Here Come the Higher Taxes

"A government big enough to give you everything you want, is strong enough to take everything you have."
-Thomas Jefferson

Wouldn't it be great if the above quote, and especially its meaning, could be engrained in every voters head before they cast their vote? Sure it sounds nice that the government is promising cheaper healthcare for the poor (in the current bill the rich - middle class and up will pay for it), but at some point realistic goals and budgets have to be set.

Next thing we know they'll be proposing chocolate milk in the drinking fountains paid for by the "rich" because it is the "right" of every poor American to have a daily dose of calcium filled euphoria (yes, I like chocolate milk).

Wave of Debt Payments Facing U.S. Government
By Edmund L. Andrews, the New York Times

WASHINGTON — The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.'s on terms that seem too good to be true.

But that happy situation, aided by ultralow interest rates, may not last much longer.
Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.
Even as Treasury officials are racing to lock in today's low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.

With the national debt now topping $12 trillion, the White House estimates that the government's tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.

In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.

The potential for rapidly escalating interest payouts is just one of the wrenching challenges facing the United States after decades of living beyond its means.

The surge in borrowing over the last year or two is widely judged to have been a necessary response to the financial crisis and the deep recession, and there is still a raging debate over how aggressively to bring down deficits over the next few years. But there is little doubt that the United States' long-term budget crisis is becoming too big to postpone.

Americans now have to climb out of two deep holes: as debt-loaded consumers, whose personal wealth sank along with housing and stock prices; and as taxpayers, whose government debt has almost doubled in the last two years alone, just as costs tied to benefits for retiring baby boomers are set to explode.

The competing demands could deepen political battles over the size and role of the government, the trade-offs between taxes and spending, the choices between helping older generations versus younger ones, and the bottom-line questions about who should ultimately shoulder the burden.

"The government is on teaser rates," said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. "We're taking out a huge mortgage right now, but we won't feel the pain until later."

So far, the demand for Treasury securities from investors and other governments around the world has remained strong enough to hold down the interest rates that the United States must offer to sell them. Indeed, the government paid less interest on its debt this year than in 2008, even though it added almost $2 trillion in debt.

The government's average interest rate on new borrowing last year fell below 1 percent. For short-term i.o.u.'s like one-month Treasury bills, its average rate was only sixteen-hundredths of a percent.

"All of the auction results have been solid," said Matthew Rutherford, the Treasury's deputy assistant secretary in charge of finance operations. "Investor demand has been very broad, and it's been increasing in the last couple of years."

The problem, many analysts say, is that record government deficits have arrived just as the long-feared explosion begins in spending on benefits under Medicare and Social Security. The nation's oldest baby boomers are approaching 65, setting off what experts have warned for years will be a fiscal nightmare for the government.

"What a good country or a good squirrel should be doing is stashing away nuts for the winter," said William H. Gross, managing director of the Pimco Group, the giant bond-management firm. "The United States is not only not saving nuts, it's eating the ones left over from the last winter."
The current low rates on the country's debt were caused by temporary factors that are already beginning to fade. One factor was the economic crisis itself, which caused panicked investors around the world to plow their money into the comparative safety of Treasury bills and notes. Even though the United States was the epicenter of the global crisis, investors viewed Treasury securities as the least dangerous place to park their money.

On top of that, the Fed used almost every tool in its arsenal to push interest rates down even further. It cut the overnight federal funds rate, the rate at which banks lend reserves to one another, to almost zero. And to reduce longer-term rates, it bought more than $1.5 trillion worth of Treasury bonds and government-guaranteed securities linked to mortgages.

Those conditions are already beginning to change. Global investors are shifting money into riskier investments like stocks and corporate bonds, and they have been pouring money into fast-growing countries like Brazil and China.

Articles in this series will examine the consequences of, and attempts to deal with, growing public and private debts.

The Fed, meanwhile, is already halting its efforts at tamping down long-term interest rates. Fed officials ended their $300 billion program to buy up Treasury bonds last month, and they have announced plans to stop buying mortgage-backed securities by the end of next March.
Eventually, though probably not until at least mid-2010, the Fed will also start raising its benchmark interest rate back to more historically normal levels.

