Senator Obama Calls President Obama "A Leadership Failure"

Remember back in 2006 when President Obama spoke like a member of the Tea Party (the Tea Party hadn't been created yet)?

As the United States Congress and the President once again discuss raising the debt ceiling, it's good to ponder the words from then-Senator Barack Obama to the Senate on 16 March 2006. Back then, our official public debt was just $8.6 TRILLION.  It currently stands near $17 TRILLION, much of that increase under President Obama's reign.

Mr. President, I rise today to talk about America's debt problem.

The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. It is a sign that the U.S. Government can't pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government's reckless fiscal policies.

Over the past 5 years, our federal debt has increased by $3.5 trillion to $8.6 trillion. That is "trillion" with a "T." That is money that we have borrowed from the Social Security trust fund, borrowed from China and Japan, borrowed from American taxpayers. And over the next 5 years, between now and 2011, the President's budget will increase the debt by almost another $3.5 trillion.

Numbers that large are sometimes hard to understand. Some people may wonder why they matter. Here is why: This year, the Federal Government will spend $220 billion on interest. That is more money to pay interest on our national debt than we'll spend on Medicaid and the State Children's Health Insurance Program. That is more money to pay interest on our debt this year than we will spend on education, homeland security, transportation, and veterans benefits combined. It is more money in one year than we are likely to spend to rebuild the devastated gulf coast in a way that honors the best of America.

And the cost of our debt is one of the fastest growing expenses in the Federal budget. This rising debt is a hidden domestic enemy, robbing our cities and States of critical investments in infrastructure like bridges, ports, and levees; robbing our families and our children of critical investments in education and health care reform; robbing our seniors of the retirement and health security they have counted on. Every dollar we pay in interest is a dollar that is not going to investment in America's priorities. Instead, interest payments are a significant tax on all Americans — a debt tax that Washington doesn't want to talk about. If Washington were serious about honest tax relief in this country, we would see an effort to reduce our national debt by returning to responsible fiscal policies.

But we are not doing that. Despite repeated efforts by Senators Conrad and Feingold, the Senate continues to reject a return to the commonsense Pay-go rules that used to apply. Previously, Pay-go rules applied both to increases in mandatory spending and to tax cuts. The Senate had to abide by the commonsense budgeting principle of balancing expenses and revenues. Unfortunately, the principle was abandoned, and now the demands of budget discipline apply only to spending. As a result, tax breaks have not been paid for by reductions in Federal spending, and thus the only way to pay for them has been to increase our deficit to historically high levels and borrow more and more money. Now we have to pay for those tax breaks plus the cost of borrowing for them. Instead of reducing the deficit, as some people claimed, the fiscal policies of this administration and its allies in Congress will add more than $600 million in debt for each of the next 5 years. That is why I will once again cosponsor the Pay-go amendment and continue to hope that my colleagues will return to a smart rule that has worked in the past and can work again.

Our debt also matters internationally. My friend, the ranking member of the Senate Budget Committee, likes to remind us that it took 42 Presidents 224 years to run up only $1 trillion of foreign-held debt. This administration did more than that in just 5 years. Now, there is nothing wrong with borrowing from foreign countries. But we must remember that the more we depend on foreign nations to lend us money, the more our economic security is tied to the whims of foreign leaders whose interests might not be aligned with ours.

Increasing America's debt weakens us domestically and internationally. Leadership means that "the buck stops here." Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.

The Rest of the Story Behind President Obama's Deficit Claim and PolitiFact's "Fact Checking"

In a speech at Knox College in Illinois on July 24, 2013, President Obama said ...

"... our deficits are falling at the fastest rate in 60 years."

The fact-checking website PolitiFact even rated this claim as true.  However, PolitiFact fails to put this claim and their "true" rating into proper context.  It is much like saying that it is true that the Nazis did good things, as some still claim, while ignoring the big picture of their atrocities and mass murder.

It is indeed true that "our deficits are falling at the fastest rate in 60 years," as shown in the following figure (click to enlarge).  According to the PolitiFact article, the White House makes this claim using a four-year change in the deficit as a percentage of the U.S. gross domestic product, as shown in this chart.  However, what both President Obama and PolitiFact fail to mention is that while "our deficits are falling at the fastest rate in 60 years," this comes after increasing our deficits at the fastest rate since we won World War II after defeating the Nazis and the Japanese Empire.  The deficit reduction is laudable, but it also comes as a result of the prior massive deficits.  Some of the deficit spending during President Obama's first term can be attributed to Bush-era spending, under a Democrat-controlled Congress, including seizing Fannie Mae and Freddie Mac, TARP, and the initial auto bailouts. Additional spending happened under the Obama Administration, again with the Democrat-controlled Congress, including the $787 billion Stimulus, Cash for Clunkers, buying General Motors, 99 weeks of unemployment benefits, and increased welfare, food stamps, and disability benefits.

