Economic Train Wreck Ahead

The amount of money the federal government takes out of the U.S. economy in taxes will increase by more than 30 percent between 2012 and 2014, according to the Budget and Economic Outlook published today by the CBO.

At the same time, according to CBO, the economy will remain sluggish, partly because of higher taxes.

Between 2012 and 2014, revenues in CBO’s baseline shoot up by more than 30 percent, mostly because of the recent or scheduled expirations of tax provisions, such as those that lower income tax rates and limit the reach of the alternative minimum tax (AMT), and the imposition of new taxes, fees, and penalties that are scheduled to go into effect.

The U.S. economy, CBO projects, will perform “below its potential” for another six years and unemployment will remain above 7 percent for another three.

According to the CBO report, federal tax revenues equaled $2.302 trillion in fiscal 2011, and will increase to $2,523 trillion in fiscal 2012, $2,988 trillion in fiscal in 2013, and $3,313 trillion in 2014.

As a percentage of GDP, according to CBO, federal tax revenues were 15.4 percent in fiscal 2011, and will be 16.3 percent in 2012, 18.8 percent in 2013, and 20.0 percent in fiscal 2014.

The anticipated percentage increase in federal tax revenue is not only large when calculated in dollar terms but also when calculated as a share of GDP. The jump from 15.4 percent of GDP in fiscal 2011 to 20.0 percent of GDP in fiscal 2014 equals an increase of 29.8 percent. The jump from 16.3 percent in fiscal 2012 to 20.0 percent in fiscal 2014 equals an increase over two years of 22.7 percent.

Federal tax revenues have averaged “about 18 percent of GDP for the past 40 years,” according to CBO. So, in the next two years federal tax revenues will rise from a level that is below the modern historical average to a level that is above it.

That is a real shock to an already fragile economy. And the only way we can change it is to prevent Obama from being re-elected, since he will never stop it while in office. Obama cannot run on his abysmal record – so he’s running against a “do nothing Congress”. The same Congress where last year, the House not only passed a complete budget, but 15 major bills all of which would have created needed jobs. All of them were killed by the “do nothing” Democrat – controlled Senate.

No politician ever went broke underestimating the intelligence of the American voters.


US Debt Limit Now at $16.4 Trillion

WASHINGTON—The Senate voted to defeat a resolution that, if successful, would have held up an increase in the country's statutory borrowing limit. The vote triggers a $1.2 trillion increase in the debt ceiling on Friday.

The increase brings the total federal government borrowing limit to $16.4 trillion, enough to support Treasury borrowing until past the November elections, but likely not through the end of the year.

That could mean that after the elections, a lame-duck session of Congress would have to deal with another increase in the borrowing limit as well as the litany of other divisive issues that will need to be resolved including the question of whether to extend the Bush-era lower tax rates.

If you ever doubted that debt is related to the value of the dollar, have a look at this chart (courtesy sharelynx). The price of gold has historically tracked with our national debt.

Now: ask yourself what would happen if our debt became so unsustainable that we could no longer service it? The price of gold would skyrocket. That day is not far off.


Virginians Get to See Michael Mann's Secret UVA Climate Emails

On Tuesday the American Tradition Institute’s Environmental Law Center sent the University of Virginia and Michael Mann copies of 40 emails selected as examples of the 27 categories identified as benefitting from the Court’s review of UVA and Mann’s claims that emails in the taxpayer-funded school’s possession are properly subject to the specific exemptions under Virginia’s Freedom of Information Act (VFOIA). These categories range from discussions of professional retaliation against other scientists who challenged Mann’s work, to those sent to or from Mann from or copying an email account covered by other FOI laws, such as the federal Freedom of Information Act.

The selected emails include graphic descriptions of the contempt a small circle of largely taxpayer-funded alarmists held for anyone who followed scientific principles and ended up disagreeing with them. For example, in the fifteenth Petitioners’ Exemplar (PE-15), Mann encourages a boycott of one climate journal and a direct appeal to his friends on the editorial board to have one of the journal’s editors fired for accepting papers that were carefully peer-reviewed and recommended for publication on the basis that the papers dispute Mann’s own work. In PE-38, he states that another well respected journal is “being run by the baddies,” calling them “shills for industry.” In PE-39 Mann calls U.S. Congressmen concerned about how he spent taxpayer money “thugs”.