The United States will not be the only government competing to refinance huge debt. Japan, Germany, Britain and other industrialized countries have even higher government debt loads, measured as a share of their gross domestic product, and they too borrowed heavily to combat the financial crisis and economic downturn. As the global economy recovers and businesses raise capital to finance their growth, all that new government debt is likely to put more upward pressure on interest rates.

Even a small increase in interest rates has a big impact. An increase of one percentage point in the Treasury's average cost of borrowing would cost American taxpayers an extra $80 billion this year — about equal to the combined budgets of the Department of Energy and the Department of Education.

But that could seem like a relatively modest pinch. Alan Levenson, chief economist at T. Rowe Price, estimated that the Treasury's tab for debt service this year would have been $221 billion higher if it had faced the same interest rates as it did last year.

The White House estimates that the government will have to borrow about $3.5 trillion more over the next three years. On top of that, the Treasury has to refinance, or roll over, a huge amount of short-term debt that was issued during the financial crisis. Treasury officials estimate that about 36 percent of the government's marketable debt — about $1.6 trillion — is coming due in the months ahead.

To lock in low interest rates in the years ahead, Treasury officials are trying to replace one-month and three-month bills with 10-year and 30-year Treasury securities. That strategy will save taxpayers money in the long run. But it pushes up costs drastically in the short run, because interest rates are higher for long-term debt.

Adding to the pressure, the Fed is set to begin reversing some of the policies it has been using to prop up the economy. Wall Street firms advising the Treasury recently estimated that the Fed's purchases of Treasury bonds and mortgage-backed securities pushed down long-term interest rates by about one-half of a percentage point. Removing that support could in itself add $40 billion to the government's annual tab for debt service.

This month, the Treasury Department's private-sector advisory committee on debt management warned of the risks ahead.

"Inflation, higher interest rate and rollover risk should be the primary concerns," declared the Treasury Borrowing Advisory Committee, a group of market experts that provide guidance to the government, on Nov. 4.

"Clever debt management strategy," the group said, "can't completely substitute for prudent fiscal policy."

President Abraham Lincoln Thanksgiving Address

Proclamation of Thanksgiving
By Abraham Lincoln, 16th President of the United States of America

The Year that is drawing to a close, has been filled with the blessings of fruitful fields and healthful skies. To these bounties, which are so constantly enjoyed that we are prone to forget the source from which they come, others have been added, which are so extraordinary a nature, that they cannot fail to penetrate and soften even the heart which is habitually insensible to the ever watchful providence of Almighty God.

In the midst of a civil war of unequaled magnitude and severity, which has sometimes seemed to foreign States to invite and to provoke the aggression, peace has been preserved with all nations, order has been maintained, the laws have been respected and obeyed, and harmony has prevailed everywhere except in the theater of military conflict; while that theater has been greatly contracted by the advancing armies and navies of the Union.

Needful diversion of wealth and strength from the fields of peaceful industry to the national defense, have not arrested the plough, the shuttle or the ship; the axe has enlarged the borders of our settlements, and the mines, as well of iron and coal as of the precious metals, have yielded even more abundantly than heretofore.

Population has steadily increased, notwithstanding the waste that has been made in the camp, the siege, and the battle-field; and the country, rejoicing in the consciousness of augmented strength and vigor, is permitted to expect continuance of years with large increase of freedom.
No human counsel hath devised nor hath any mortal hand worked out these great things. They are the gracious gifts of the Most High God, who, while dealing with us in anger for our sins, hath nevertheless remembered mercy.

It has seemed to me fit and proper that they should be solemnly, reverently and gratefully acknowledged as with one heart and one voice by the whole American People.

I do therefore invite my fellow citizens in every part of the United States, and also those who are at sea and those who are sojourning in foreign lands, to set apart and observe the last Thursday of November next, as a day of Thanksgiving and Praise to our beneficent Father who dwelleth in the Heavens.

And I recommend to them that while offering up the ascription's justly due to Him for such singular deliverance's and blessings, they do also, with humble penitence for our national perverseness and disobedience, commend to His tender care all those who have become widows, orphans, mourners or sufferers in the lamentable civil strife in which we are unavoidably engaged, and fervently implore the interposition of the Almighty hand to heal the wounds of the nation, and to restore it as soon as may be consistent with the Divine purposes to the full enjoyment of peace, harmony, tranquility, and Union.