Let's look at this same information in another manner.  The following chart shows the annual budget surplus or deficit (mostly deficits) as measured as a percentage of the U.S. gross domestic product (GDP).  The bars are color-coded by political party of the President (red for Republican, blue for Democrat) and the Presidents are listed at the top.  As you can see, it is technically true that we are currently reducing our deficits at their fastest pace in 60 years, but only because we ran massive deficits in excess of $1 TRILLION for four years from 2009 through 2012.  Although the 2013 fiscal year isn't yet complete, the White House Office of Management and Budget (OMB) forecasts a smaller annual budget deficit of $759 billion, which helps bolster the President's claim.  However, as a percentage of GDP, this "greatly reduced" deficit still exceeds the largest deficit from President George H. W. Bush in 1992--twenty years earlier.  Part of the reason for the for the smaller budget deficit is the controversial sequestration process that enforces across-the-board budget reductions in spending growth.

Our Rating

We rate the President's claim as "technically true but misleading."  The President is making claims that omit the full context for his claims.

Unfortunately, this isn't the first time that we've found President Obama's claims to be factually correct but misleading.  He, or somebody on his staff, is apparently a fan of the classic book, How to Lie with Statistics.  For another example, see President Obama's claims "... that Ho Chi Minh was actually inspired by the U.S. Declaration of Independence and Constitution, and the words of Thomas Jefferson.”.  Based on Ho's actions, however, Ho apparently read a cheap knock-off translation of these works.

See also ...

• Digging Deeper Into President Obama's Manufacturing Jobs Claim
• What Does the Obama Job Chart Really Mean?

Misconceptions

We received the following tweet that originally alerted us to President Obama's deficit claim. Unfortunately, many of the President's supporters do not actually understand what the President claimed.

The United States government, in no way, shape, or form is the "smallest government in 50 years." The Twitterer is potentially mistaking a claim that we have the lowest percentage of people employed by the government in 45 years. Likewise, the President has not "reduced debt faster than any other President in history."  The President's claim is about deficit reduction, not debt reduction.  Here's a quick tutorial on the difference between deficit and debt, courtesy of the United States Treasury.

In order to have actual debt reduction, we must first run a budget surplus ... and we're in no danger of doing that any time soon.  However, based on changes to policy, it is possible to reduce the forecasted future debt while currently running a deficit.

The President's claim also covers the last 60 years (actually, 64-65 years), not all of U.S. history. There were much bigger improvements to deficits immediately following the end of World War II.

Sorry, we don't "Ignorant much" around these parts.

Methods

According to PolitiFact, the Obama Administration makes this claim using the annual budget deficit measured as a percentage of the U.S. gross domestic product (GDP).  They then measure the difference over a four-year time frame (YEAR(n) - YEAR(n-4).  The deficit as a percentage of GDP data is available directly from the White House web site as Table 1.2.  Use the field "Surplus or Deficit" under "Total".  We used the mid-year updated figures from the White House for 2013, which is not included in Table 1.2.  The updated values are -4.7% and $795 billion, which are to the benefit of the President's claim.

Data Sources

White House: Office of Management and Budget: Historical Tables

Table 1.2—Summary of Receipts, Outlays, and Surpluses or Deficits (-): 1789–2018 (Total Surplus or Deficit as a Percentage of U.S. GDP)
Table 1.1—Summary of Receipts, Outlays, and Surpluses or Deficits (-) as Percentages of GDP: 1930–2018 (Total Surplus or Deficit in Current Dollars)
www.whitehouse.gov/omb/budget/historicals

Wall Street Journal: White House Sees Smaller Budget Deficit in 2013 (Lower, revised 2013 deficit numbers based on mid-year update)

online.wsj.com/article/SB10001424127887323368704578594020152453486.html

PolitiFact: Obama says deficit is falling at the fastest rate in 60 years
www.politifact.com/truth-o-meter/statements/2013/jul/25/barack-obama/obama-says-deficit-falling-fastest-rate-60-years

FactCheck.org: Deficits Falling (From Way Up)
http://www.factcheck.org/2013/08/deficits-falling-from-way-up/

California Budget Charts

California Proposition 30: Governor Jerry Brown's Big-Government Tax Hike

California Governor Jerry Brown, in partnership with public-sector unions such as the California Teachers Association (CTA), the California Federation of Teachers (CFT) and the Service Employee International Union (SEIU) proposes big tax hikes on a small number of Californians in order to close a multi-billion dollar budget hole.  Despite the budget hole, threats to public safety, and threats to close public schools for weeks, the California Legislature continues to block prudent comprehensive public-pension reforms, to fund tuition benefits for children of undocumented workers, and to fund a not-so-"high-speed" rail line between Merced and Bakersfield.  The California Legislature has NO SPENDING PRIORITIES.

The latest incarnation of the Governor's plan will appear on the November 2012 ballot in California as Proposition 30.