If you have any doubts that current Climate Science is less than scientific, you owe it to yourself to read this.

The full press release. which includes a link at the bottom to the PDF containing all the subject emails:



How to Reform Social Security To the Chilean Model

Here's how they do social security in Chile according to Cato.org. Workers are given the choice as to whether they would like to stay in a pay-as-you-go plan (like we have in the U.S.) or a new system in which they can put their entire payroll tax into a retirement account. That way, they can benefit from compound interest.
93% of Chileans elect to participate in the new system. It's run by 15 private companies.
Here's how the country's former Secretary of Labor, Jose Pinera explains what has happened:
We guaranteed benefits for the elderly -- we told those people who had already retired that they had nothing to fear from this reform. We also told people entering the labor force for the first time that they had to go to the new system.
Today, all workers in Chile are capitalists, because their money is invested in the stock market. And they also understand that if government tomorrow were to create the conditions for inflation, they would be damaged because some of the money is also invested in bonds -- around 60%. So the whole working population of Chile has a vested interest in sound economic policies and a pro-market, pro-private-enterprise environment.
Not only that, but the savings rate in Chile went up from 10% to 27% of GNP. There's no payroll tax, and with full employment and that great savings rate, the economy has blossomed.
The graphic below represents the Chilean Model:



The Minimum Wage Myth

In a free market, demand is a function of price: the higher the price, the lower the demand. These rules apply equally to both prices and wages. When employers evaluate their labor and capital needs, cost is a primary factor. When the cost of hiring low-skilled workers moves higher, jobs are lost. Despite this, minimum wage hikes, like the ones recently set to take effect, are always seen and reported as an act of governmental benevolence. 

Before bringing on another worker, an employer must be convinced that the added productivity will exceed the added cost (this includes not just wages, but all payroll taxes and other benefits.) So if an unskilled worker is capable of delivering only $6 per hour of increased productivity, such an individual is legally unemployable with a minimum wage of $7.25 per hour.

Low-skilled workers must compete for employers' dollars with both skilled workers and capital. For example, if a skilled worker can do a job for $14 per hour that two unskilled workers can do for $6.50 per hour each, then it makes economic sense for the employer to go with the unskilled labor. Increase the minimum wage to $7.25 per hour and the unskilled workers are priced out of their jobs. This is why labor unions are such big supporters of minimum wage laws. Even though none of their members earns the minimum wage, the law helps protect their members from having to compete with lower-skilled workers.

There are numerous other examples of employers substituting capital for labor simply because the minimum wage has made low-skilled workers uncompetitive. For example, handcarts have replaced skycaps at airports. The main reason fast-food restaurants use paper plates and plastic utensils is to avoid having to hire dishwashers.

As a result, many low-skilled jobs that used to be the first rung on the employment ladder have been priced out of the market. When was the last time someone other than the cashier not only bagged your groceries, but also loaded them into your car? By the way, it won't be long before the cashiers themselves are priced out of the market, replaced by automated scanners - Wal-Mart is already doing this.

The disappearance of these jobs has broader economic and societal consequences. First jobs are a means to improve skills so that low-skilled workers can offer greater productivity to current or future employers. As their skills grow, so does their ability to earn higher wages. However, remove the bottom rung from the employment ladder and many never have a chance to climb it.

Because the minimum wage prevents so many young people (including a disproportionate number of minorities) from getting entry-level jobs, they never develop the skills necessary to command higher paying jobs. As a result, many turn to crime, while others subsist on government aid. Supporters of the minimum wage argue that it is impossible to support a family on the minimum wage. While that is true, it is completely irrelevant, as minimum wage jobs are not designed to support families. In fact, many people earning the minimum wage are themselves supported by their parents.

The only way to increase wages is to increase worker productivity. If wages could be raised simply by government mandate, we could set the minimum wage at $100 per hour and solve all problems. At that level, most of the population would lose their jobs, and the remaining labor would be so expensive that prices for goods and services would skyrocket. That's the exact burden the minimum wage places on our poor and low-skilled workers, and ultimately every American consumer.

Since our leaders cannot seem to grasp this simple economic concept, how can we expect them to deal with the more complicated problems that we have?