In testimony whereof, I have hereunto set my hand and caused the seal of the United States to be affixed.

Done at the City of Washington, this Third day of October, in the year of our Lord one thousand eight hundred and sixty-three, and of the Independence of the United States the Eighty-eighth.

By the President: Abraham Lincoln

Week's Summary

While I have tried not to be overly cynical on this blog, sometimes with the news that comes in, I can't help it. That's why I am posting this commentary from George Shipp. Sometimes his commentary is too cynical, even for me, but today I am finding it to be right along the lines of how I feel.

CHOICE Asset Management Commentary:
It was quite a week, chock full of news. The Dow Industrials reversed the prior week’s loss and climbed back above 10,000 with a 311-point gain, as our governmental authorities once again collectively said “whatever it takes.” (And whatever the consequences down the road, some would say) Before getting to economic and other details, consider these moves out of Washington, all coming in just a single week:

- By a rare 98-0 Senate vote, following similarly overwhelming 403-12 House passage, Congress is extending unemployment benefits, to provide at least another 14 weeks of relief for the jobless (20 weeks in states with 8.6% or higher unemployment).

- Buy a home before May 1, and you will receive at least $6,500 ($8,000 for first time buyers).
So far, 1.4 million have claimed the 1st-time benefit, at an overall cost of $10 billion. The new version expands the program to “move up” buyers, with a 50% increase in income ceilings for qualification ($225,000 for couples).

- H.R. 3548 also widens the time period businesses (like homebuilders) can claim losses, to offset previously booked income. That portion was deemed budget-neutral because large businesses paying foreign taxes will not receive a planned tax credit until 2018.

- And an additional employer payroll surtax of 0.2% helped fund the unemployment benefit. [Yeah, that'll be a good incentive to bring back jobs.]

- Fannie Mae reported an $18.9 billion quarterly loss, and asked for an additional $15 billion of taxpayer support.

- Fannie introduced a home “deed for lease” plan whereby, if you are facing foreclosure and cannot qualify for a mortgage modification (i.e. even after re-works and interest rate subsidies your income does not reach 31% of the new payment), you may be able to exchange your home ownership claim for a lease “at market rates” (which by definition will be lower). That’s right, taxpayers, you will be the lucky landlords who will assume responsibility for homes that have proven to be unaffordable, and you will rent them through a third-party management company to help out your neighbors who made those decisions.

- Fannie was going to sell $3 billion of tax credits to Goldman, Sachs and/or Berkshire Hathaway, but the Treasury ultimately nixed that as not in the taxpayers’ best interest.

- The FHA was unable to meet its deadline to issue an updated financial report. Its auditor said its computer models were “creating unexplained inconsistencies,” according to the New York Times.

- The House of Representatives passed a 1,994-page, $1.05 trillion Health Reform bill by a narrow 220-215 vote. Obviously, there is still a long road ahead before the plan becomes law. According to the (libertarian, i.e. small-government advocate) CATO Institute, the bill “would create 111 government agencies, boards, commissions and other bureaucracies -- all overseen by a new health-care czar bearing the Orwellian title ‘commissioner of health choices.’" About $730 billion of new taxes and fees would support the expansion. [There is just something majorly wrong with our political system if the majority are screaming they don't want this bill, but it passes anyway.]

From the “we don’t know whether to laugh or cry department,” following Administration assertions that the ARRA legislation (stimulus bill) had “saved” 640,249 jobs, many localities and reporters seemed to question the calculation, for example:

- The Associated Press reported that President Obama’s economic recovery program saved 935 jobs at the Southwest Georgia Community Action Council. “Trouble is, only 508 people work there.”

- The Milwaukee Journal Sentinel said that federal data indicated more than 10,000 jobs were saved or created in Wisconsin, but “that is rife with errors, double counting and inflated numbers based more on satisfying federal formulas than creating real jobs.”