California already has some of the highest state taxes in the United States.  Those earning over $48,000 incur a 9.3% state tax rate--California's second-highest rate, which by itself is already the fourth highest in the nation even without any tax hikes.  Only the top tax rates in Hawaii, California, and Oregon are higher.

If passed, Proposition 30 would burden California the nation’s first, second, third, and fifth highest marginal state tax rates!  The following chart compares California's current state income tax rates and proposed increases against the highest income tax rates in other states.  Billed by the Governor and his allies as a "temporary" tax hike, these rates would be in effect for seven years.  The income tax increases fall exclusively on the top 2-3% of taxpayers who already pay roughly half (or more) of California's entire tax bill.

In order to appear "fair" and "broad-based", Proposition 30 also increases California’s state sales tax, already the nation’s highest. The following chart compares California’s state sales tax rate to the other 49 states.

Despite all of Governor Brown's talk of tax fairness, Proposition 30 circumvents the Legislature’s 2/3rd requirement to raise taxes. In fact, Proposition 30 is “electioneered” by Governor Jerry Brown and his allies to only require a simple majority to pass. Proposition 30 asks the 50% of California voters--who pay little or no state income tax--to pass a big tax increase on the top 2-3% of California taxpayers, who already pay roughly 50% of ALL state income taxes. Proposition 30 is an abuse of the so-called “democratic process”, especially for so-called Democrats. Is this what “democracy” looks like?

Proposition 30 asks California voters for a four-year, 0.25% rate increase to the state sales tax, which equates to a 3.4% rate increase. The sales tax hike applies to ALL Californians. Proposition 30 also asks voters for a seven-year increase on only the top 2-3% of income taxpayers.  This equates to a 9.7% to 24.4% rate increase for the taxpayers who ALREADY pay the highest effective tax rate and roughly 50% of all state income tax.

In 2009, the average tax liability for every California taxpayer was about $2,655.  However, averages usually hide some important details.  For example, the average human being has one testicle and one ovary.  The bottom 50% of taxpayers (and possible voters) pays between $0 and $500 in TOTAL California income tax.  Meanwhile, Governor Brown's tax increase targets the top 2-3% of taxpayers who earn $250,000 or more ever year, despite that they ALREADY pay the highest effective tax rates.  These taxpayers also already pay between $9,000 and $1.3 million.

The primary reason that California income tax revenues collapsed during the financial crisis is that INCOMES collapsed for ALL Californians, but especially for those at the top. The following chart shows the incomes and income taxes collected in 2007 (before the financial crash) and in 2009 (after the financial crash).  Why the big swings in income and taxes for those making over $1 million?  Unlike the federal tax system, California treats capital gains exactly like ordinary earned income.  The California Legislature loves all the extra revenue generated from stock market and real estate gains.  Unfortunately, this over-reliance means huge decreases during market crashes.  The subprime crisis causes simultaneous crashes is BOTH real estate and on Wall Street.  The California Legislative Analysts Office (LAO) has long recognized this problem as a cause for California's revenue volatility.

Despite that top taxpayers still  pay the highest marginal tax rates, Proposition 30 wants to increase those rates even more, leaving California even MORE VULNERABLE to future market swings. 

California ALREADY suffers from its high taxation. The result is that California suffers from a poor business tax climate that drives away jobs and causes are above-average unemployment.  Many Democrats within the California government refuse to believe that high taxes have any effect on California's economy, despite ample evidence to the contrary.  Why have California's tax revenues dropped?  It is NOT because tax rates are too low.  The fundamental problem is that California's private-sector economy is stagnating while government expenditures have increased.  Simply raising taxes, even if it is limited to the top 2-3%, will NOT fix what ails California.

California currently has the nation’s 3rd-worst unemployment rate, beating out only Rhode Island and Nevada.

Naturally, the public-employee unions are bankrolling Proposition 30 and have spent over $31.6 MILLION as of November 3, 2012.

Many of these groups are also recognized as the biggest spenders in California politics, according to a March 2010 report by the California Fair Political Practices Commission.  The California Teachers Association (CTA) has spent $10.7 MILLION on Proposition 30 so far and the Service Employees International Union (SEIU) has spent over $11.1 MILLION as of 11/3/2012.  The spending will likely be even higher by the time the election is over.

What kind of access does that kind of money buy? Just ask California Governor Jerry Brown, who has private town-hall meetings with California's public-sector unions.  Even career Democrats such as Willie Brown (no relation)--California's longest-serving Assembly Speaker and former Mayor of San Francisco--recognize that Governor Brown is a prisoner of the teachers unions. These are the same unions that are bankrolling his tax hike and likely will be out campaigning for it before November.

Meanwhile, the amount of money that the State of California spends continues to grow.  State spending is up 23% since 2000, even accounting for inflation.

Political columnist Dan Walters asks some very good questions about Proposition 30.

Why should we pay more ...

