insurance. Those subsidies phase out as incomes rise. The result is a huge effective tax increase. As the CBO puts it: “Marginal tax rates would go up by about 22 percentage points for all families whose income was between 100 percent and 400 percent of the poverty level.”

Understated costs, hidden fees, deceptive advertising – why, there ought to be a law!

Actually, the flawed Baucus bill just needs to be prevented from becoming law.

VAT Attack! The perfect tax … or maybe perfectly awful

Oct 14, 2009 13:25 UTC

Greg Mankiw does a good explaining the value-added tax. But this is ominous:

From a strictly economic standpoint, a VAT is great. It is essentially a flat consumption tax, like the so-called FairTax, but implemented in a way to reduce compliance problems. Because it is collected in stages along the chain of production, rather than all at the retail level, tax evasion is more difficult. … My bottom line: If I could replace our current tax system (including the personal income tax, corporate income tax, payroll tax, and estate tax) with a VAT, I would gladly do it.

Why do some conservatives hate the VAT? For political reasons. They fear it would be a new tax, hidden from many voters, used to expand government. They fear that rather than replacing our existing tax system, a VAT would add to it.  … Which brings us to Europe. Many European countries have both a VAT and a large government. But here is the hard question: which is cause and which is effect? Did the VAT cause government to become large, as VAT-opponents fear? Or did Europeans adopt large governments and then, needing to finance it, look for a relatively efficient way to raise a lot of revenue? I am inclined toward the latter hypothesis, but I will be the first to admit that it is entirely clear which way causation runs here.

Me: Want a VAT? First, put into place hard spending limits and spending reduction pathways, such a limiting spending growth to population growth + inflation or some such. And also get rid of the income tax.

COMMENT

I think the US should just get on with it. Who else is left without VAT/GST?? Prepare yourself for lots of hikes. If you look at this site http://www.tmf-vat.com is shows how Europe is increasing VAT by the month to cope with the spiralling deficits.
Richard

Posted by Richard | Report as abusive

50 examples of U.S. government waste

Oct 8, 2009 17:31 UTC

Ending or fixing this stuff (via Heritage Foundation) is not going to fill a $1.4 trillion budget gap, but they would be nice confidence builders:

1. The federal government made at least $72 billion in improper payments in 2008.
2. Washington spends $92 billion on corporate welfare (excluding TARP) versus $71 billion on homeland security.
3. Washington spends $25 billion annually maintaining unused or vacant federal properties.
4. Government auditors spent the past five years examining all federal programs and found that 22 percent of them–costing taxpayers a total of $123 billion annually–fail to show any positive impact on the populations they serve.
5. The Congressional Budget Office published a “Budget Options” series identifying more than $100 billion in potential spending cuts.
6. Examples from multiple Government Accountability Office (GAO) reports of wasteful duplication include 342 economic development programs; 130 programs serving the disabled; 130 programs serving at-risk youth; 90 early childhood development programs; 75 programs funding international education, cultural, and training exchange activities; and 72 safe water programs.
7. Washington will spend $2.6 million training Chinese prostitutes to drink more responsibly on the job.
8. A GAO audit classified nearly half of all purchases on government credit cards as improper, fraudulent, or embezzled. Examples of taxpayer-funded purchases include gambling, mortgage payments, liquor, lingerie, iPods, Xboxes, jewelry, Internet dating services, and Hawaiian vacations. In one extraordinary example, the Postal Service spent $13,500 on one dinner at a Ruth’s Chris Steakhouse, including “over 200 appetizers and over $3,000 of alcohol, including more than 40 bottles of wine costing more than $50 each and brand-name liquor such as Courvoisier, Belvedere and Johnny Walker Gold.” The 81 guests consumed an average of $167 worth of food and drink apiece.
9. Federal agencies are delinquent on nearly 20 percent of employee travel charge cards, costing taxpayers hundreds of millions of dollars annually.
10. The Securities and Exchange Commission spent $3.9 million rearranging desks and offices at its Washington, D.C., headquarters.
11. The Pentagon recently spent $998,798 shipping two 19-cent washers from South Carolina to Texas and $293,451 sending an 89-cent washer from South Carolina to Florida.
12. Over half of all farm subsidies go to commercial farms, which report average household incomes of $200,000.
13. Health care fraud is estimated to cost taxpayers more than $60 billion annually.
14. A GAO audit found that 95 Pentagon weapons systems suffered from a combined $295 billion in cost overruns.
15. The refusal of many federal employees to fly coach costs taxpayers $146 million annually in flight upgrades.
16. Washington will spend $126 million in 2009 to enhance the Kennedy family legacy in Massachusetts. Additionally, Senator John Kerry (D-MA) diverted $20 million from the 2010 defense budget to subsidize a new Edward M. Kennedy Institute.
17. Federal investigators have launched more than 20 criminal fraud investigations related to the TARP financial bailout.
18. Despite trillion-dollar deficits, last year’s 10,160 earmarks included $200,000 for a tattoo removal program in Mission Hills, California; $190,000 for the Buffalo Bill Historical Center in Cody, Wyoming; and $75,000 for the Totally Teen Zone in Albany, Georgia.
19. The federal government owns more than 50,000 vacant homes.
20. The Federal Communications Commission spent $350,000 to sponsor NASCAR driver David Gilliland.
21. Members of Congress have spent hundreds of thousands of taxpayer dollars supplying their offices with popcorn machines, plasma televisions, DVD equipment, ionic air fresheners, camcorders, and signature machines–plus $24,730 leasing a Lexus, $1,434 on a digital camera, and $84,000 on personalized calendars.
22. More than $13 billion in Iraq aid has been classified as wasted or stolen. Another $7.8 billion cannot be accounted for.
23. Fraud related to Hurricane Katrina spending is estimated to top $2 billion. In addition, debit cards provided to hurricane victims were used to pay for Caribbean vacations, NFL tickets, Dom Perignon champagne, “Girls Gone Wild” videos, and at least one sex change operation.
24. Auditors discovered that 900,000 of the 2.5 million recipients of emergency Katrina assistance provided false names, addresses, or Social Security numbers or submitted multiple applications.
25. Congress recently gave Alaska Airlines $500,000 to paint a Chinook salmon on a Boeing 737.
26. The Transportation Department will subsidize up to $2,000 per flight for direct flights between Washington, D.C., and the small hometown of Congressman Hal Rogers (R-KY)–but only on Monday mornings and Friday evenings, when lawmakers, staff, and lobbyists usually fly. Rogers is a member of the Appropriations Committee, which writes the Transportation Department’s budget.
27. Washington has spent $3 billion re-sanding beaches–even as this new sand washes back into the ocean.
28. A Department of Agriculture report concedes that much of the $2.5 billion in “stimulus” funding for broadband Internet will be wasted.
29. The Defense Department wasted $100 million on unused flight tickets and never bothered to collect refunds even though the tickets were refundable.
30. Washington spends $60,000 per hour shooting Air Force One photo-ops in front of national landmarks.
31. Over one recent 18-month period, Air Force and Navy personnel used government-funded credit cards to charge at least $102,400 on admission to entertainment events, $48,250 on gambling, $69,300 on cruises, and $73,950 on exotic dance clubs and prostitutes.
32. Members of Congress are set to pay themselves $90 million to increase their franked mailings for the 2010 election year.
33. Congress has ignored efficiency recommendations from the Department of Health and Human Services that would save $9 billion annually.
34. Taxpayers are funding paintings of high-ranking government officials at a cost of up to $50,000 apiece.
35. The state of Washington sent $1 food stamp checks to 250,000 households in order to raise state caseload figures and trigger $43 million in additional federal funds.
36. Suburban families are receiving large farm subsidies for the grass in their backyards–subsidies that many of these families never requested and do not want.
37. Congress appropriated $20 million for “commemoration of success” celebrations related to Iraq and Afghanistan.
38. Homeland Security employee purchases include 63-inch plasma TVs, iPods, and $230 for a beer brewing kit.
39. Two drafting errors in the 2005 Deficit Reduction Act resulted in a $2 billion taxpayer cost.
40. North Ridgeville, Ohio, received $800,000 in “stimulus” funds for a project that its mayor described as “a long way from the top priority.”
41. The National Institutes of Health spends $1.3 million per month to rent a lab that it cannot use.
42. Congress recently spent $2.4 billion on 10 new jets that the Pentagon insists it does not need and will not use.
43. Lawmakers diverted $13 million from Hurricane Katrina relief spending to build a museum celebrating the Army Corps of Engineers–the agency partially responsible for the failed levees that flooded New Orleans.
44. Medicare officials recently mailed $50 million in erroneous refunds to 230,000 Medicare recipients.
45. Audits showed $34 billion worth of Department of Homeland Security contracts contained significant waste, fraud, and abuse.
46. Washington recently spent $1.8 million to help build a private golf course in Atlanta, Georgia.
47. The Advanced Technology Program spends $150 million annually subsidizing private businesses; 40 percent of this funding goes to Fortune 500 companies.
48. Congressional investigators were able to receive $55,000 in federal student loan funding for a fictional college they created to test the Department of Education.
49. The Conservation Reserve program pays farmers $2 billion annually not to farm their land.
50. The Commerce Department has lost 1,137 computers since 2001, many containing Americans’ personal data.

COMMENT

Nice piece

Posted by Camron Barth | Report as abusive

Why the cost of healthcare reform will rise

Oct 8, 2009 16:51 UTC

A great analysis of the Baucus healthcare bill by Jim Capretta. Read the whole thing, but this is a key graph:

Congressional Democrats are already racing ahead with amendments to demonstrate their commitment to insurance “affordability” for the middle class.  It would be only a matter of time before Congress responded to the inevitable political pressure and expanded the entitlement, perhaps in steps, to larger and larger numbers of Americans.