- The Chicago Tribune reported that official counts of 473 teachers “saved” at the North Chicago Community Unit Schools District 187 could not be accurate, since the district only employs 290 teachers. “In the official report, Wilmette Public Schools District 39 was credited with 166 jobs saved by stimulus aid. Superintendent Raymond Lechner said the number should be zero. At Dolton-Riverdale School District 148, stimulus funds were said to have saved the equivalent of 382 full-time teaching jobs -- 142 more than the district actually has.”

- The Sacramento Bee said that the California State University system calculated it was able to retain 26,156 employees, equating to more than half its workforce and more than all “jobs saved” in Michigan, the highest unemployment state. But CSU spokeswoman Clara Potes-Fellow said “This is not really a real number of people.”

[Personally I was wondering how on the earth the government was going to measure their promise of "saving" jobs. I am not exactly sure why I wondered that when you can say just about anything with statistics; especially with statistics that are not based on any real data. Sounds like these were put together by the same statistics department that helped Pelosi with her statement of: "500 million Americans will lose their jobs" without the stimulus bill. According to her, that would occur every month without proper government action. However, according to the US census bureau, the current population of residents in the country stands at about 305,000,000. Ironically, her numbers would include her and the rest of the Senate, which I am all for.

The good news is that this also came in from another Economists commentary: "...The overriding message of last week's elections in the United States was that people are highly focused on the economy in general, and on unemployment in particular. As a result, politicians are becoming increasingly nervous about their re-election prospects. Notably, we would point out that current approval ratings for the US Congress are below the lows reached in 1994 and 2006 - the years marketing the two most recent major party takeovers of Congress." Personally I am focused on more than just unemployment, but I am happy that most others notice the poor job of representing the government is doing. Personally I don't think this definitely means there will be a party shift. I think it means we are headed for a more fundamental shift and both parties better make some changes.]

Great Ideas for Reform

It's articles like the following that make me wonder how much of this current 2,000 page bill were written by lobbyists. In other words; it seems to me that reform is not that complicated, unless you were trying to pander to specific groups.

I did remove some paragraphs from the article becuase they weren't relevant to my post.

The Whole Foods Alternative to ObamaCare
By John Mackey

“The problem with socialism is that eventually you run out of other people’s money.”
- Margaret Thatcher

With a projected $1.8 trillion dollar deficit for 2009, several trillions more in deficits projected over the next decade, and with both Medicare and Social Security entitlement spending about to ratchet up several notches over the next 15 years as Baby Boomers become eligible for both, we are rapidly running out of other people’s money. These deficits are simply not sustainable. They are either going to result in unprecedented new taxes and inflation, or they will bankrupt us.

While we clearly need health-care reform, the last thing out country needs is a massive new health-care entitlement that will create hundreds of billions of dollars of new unfunded deficits and move us much closer to a government takeover of our health-care system. Instead, we should be trying to achieve reforms by moving in the opposite direction – toward less government control and more individual empowerment. Here are eight reforms that would greatly lower the cost of health care for everyone:

1) Remove the legal obstacles that slow the creation of high-deductible health insurance plans and health savings accounts (HSAs). The combination of high-deductible health insurance and HSAs is one solution that could solve many of our health-care problems. For example, Whole Foods Market pays 100% of the premiums for all our tea members who work 30 hours or more per week (about 89% of all team members) for our high-deductible health insurance plan. We also provide up to $1,800 per year in additional health-care dollars through deposits into employees’ Personal Wellness Accounts to spend as they choose on their own health and wellness.

Money note spent in one year rolls over to the next and grows over time. Our team members therefore spend their own health-care dollars until the annual deductible is covered (about $2,500) and the insurance plan kicks in. This creates incentives to spend the first $2,500 more carefully. Our plan’s costs are much lower than typical health insurance, while providing a very high degree of worker satisfaction.

2) Equalize the tax laws so that employer-provided health insurance and individually owned health insurance have the same tax benefits. Now employer health insurance benefits are fully tax deductible, but individual health insurance is not. This is unfair.

3) Repeal all state laws which prevent insurance companies from competing across state lines. We should all have the legal right to purchase health insurance from any insurance company in any state and we should be able to use insurance wherever we live. Health insurance should be portable.

4) Repeal government mandates regarding what insurance companies must cover. These mandates have increased the cost of health insurance by billions of dollars. What is insured and what is not insured should be determined by individual customer preferences and not through special-interest lobbying.