• when we already have one of the nation's highest tax burdens,

• when the Legislature is handing out raises to its staff,

• when politicians haven't curbed rapidly increasing pension costs,

• when they're wasting billions on prisons, 

• when they've shunned a spending limit,

• when they've squandered money on a hapless bullet train project and unworkable computer systems, 

• when they're spending tens of millions on illegal immigrants' college educations, and 

• most importantly – when the state is mired in recession and 2 million-plus are jobless?

Fellow Californians, I urge you to VOTE NO on PROPOSITION 30!  It's bad tax policy and an abuse of the democratic system.

See also ...

• California Secretary of State: Text of Proposition 30
  http://ag.ca.gov/cms_attachments/initiatives/pdfs/i1057_12-0009_governors_initiative_v3.pdf
• California Legislative Analysts Office: Proposition 30
  http://www.lao.ca.gov/ballot/2012/120208.aspx
• MapLight.org: California Proposition 30
  http://votersedge.org/california/ballot-measures/2012/november/prop-30/funding
  
• KCET: Prop 30 Cheat Sheet: Jerry Brown's Tax Measure
  www.kcet.org/news/ballotbrief/elections2012/propositions/prop-30-cheat-sheet-jerry-browns-tax-to.html
• KCET: Who's Funding Prop 30, Jerry Brown's Temporary Tax for Education and Guaranteed Public Safety Funding?
  www.kcet.org/news/ballotbrief/elections2012/propositions/database-whos-funding-prop-30-temporary-tax-to-fund-education.html
• Ballotpedia: California Proposition 30, Sales and Income Tax Increase (2012)
  www.ballotpedia.org/wiki/index.php/California_Proposition_30,_Sales_and_Income_Tax_Increase_(2012)
• California Secretary of State: Political Committees to Support or Oppose Proposition 30
  http://cal-access.sos.ca.gov/Campaign/Measures/Detail.aspx?id=1346100&session=2011
• Election Track: Californians Working Together To Restore And Protect Public Schools, Universities And Public Safety
  www.electiontrack.com/lookup.php?committee=1346049
• Election Track: Californians To Protect Schools, Universities And Public Safety, A Ballot Measure Committee Supported By Governor Jerry Brown
  www.electiontrack.com/lookup.php?committee=1343257
• Election Track: Reclaim California's Future - Yes On Prop. 30
  www.electiontrack.com/lookup.php?committee=1347688
• Election Track: Educators And Working Families To Restore California, A Coalition Of Educators, Community Groups, And Grassroots Organizationswww.electiontrack.com/lookup.php?committee=1344079
• Dan Walters: "Censorship rears its ugly head in California Senate"
  www.sacbee.com/2012/08/10/4712081/dan-walters-censorship-rears-its.html
• Sacramento Bee:  "Viewpoints:  Prop. 30 will hurt state's economic prospects"
  http://www.sacbee.com/2012/10/06/4885977/viewpoints-prop-30-would-hurt.html
• Santa Clarita Valley Signal: "Kevin Korenthal: Prop 32, not 30, deserves your vote"
  http://www.the-signal.com/section/33/article/77367/
• Santa Cruz Sentinel: "Prop. 30 neither honest nor transparent" http://www.santacruzsentinel.com/opinion/ci_21814545/harold-griffith-prop-30-neither-honest-nor-transparent
• Daily Titan: "Prop 30 can't save California from debt" http://www.dailytitan.com/2012/10/prop-30-cant-save-california-from-debt
• CATO: "86ing the Arguments for California Props 30, 38"
  http://www.cato-at-liberty.org/86ing-the-arguments-for-california-props-30-38
• BLOG: "Was the California Senate Censorship of Proposition 30 Intentional? You Decide!"
  http://soquelbythecreek.blogspot.com/2012/08/as-reported-in-sacramento-bee-democrat.html
• BLOG: "The Hollywood and Media Hypocrisy on California Proposition 30 and Possible Media Bias"
  http://soquelbythecreek.blogspot.com/2012/08/prop30mediabiasquestions.html
• BLOG: Proposition 30 "Trigger Cuts" Threat Add Up to a Whole Lot of Nothing http://soquelbythecreek.blogspot.com/2012/10/proposition-30-trigger-cuts-add-up-to.html

Examining Governor Jerry Brown's Proposed Tax Increases

(Updated 27-MAR-2012)

NOTE:  This analysis is for Governor Brown's initial tax hike proposal.  Due to political infighting with the California Federation of Teachers (CFT), Governor Brown has modified his proposal to be more like the CFT's so-called "Millionaires Tax."  Essentially, the new plan has a smaller increase on sales tax revenues, has significant additional income tax increases on upper-income taxpayers, and extends the "temporary" increase to seven years.  A new analysis is in the works but all of the arguments against the increase still hold true. 

It looks like California Governor Jerry Brown is out with his proposed "fix" for California's budget shortfall.  Turning to his exhaustive play book of--how shall I say this politely?--one play, the Governor proposes tax hikes.  And this is from a Governor who sold the electorate on his vast political experience.