VAT Attack! Greenspan: Raise taxes with a value-added tax

Oct 2, 2009 15:13 UTC

At the Atlantic magazine symposium I am attending, former Federal Reserve chairman again said he thinks taxes are going up and that a value-added tax would be the “least worst” way of doing it.  This dovetails nicely with what I wrote yesterday:

Does President Obama have a secret plan to raise taxes on middle-class Americans — and,well, pretty much everybody else — with a European-style, value-added tax? Actually, it’s not such a big secret. Connect the dots:

1) The joint statement from the just-concluded G20 Summit in Pittsburgh called for balanced global growth — which means Americans must spend less and save more and reduce its budget deficit.

2) That same weekend, John Podesta, co-chairman of Obama’s presidential transition team and an outside White House adviser, tells a Bloomberg reporter that a value-added tax is “more plausible today” than ever, adding that “there’s going to have to be revenue in this budget.” A VAT is a kind of consumption tax.

3) Yesterday, the Center for American Progress, the liberal think tank with close White House ties, holds a conference on the rising national debt. While speaker after speaker — Paul Krugman, Roger Altman, CAP President Podesta (again), Laura Tyson — admits entitlement spending must be reduced, they also agree that taxes must be raised. Altman suggests $400 billion in new tax revenue is needed almost immediately to calm financial market fears, and a VAT would be a great way of doing it. That’s $400 billion a year, by the way, not over ten years.

4) Also, yesterday was the first meeting of President Obama’s tax reform panel led by former Federal Reserve Chairman Paul Volcker. In a two-part interview with Charlie Rose airing yesterday and today, Volcker says that if Washington can’t get spending under control, either a VAT or a carbon tax would be effective revenue raisers. “Those are two big ones,” he says.

5) As they used to say in the Soviet Union, “It’s no coincidence.” This is also the conclusion of one Washington insider with ties to the White House economic team: “Does this all add up to a trial balloon? Of course, it’s a trial balloon. And I expect the administration will propose major tax reform, including a VAT.”

More on America and the VAT

Oct 1, 2009 17:13 UTC

The oh-so-smart Andrew Samwick on the chances of a VAT over at the Capital Gains and Games blog:

James Pethokoukis is on the case, putting together the pieces of a “yes.”  My prediction: regardless of how urgent the need for revenue may be, taxes on the highest earners would have to go up dramatically before a VAT of any size would be passed.  Failing that, the Left’s history of the first two decades of the 21st century would be that taxes on the wealthy were lowered and 2001 and 2003 and then raised on the middle class in 201x.  The Left is already smarting from what it perceives (correctly, I might add) as a similar thing that happened in the 1980s, when income tax rates were lowered while payroll taxes were increased.  They won’t go in for this again unless a very large income tax increase on the highest earners is part of the bargain.

Me: This is another example of why I feel we need major tax reform rather than trying to glom something else onto the current system. But the politics are amazingly tricky, which is another reason why I don’t see why cutting spending is necessarily more difficult than raising taxes, politically speaking.

Why the US budget deficit is worse than you think

Sep 25, 2009 14:40 UTC

The great Dan Clifton of the Strategas Research finds this gem:

Douglas Elmendorf, director of the Congressional Budget Office, told the National Economists Club that today’s deficits are more troublesome than in the early 1980’s. Projected deficits are twice the deficit in the early 1980’s but more importantly there is a growing disconnect between current law and provisions set to expire which will eventually be extended. Most notably there is (and will be) growing pressure to extend the expiring stimulus provisions in addition to the usual expiring provisions.

Me: See, while tax cuts get sunsetted, spending programs never die. And this is why the $800 billion stimulus is going to cost a lot more than $800 billion.

COMMENT

The budget deficit is the most significant issue at the federal level.

Posted by Camron Barth | Report as abusive

America’s addiction to deficit spending

Sep 18, 2009 17:02 UTC

Bruce Bartlett makes the case that a) either taxes need to be raised or spending cut to bring America back to fiscal solvency, b) there is little historical evidence that spending can be cut, and thus c) taxes are headed higher. Certainly Congress has show itself willing to raises taxes (1982, 1991, 1993) by large amounts and not cut spending. Both the 2005 effort by the Bush administration to fix Social Security and the current effort to reign in healthcare costs are further evidence. Yet you certainly wouldn’t want to close the hole purely by raising taxes, would you? I think they would have to rise by 50 percent, IIRC.  We would definitely be on the wrong side of the Laffer curve then. Spending is really Obama’s Nixon-to-China opportunity …

COMMENT

Would you mind viewing the following videos about the laffer curve? Care to comment for all to see on your blog? your opinion is greatly appreciated.

http://www.freedomandprosperity.org/vide os/laffercurve1-3/laffercurve1-3.shtml

Posted by Orphe | Report as abusive
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