How Big Pharma Increases Health Care Costs

I get a lot of valuable information from my various conversations on Google+.

One gentleman whose insights I particularly value is Keith Keber. Keith is a real thinker, and although in some respects he seems to be somewhat left of center, we’ve conducted several interesting conversations and debates, and regardless of whether we agree or disagree, he conducts himself in an intelligent and respectful way, and I’m always happy to read his opinions.

Keith opines:
----------------------------------------------------------------------------------------------------------- “Few have analyzed the source of private financial support for the Internet Censorship Act (my own pet name for the bill), but I would venture that Big Pharma has spent more on it than Big Entertainment. Here are some familiar names from the House Judiciary Committee on SOPA/PIPA corporate supporters:
Alliance for Safe Online Pharmacies (ASOP)
Pfizer, Inc
Elsevier (as a proxy for Merck)
Pharmaceutical Research and Manufacturers of America (PhRMA)

Drug companies have seen the writing on the wall for SOPA and have begun circulating yet another bill to restrict American (and ONLY American) patients from accessing cheaper generics (and OTC drugs as well) from legitimate offshore pharmacies. This time, their Congressional avatars are Diane Feinstein (D-CA); Chuck Schumer (D-NY); Jeff Sessions (R-AL) and John Cornyn (R-TX). Together, last month those "representatives" introduced the so-called "Online Pharmacy Safety Act of 2011" (S.2002) or as I call it, the "Gouge American Patients Act of 2011".
It is bad enough when public officials take it upon themselves to protect us from ourselves... it is a MILLION times worse when the officials scheme to pass that bogus "authority" to private industry.

Here is the meat part. It creates a blacklist of pharmacies that don't have a physical presence in the U.S., and who can thus sell generic equivalents of expensive brand name drugs because they are not subject to U.S. patent law. So U.S. pharmaceutical companies get their cake and eat it too— they can sell the generic equivalent in nations that don't protect their patent, while simultaneously forcing Americans to pay premium prices for their brand name drugs.
Sec. 510A(b) of the bill proclaims, "Establishment of Registry- The Secretary shall establish a Registry of Legitimate Online Pharmacy Websites (referred to in this section as the ‘Registry’) for the purpose of educating consumers and promoting public health and safety."
The succeeding text then goes on to define that the only "legitimate" online pharmacies are 1) accredited by the United States National Association of Boards of Pharmacy (a trade group controlled by pharmaceutical companies for which foreign nations, like, say, Canada have equal standards certification organizations), 2) exist only within the boundaries of the United States, subject to FDA rules (all written by pharmaceutical companies); and 3) must have a pharmacy address within U.S. borders, registered with the appropriate U.S. agencies.

I like to use Plavix (generic: Clopidogrel) as an example. It's a blood thinner prescribed to heart patients. They usually take one 75 mg pill per day. It is cheapest to buy the drug in 100-pill purchases.
U.S. Costco pharmacy's least expensive amount per pill: $7.20.
CanadaPharmacyOnline Clopidogrel price per pill: $.70 (bought in a 200-pill purchase).
Yes, that is NOT a typo— seventy CENTS per pill. Less than one-tenth what it costs in the best discount pharmacy in America.
Icing on the cake? The greatest proportion of Americans who take Plavix are elderly, often covered by Medicare alone and on fixed income. Knowing this MUST make people wonder exactly how much of the tax dollars they spend on such "entitlements" is wasted by laws such as S.2002. Perhaps not 90%, as in this case. How about 80%? 75%? 60%?
Imagine if we could cut Medicare costs by 50%, simply by removing the privileges bought by such incredibly (understatement is kind) imprudent legislation.”

This is the kind of "regulation" that I find extremely troublesome. I'm not opposed to regulation - but the process sure could be more transparent.

Here is the actual text of S.2002, the Online Pharmacy Safety Act:

Pay special attention to the unsupported "findings" section.  Ask yourself why US healthcare costs are exploding. It’s an example of lobbyist - influenced big government being your worst possible enemy. If Mom and Pop could understand what their wonderful government is doing to them, they’d be revolting in the streets with Molotov cocktails.

Thanks to Keith and others like him for helping to expose the hypocritical, money driven corruption that drives much of the legislation in Congress.