First, some background information.  California already has the nation's second-highest marginal tax rate of 10.3%, second only to Hawaii, at 11%.  Even California's 2nd top income tax rate is the nation's 4th highest, after Hawaii, California's top bracket, and Oregon.  California's 2nd top bracket starts at $48,000 in income for single taxpayers.

To fix the multi-billion dollar shortfall, Governor Brown proposes creating new state tax brackets and to increase taxes on those brackets by up to 21.5%.  The Governor's proposal would add the following new brackets.  The dollar brackets shown are for single tax filers; brackets for married filing jointly are doubled.

• Tax rates for those making less than $250,000 remain the same.  California would keep it's current 9.3% rate for those making more than $47,000.
• Income between $250,000 and $300,000 are taxed at 10.3%, which is the same rate currently charged for those making more than $1,000,000.
• Income between $300,000 and $500,000 are taxed at 10.8%.
• Income between $500,000 and $1,000,000 are taxed at 11.3%, which exceeds the highest marginal tax rate from any other state in the nation.
• Thanks to California's Proposition 63, those earning more than $1,000,000 are charged an extra 1% to fund mental health services--proving I guess that you must be INSANE to be a millionaire and have your tax residence in California.
• Unlike the federal government and many of its economic competitors, California treats capital gains exactly like ordinary income and taxes capital gains at the maximum applicable tax rate.  This means that California's budget greatly depends on stock market and real-estate returns on upper-income taxpayers.  The result is a watershed of revenue in good times and a drought during downturns.

The following chart helps to better compare the increased tax rates against those of other states.  (NOTE:  Oregon dropped their top rate from 11% to 9.9%)

The Governor purposely did not increase tax rates on lower incomes, perhaps in a nod to tax fairness.  After all, those making more than $300,000 only currently pay more than eight times more total tax and have an eight times higher average effective tax rate than the vast majority of other Californians.  The only thing lacking from the 1.9% of taxpayers is the votes at the ballot box to prevent more exploitation by the majority.

Those in upper brackets not only pay a higher effective tax rate, they also obvious pay far more in absolute dollars.  Those fortunate 42,517 taxpayers with incomes of $1 million or more paid an average of $304,553 in California income taxes with an effective tax rate of 8.97%.

In all fairness, all taxpayers, especially those at the lower-end of the income spectrum, will be hit by Governor Brown's proposed sales tax increase.  California ALREADY has the nation's highest sales tax rate.  Governor Brown will enshrine our first place finish by adding another 0.5% on top, not including the additional taxes charged by various California counties and cities.  This amounts to a 6% increase over current tax law.

Governor Brown's tax increase proposal will likely be popular with the two biggest spenders in California politics, the California Teachers Association (CTA) and the California State Council of Service Employees (SEIU).  Both are significant donors to the Governor's political party.  Furthermore, even fellow Democrats acknowledge that Governor Brown must kowtow to the teacher's union.

The bulk of any tax revenues is earmarked for education, which is already one of the biggest recipients of taxpayer dollars.

The big questions remain.  How will these proposed tax increases affect California's already damaged business climate--you know, the source for all that tax revenue.  California currently ranks at or near the bottom of various surveys, from multiple independent sources, for multiple years.

California's poor business climate and high taxation resulted in a net migration out of California.  According to the L.A. Times, the percentage of people from other U.S. states is the lowest it has been in a hundred years!  Because California's tax revenues are so dependent on very few, high-income taxpayers, small changes in taxpayer population can have dramatic effects on tax revenues.  Over 50% of income taxes come from less than 2% of the population.

Political columnist Dan Walters has a great summary message for those that oppose the tax increases.

Why should we pay more ...

• when we already have one of the nation's highest tax burdens,

• when the Legislature is handing out raises to its staff,

• when politicians haven't curbed rapidly increasing pension costs,

• when they're wasting billions on prisons, 

• when they've shunned a spending limit,

• when they've squandered money on a hapless bullet train project and unworkable computer systems, 

• when they're spending tens of millions on illegal immigrants' college educations, and 

• most importantly – when the state is mired in recession and 2 million-plus are jobless?

Well said, Mr. Walters!

Who's bankrolling the initiative?


Brown, Teachers, Business And Public Safety, Californians To Protect Schools, Universities And Public Safety, A Ballot Measure Committee Supported by Governor Jerry
www.electiontrack.com/lookup.php?committee=1343257

(as of 13-FEB-2012)

See also ...

