Friday, January 23, 2009

TAX, Baby, TAX

save for future use....

Tuesday, January 20, 2009

Social Security

ULTRACON: meaner than a junkyard dog.

Inauguration Day

Ultracon is pleased that STAR BUSINESS WEEKLY, an organ of The Kansas City Star, is running his commentary today, which can be found HERE. But the article appears below, too, as the shelf life of The Star’s online side isn’t all that long. This may be the case with all but the biggest of newspapers, like The Wall Street Journal. That’s because newspapers make a tidy sum by selling their content to Lexis-Nexis. So they’re obliged to take it down from their websites. Or so I’m told. As usual, my title got changed. But this title probably needed to be changed. I was thinking of The Fonz, i.e. Fonzi.

(Don Porter (to whom I refer in my article) also states in his letter to the editor that Social Security “is social insurance”. The Star ran my treatment of that issue about 4 years ago, and it’s still up at the Public Program Testing Organization: But is it Really Insurance?)

Yo, Ponzi
By Jon N. Hall
January 20, 2009

In the wake of the Bernard Madoff scandal, folks have chimed in that the Mother of All Ponzi Schemes is none other than Social Security.

Inasmuch as Ponzi schemes are illegal and Social Security is a government program, that claim might not hold up in court.

In “Social Security is not Ponzi scheme” (12/31, Letters, THE KANSAS CITY STAR), Don Porter and Lloyd Hellman have their say. Porter claims: “From the beginning it has been a pay-as-you-go government system and never an “investment””. (One doubts that investors in Mr. Madoff’s hedge fund think it’s much of an investment, either.)

The issue here is whether Social Security operates like a Ponzi scheme.

In a Ponzi, income from new investors is used to pay off old investors. In this respect, a Ponzi is identical to the “pay-as-you-go” aspect of Social Security, where the payroll taxes (FICA) of current workers pay for the benefits of retired workers.

The reason a Ponzi is financed like this is because the dollar difference between income and outgo isn’t fully invested, so there aren’t adequate profits to meet the demands of investors. Here, too, Social Security is identical to a Ponzi – except that Social Security is purer.

Whereas a Ponzi, like Mr. Madoff’s hedge fund, must at least make some investments – if for no other reason than to escape notice from the Securities and Exchange Commission – the Social Security Administration invests none of its surplus. Yes, Social Security does have a so-called trust fund, said to contain more than $2 Trillion. But the treasuries in the “trust fund” differ from “regular” treasuries in that they are not marketable; they’re IOUs. In reality, there is no Social Security trust fund – the government spent the surplus.

Also, the “pay-as-you-go” aspect of Social Security will end – in 2017, it is estimated – when payroll taxes are no longer adequate to pay benefits. At that point, the treasuries in the “trust fund” will be “redeemed” to continue paying benefits at the same pace. And where will the money for those redemptions come? Why, from the general fund of the U.S. treasury. Which means: Social Security benefits paid for out of the trust fund are paid for twice, first by payroll taxes and second by other taxes that go into the general fund.

If the federal government wants Social Security to escape the stigma of being a Ponzi, then it must either limit payroll taxes to being no more than benefits or it must invest the surplus in real income-producing investments, not U.S. treasuries or securities. It should also do away with the accounting fiction known as the “unified budget”.

So, Ponzis and Social Security are operationally identical. The difference between the two is in how their surpluses are used.

In a Ponzi, we’re talking simple grand larceny. But in Social Security, the surplus goes into the U.S. treasury’s general fund. And since money is fungible, the Social Security surplus is used to pay for everything in the federal budget. Which includes the pork and earmarks incumbent Congressmen use to bribe the electorate into re-electing them.

So, dear reader, if you benefit from pork or earmarks and you re-elect these guys, are you a party to a Ponzi scheme?

In Mr. Hellman’s letter to the editor, he asserts: “Social Security is not and never was a Ponzi scheme…I am not only entitled to the return of the money I paid in, but the interest I earned for 64 years”.

Not so fast. We’ve already been here.

In Flemming v. Nestor (1960), the Supreme Court “established the principle that entitlement to Social Security benefits is not contractual right”. In other words, taxpayers have no property rights to Social Security benefits whatsoever.

Moreover, in Section 1104 of the 1935 Act: “The right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress.” Which means: Congress can end Social Security whenever it so chooses.

Folks might comfort themselves by thinking: Congress isn’t going to kill Social Security. And they’d be right – it would be political suicide.

But America is entering uncharted waters. The population is aging. The deficit is skyrocketing. We’re at war. And Congress is on a spending spree like no other and wants to “give” health-care and Lord knows what else to every last one of us including illegal aliens. The question isn’t just whether Social Security will be there for you, but whether the good ole U.S. dollar will still be worth anything.