5) Enact tort reform to end the ruinous lawsuits that force doctors to pay insurance costs of hundreds of thousands of dollars per year. These costs are passed back to us through much higher prices for health care.

6) Make costs transparent so that consumers understand what health-care treatments cost. How many people know the total costs of their last doctor’s visit and how that total breaks down? What other goods or services do we buy without knowing how much they will cost us?

7) Enact Medicare reform. We need to face up to the actuarial fact that Medicare is heading towards bankruptcy and enact reforms that create greater patient empowerment, choice and responsibility.

8) Finally revise tax forms to make it easier for individuals to make a voluntary, tax-deductible donation to help millions of people who have no insurance and aren’t covered by Medicare, Medicaid, or the State Children’s Health Insurance Program.

Rather than increase government spending and control, we need to address the root causes of poor health. This begins with the realization that every American adult is responsible for his or her own health.

Unfortunately many of our health-care problems are self-inflicted: two-thirds of Americans are now overweight and one-third are obese. Most of the diseases that kill us and account for about 70% of all health-care spending – heart disease, cancere, stroke, diabetes and obesity – are mostly preventable through proper diet, exercise, not smoking, minimal alcohol consumption and other healthy lifestyle choices.

Health-care reform is very important. Whatever reforms are enacted it is essential that they be financially responsible, and that we have the freedom to choose doctors and health-care services that best suit our own unique set of lifestyle choices. We are all responsible for our own lives and our own health. We should take that responsibility very seriously and use our freedom to make wise lifestyle choices that will protect our health. Doing so will enrich our lives and will help create a vibrant and sustainable American society.

Disappointing, but Not Surprising

I have not confirmed the below statements, but I did want to pass this along.

I know this isn't a popular statement amongst my fellow Republicans, but honestly I thought the Baucus plan was ok. It had some things I disagreed with, but for the most part it fit with what I thought would be a good compromise on health care reform that might work. That is until I started seeing the marginal tax arguments against it (which personally I don't understand why it changes things, but the evidence is there).

Anyway, how soon can we get rid of Speaker Pelosi?

CHOICE Asset Management Commentary from George Shipp:

The House released its health care reform bill on Thursday and it is a whopper, weighing in at 19
pounds and measuring nearly nine inches tall. The 1,990 page, 400,000-word printout is longer
than War & Peace. The plan is estimated to cost $894 billion over ten years ($2.24 million per
word, notes the Politico blog). The bill includes a government sponsored health plan, mandates
everyone to buy health insurance with a penalty equivalent to 2.5% of their modified adjusted
gross income or the average premium, whichever is less, removes the ability to use flexible
spending accounts or health savings accounts to purchase over-the-counter medicines with pretax dollars, and bans insurance companies from denying coverage to those with pre-existing
conditions.

Hopefully our elected representatives are fast readers, since Speaker of the House
Nancy Pelosi commented that a vote could come as early as this Thursday. Wouldn’t it be more
prudent to actually give people time to read and review the bill before cramming it through?

Here’s a link to the bill in case you’re up all night trying to finish off that leftover
Halloween candy and you need something to put you to sleep:

http://energycommerce.house.gov/Press_111/20090714/aahca.pdf

Too bad that if you do want to read it, it might be un-readable -- again thanks to Politico,
you will stumble across paragraphs like:

“(a) Outpatient Hospitals – (1) In General – Section 1833(t)(3)(C)(iv) of the
Social Security Act (42 U.S.C. 1395(t)(3)(C)(iv)) is amended – (A) in the first
sentence – (i) by inserting “(which is subject to the productivity adjustment
described in subclause (II) of such section)” after “1886(b)(3)(B)(iii); and (ii) by
inserting “(but not below 0)” after “reduced”; and (B) in the second sentence, by
inserting “and which is subject, beginning with 2010 to the productivity
adjustment described in section 1886(b)(3)(B)(iii)(II)”.


Me again. So, anyone think they can figure out that one paragraph's impact on our healthcare system would be before Thursday? How about this one along with the thousands of others? Better yet, how many of the primary supporters of this Bill have any clue as to what this paragraph says and then its impact on our healthcare system? And what on earth is the argument for getting rid of HSAs!!!!!!!