• Governor Jerry Brown:  An Open Letter to the People of California (5-DEC-2011)
  www.jerrybrown.org/sites/default/files/GovernorsLetter12_5_11-1.pdf
• Governor Jerry Brown: The Schools and Local Public Safety Protection Act of 2012www.jerrybrown.org/sites/default/files/TheSchoolsandLocalPublicSafetyProtectionActof2012.pdf
• Sacramento Bee: California's high-income taxpayers dropped sharply
  http://blogs.sacbee.com/capitolalertlatest/2012/02/californias-high-income-taxpayers-have-dropped-sharply.html
• Dan Walters: Jerry Brown's tax plan tries easy political routewww.sacbee.com/2011/12/07/4104882/dan-walters-jerry-browns-tax-plan.html
• Soquel by the Creek: Who Pays Their "Fair Share" in California?soquelbythecreek.blogspot.com/2011/10/who-pays-their-fair-share-in-california.html
• Soquel by the Creek: American Federation of Teachers: Part of the Solution or Part of the Problem?
  soquelbythecreek.blogspot.com/2011/10/american-federation-of-teachers-part-of.html

IDEA: Government Efficiency Standards Modeled on Fuel Standards

"... what [is] good for the country [is] good for General Motors, and vice versa." -- Charles E. Wilson, former President of General Motors and Secretary of Defense in the Eisenhower Administration.

The White House recently mandated new fuel-efficiency standards for cars and trucks sold in the United States. Presently, the U.S. fuel standard is 28.3 miles per gallon. The new standard mandates 54.5 miles per gallon by 2025, just fifteen short years from now.

This new government standard mandates a 93% improvement, saving money and reducing greenhouse gas emissions. Cars and trucks sold in 2025 must be nearly TWICE as efficient as they are now. New cars could travel the same distance burning only half as much fuel. Imagine the power of the government's mandate!

Okay, now imagine if U.S. citizens placed similar mandates on the federal government. By 2025, we could have a similar-sized federal government that burns only half as much money.

Currently, the U.S. federal government borrows about $0.42 of ever $1.00 that it spends. If we could improve government efficiency at delivering necessary services, we could reduce our enormous budget deficits and reduce the national debt.

Growth in USA Public Debt (2001 to 2021)

The following chart shows the U.S. public debt from 2001 to 2021. The data from January, 20001 through June, 2011 uses the latest public debt data available directly from the U.S. Treasury. The values from 2012 through 2012 use public debt data (Table 1-4) from the Congressional Budget Office's (CBO) January 2011 baseline projections. Adjacent to segments of the data is the growth rate in the debt. You can see that the debt from 2009 through 2011 greatly exceeds the historical growth rate. For example, the growth rate in the debt from 2002-2008 was about $505 BILLION per year. The growth rate from 2009-2011 jumped to about $1.2 TRILLION per year, or over two TIMES the previous growth rate.

The chart also lists the political leaders of the United States during this period, including the President, the Senate Majority Leader, and the Speaker of the House. Lastly, the chart shows the political party that controlled the Congress at large.

(click to enlarge)

President George W. Bush was inaugurated in January, 2001 and his Presidency lasted until Barack Obama was inaugurated President in January, 2009. The Bush Administration saw a tremendous amount of political and financial turmoil.

• The crash of the telecom/Dot-Com bubble in 2000 until 2001. The resulting recession of March through November 2001, the Republican-dominated Congress passed the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)--the first part of the Bush Tax Cuts.
• The terrorist attacks on September 11, 2001 targeting the World Trade Center in New York, the Pentagon in Washington, D.C., and an additional attack thwarted by passengers that crashed in Pennsylvania.
• The Afghanistan War beginning in October, 2001, a response to the World Trade Center attack. Congress granted authority to use force on September 14, 2001, signed by President Bush a week after the 9/11 attacks.
• The second Iraq War beginning in March, 2003. Congress had previously granted authority to use force in October 2002.
• In September, 2003, the Bush Administration asked for significant oversight reform of mortgage giants Fannie Mae and Freddie Mac. Congress did not act.
• In 2005, Senator Chuck Hagel introduced reform legislation over government-sponsored home mortgage enterprises. The legislation died in committee.
• Hurricane Katrina struck New Orleans and the Gulf States in August 2005. The damage wrought by Katrina made it the costliest in U.S. history and the deadliest in recent history.
• Medicare Part D, passed in 2003, went into effect in 2006.
• The subprime mortgage/housing bubble in 2006 through 2008.
• The collapse of Lehman Brothers in September, 2008.
• The government seizure of semi-governmental Fannie Mae and Freddie Mac, also September, 2008.
• The passage of the Trouble Asset Relief Program (TARP), a bank rescue program, in October 2008.
• Due to the economic turmoil in the banking and real-estate sectors, a number of major banking institutions failed and were consolidated into healthier banks.
• Mass layoffs and a rising unemployment rate.

Republic President George W. Bush enjoyed a Republican-majority Congress during 4.5 of his eight years in office. Due to the deteriorating economy and the wars in Iraq and Afghanistan, the Republicans lost control of both Houses of Congress in the 2006 election cycle. Democrats controlled both Houses from 2007 until 2011, when Republicans regained the House. Despite having a divided Congress in the latter party of his second term, President Bush rarely exercised his veto power over Congress or its spending.

In an historic election, Barack Obama became the country's first African-American President. Although President Obama inherited economic turmoil, the Obama Administration and Congress embarked on its own spending programs. President Obama also inherited a significantly larger debt to pay for the TARP bank bailouts, some of which has since been repaid. President Obama enjoyed a solid nearly veto-proof majorities in both Houses of Congress from 2009 until the Republicans reclaimed the House in 2011.

• Soon after Barack Obama's inauguration, the Congress passed a $787 billion economic stimulus package called the American Recovery and Reinvestment Act (ARRA).
• The federal government rescued failing automobile manufacturers General Motors (GM) and Chrysler. The federal government became a majority shareholder in GM and sold a majority of Chrysler to Italy's Fiat.
• The Congress passed a $3B "Cash for Clunkers" program to spur auto sales.
• A further escalation of the Afghan conflict in December, 2009, including air attacks from drones in Pakistan.
• The Congress re-authorized the expiring Bush Tax Cuts in December, 2010 for another two years. The "Great Recession" of December, 2007 through June, 2009 still held sway over the United States economy.
• A new military conflict began in Libya in March 2011, in an attempt to sway the ongoing civil war.
• Due to high levels of unemployment, the Congress extended the time allowed for long-term unemployment benefits.
• Due to changes in the tax code and the weak economy, about 46% of taxpayers will pay no federal income taxes or will receive a net refund in 2011.

The Problem with California Education Spending--It's Not Education

On March 4, 2010, students and educators around California protested against draconian cuts in education within the California state government budget. However, there are larger issues involved, namely the actual root cause of California's budget mess.

The following chart shows California's expenditures on education relative to the state's total expenditures. The education expenditures include funding for Kindergarten through 12th grade (K-12) plus funding for higher education. Note that the state's total expenditures have increased far faster than education funding.

The chart below shows the same data but this time adjusted for inflation. The expenditures are normalized to 1976 dollars (although not adjusted for California's increased population). In this chart, spending that tracks inflation appears as a flat line. Funding for higher education has essentially tracked inflation while K-12 and total education expenditures increased slightly faster than inflation.

However, notice that total state expenditures grew far faster than the inflation rate. This is the root cause of California's budget mess. While this chart is not normalized for both inflation AND population growth, spending did grow much faster than population. California's population increased by 24% from 1990 to 2009, or 29.76 million to 36.96 million. Meanwhile, inflation-adjusted spending rose 85% from 1990 to 2009 or three and half times faster than population growth!

California's budget problems do not necessarily reside within the education budget, although there is always room for improvement. Because of increased budget demands elsewhere, money is siphoned away from education. Fix the runaway state spending in other areas and the educational budget will fix itself. State spending must be reduced!

Similarly, California's overly-progressive Personal Income Tax mechanism relies too heavily on too few taxpayers and is therefore highly volatile, leading to massive swings in state revenues, depending on real estate returns and the stock market. California's tax structure must be revised to make revenues more consistent, dampening the year-to-year swings.

What is California's Legislature doing to fix these issues? Not much! Instead of focussing on balancing the budget or reforming California's out-of-control public-employee pension system, Legislators pass useless resolutions such as the Cuss-Free Week.

What can you do? Contact your California State and Assembly representatives and let them know that you want them to focus on sanely balancing the budget, cutting spending in areas besides education, and reforming the state pension system.

Find Your California Senate and Assembly Representative
http://192.234.213.69/lmapsearch/framepage.asp

Learn more on what other current and former state leaders have to say.

Former California State Assembly Leader, Willie Brown
soquelbythecreek.blogspot.com/2010/03/even-liberal-democrat-willie-brown-sees.html

California State Treasurer, Bill Lockyer
soquelbythecreek.blogspot.com/2010/02/california-treasurer-lockyer-scolds.html

See also ...

"Why The Student Protestors Are Wrong"
www.mindingthecampus.com/originals/2010/03/why_the_student_protestors_are.html

Sources:

California Program Expenditures
www.dof.ca.gov/budgeting/budget_faqs/documents/CHART-C1.pdf

Inflation Data from the Bureau of Labor Statistics (CUUR0000AA0)
data.bls.gov/cgi-bin/surveymost?cu

The Oppressive Progressive Income Tax: California Edition

I thought I would share a few charts on California’s Personal Income Tax (or PIT for short). I haven’t had time to analyze the federal IRS data yet. California’s PIT is more heavily progressive than the federal income tax and California relies on PIT for a greater share of total revenues (nearly 50% in 2006). California treats all income equally. Unlike the federal government, California taxes capital gains at the ordinary income level. Most of the taxes collected at the upper end are from stock and real-estate gains which have been devastated by the simultaneous downturns in both areas (hence the California budget disaster).

Recently, many in California pointed to the 2/3rds majority tax approval requirement as a stumbling block to patching the state government’s massive spending crater. Some argued that California needs to impose higher taxes on the rich because “we all know that the rich don’t pay their fair share.” These charts were meant to analyze these arguments.

The following charts use data freely available for download from California’s Franchise Tax Board (FTB, or California’s IRS).

I then sorted the percent of PIT taxes paid by population. I think that the chart speaks for itself, showing that the state’s need for revenues falls on a small minority of (i.e., electorally insignificant) taxpayers.


If distributed equally, the “average” state tax bill would be $3,100. By population, 85% of taxpayers paid below the average while just 15% paid above the average. Amazingly, half of the entire PIT tax bill is paid by just 2% of taxpayers. The other 98% of taxpayers pay the other half. The 2/3 majority requirement is the ONLY real check against runaway spending, and admittedly not a very good one.

Back to the 2/3rds discussion for a second. The majority of Californian’s already pay less than the “average”, even at the 66.7% population level. In fact, that electorally-strong 2/3rds contributed just 6% to the entire PIT tax bill. The electorally-weak 1/3 contributed the other 94%. Remember the 2% that pays 50% of the PIT bill? Well, because PIT is half of California’s revenues, those 2% provided a full quarter of the entire state’s revenues (thank you, my beloved fellow Californian). That 2% of taxpayers equates to a city the size of Riverside, CA or about 280,000 people. Remember, the state’s entire population is roughly 37 million, so we’re talking less that 0.8% of the entire population. But this is fair, right (he writes with fingers dripped in sarcasm)?

Let's look at it another way. Would you agree that all California residents benefit from state government? Do all state residents benefit equally? Sure, some argue that the rich benefit more because they have more to lose while others point to the costs of welfare and social programs at the low end. So let's look at the effective cost of state government by population. This following chart shows the effective cost of $1 of state government. Those taxpayers that pay below the “average” cost pay less than $1, those that pay above the average pay more. We won’t even discuss the estimated 7%-8% of the population that is here illegally and likely pays nothing in PIT.


Two-thirds of Californians effectively pay only 25 cents on each $1 of state service that they receive. A full half of taxpayers pay less than 12 cents. The remainder of that cost is subsidized by those at the upper end. High wage earners (we should all be so luck), effectively pay over $500 for every $1 of service.

Here is where the conflict emerges. We have two different systems when voting on spending and tax-related measures.

On one side, we have "one person, one vote". Many who vote in favor of more spending will never have to pay for the consequence of their vote.

On the other side, we have the progressive income tax system where top income earners pay more for government programs, despite having just one vote.

Politicians love to promise new spending to win votes and guarantee re-election. Voters love new services for which they do not have to pay. The progressive income tax system gives both the politicians and voters what they want without any pesky checks and balances.

Let's use an illustrative example. Say that, in order to ensure re-election, the dominant political party decides that every Californian MUST have a 50-inch HDTV on which to watch (and snicker at) the Governor's latest action flick. Due to State's buying power, the State can buy these TVs for $1,000. Just vote "Yes" on the ballot proposition and you too can have one of the beauties. The cost will be painlessly applied to your annual Personal Income Tax bill.

If you are in the bottom two-thirds of the taxpayer population, you pay just 25 cents or less on the dollar. Effectively, you are insulated from the true cost of operating the state government. This means that the $1,000 TV costs you $250 or less. If you are in the bottom 30%, the cost is only $100 or less because you effectively pay 1 cent on the dollar or less. So which way are you going to vote? I'd guess YES.

Now, let's say that you happen to be in the top 15% of taxpayers. Due to the progressive income tax, this means that you effectively pay more than $1 for every $1 of service. "That's fair," you say, "because they earn more money." Okay, let's look at the top-most 2% of taxpayers, you know, the ones that pay 50% of the entire bill. These "lucky" citizens effectively pay $4.75 and much, much more for every $1 of government service. That $1,000 TV effectively costs a minimum of $4,750 to these taxpayers. For the very top taxpayers, the bill comes to an amazing $507,000! All this, despite that these taxpayers likely already have two better-quality TVs at home. If you are in this category, I'd guess that you would vote NO. Unfortunately for you, you are electorally insignificant. It REALLY DOES NOT MATTER if you think this is a good idea or not but you WILL have to PAY FOR IT.

At the ballot box, the top 15% of taxpayers can NEVER prevail in a free and fair democratic election against the majority for popular programs. Want a low-cost 50-inch HDTV? Vote "YES" and make somebody else pay for. Want free higher education? Vote "YES" and make somebody else pay for it. Want free medical care? Vote "YES" and make somebody else pay for it.

The politicians that use these techniques appeal to the broad masses, ensuring re-election. There are no checks and balances against such abuses. While I have not found "smoking gun" evidence, it does offer an explanation for California’s constant overspending (above inflation and population growth), the lack of fiscal discipline, and the domination of one party in the California Legislature.

There is also a separate debate as to whether the excess tax money better serves society when in the hands of government, or left in the pockets of those that earned it. By California’s example, even a spoiled rich heiress might make better spending decisions.