So as you survey your family’s future security, social or otherwise, think about how the government finances things.

Jon N. Hall is a programmer/analyst from Kansas City.

Saturday, January 10, 2009

Trillion dollar deficits -- PART 2

ULTRACON: the blogger who refers to himself in the third person.

The following article appeared at the now-defunct, RIP. Ultracon then disseminated the thing through the ether via email in the hope of infusing the electorate with some sense before the election, alas. The fears expressed have all come to pass…and in spades: Trillion dollar deficits for years to come.

The Budget Deficit: Deflecting Blame, Abdicating Responsibility
By Jon N. Hall
October 16, 2008

One of the disadvantages of being the majority is occasionally you have to act like one.

When Democrats captured Congress in 2006, fiscal 2007 became the last year the Republican Congress could be held responsible for the budget. Total federal revenue for fiscal 2007 was a record $2.56 Trillion. The last year Democrats had produced a budget was fiscal 1995, when total federal revenue was $1.35 Trillion.

So, the new Democratic Congress had about $1.21 Trillion MORE with which to balance the budget than they had had 12 years earlier in their last attempt.

Would it be enough?

For the first 6 months of fiscal 2008, the federal deficit hit an all time record high of $311.4 Billion, up 20.5 percent from the previous year (also here, and for wonks here). The 2008 budget is the Democrats’ first budget since regaining control, and its deficit can’t be blamed on low revenue—federal revenue for the period also set a record.

There’s your Democrat Congress for you, the all time worst performance on the deficit for the first half of a fiscal year despite record high revenue. Not to rest on their laurels, the Democrat Congress went on to set the record for an entire fiscal year with a deficit of $455 Billion for 2008. This comes immediately after 3 solid years of progress by the Republicans, during which they reduced the on-budget deficit by $224 Billion—all wiped out by the spendthrift Democrat Congress’ first budget.

And remember, this Democrat deficit comes before the addition of universal health-care, universal pre-kindergarten and universal you-name-it. And it comes before the recent bailouts and rescues. Some predict a $1 Trillion deficit for fiscal 2009. (A trillion here and a trillion there and pretty soon you’re talkin’ real money.)

After 12 years in the minority—far longer than any other stretch since 1932—the Democrats immediately revert right back to their old playbook. The Democrats just can’t help themselves; they are genetically incapable of spending restraint. When confronted with what has been called a financial Pearl Harbor, they couldn’t resist larding up the $700 Billion bailout/rescue with pork—in what they themselves described as one of the most important votes of their careers, they couldn’t produce a clean bill.

The Democrats’ answer for everything is to raise tax rates on business and the wealthy, all the while demonizing them.

So how could the economy NOT be faltering? Investors and businesses are looking straight into the jaws of massive Democrat tax rate hikes. For the economy’s sake, wouldn’t it be better to leave the capital with the capitalists?

The Party of Taxes “needs” your money, nonetheless. And you should gladly fork it over to them, because Democrats know so much better how to spend your money than you do. After all, they’re the Keepers of Civilization.

July 13 on Meet the Press Senator Claire McCaskill (D-Mo) said: “and, and it was interesting that Carly [Fiorina, former CEO of Hewlett-Packard] referred to the boom years. That's when we had a Democratic president and a Democratic Congress. Those were the boom years. And that's the, the years we want to get back to.”

Whatever could Sen. McCaskill be referring to? When were these halcyon days of yore? The 1990s? Didn’t we have a Republican Congress in those “boom years”? She certainly can’t be referring to the Carter years. The last time a Democratic Congress produced a “real” balanced budget—that is, without an on-budget deficit [1]—when a Democrat was in the White House was fiscal 1951. The last time a Democratic Congress produced a “real” balanced budget under a Republican president was fiscal 1960.

Record deficits, soaring tax rates, rampant spending: This is what GOP Congressional candidates should run against this fall. They should ask America: Are you better off now than you were—2 years ago?

But Republicans are allowing Democrats to deflect blame for the record deficit onto the President, as when Speaker Pelosi spoke at the Democrat Convention of “the failed Bush policies that has [sic] weakened our economy and taken us from the Clinton surplus to reckless Bush deficits”.

“Clinton surplus?” “Bush deficits?”

When did Congress lose its responsibility for the budget? When was the Constitution amended to throw out Article I, Section 9 (7), which states: “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time” [emphasis added].

Budgets are legislation. Legislation is Pelosi’s area. This is Pelosi’s deficit. The predicted $750 Billion deficit for fiscal 2009 belongs to Democrats—they’re the majority now.

But Democrats seem to want to campaign this fall as though they were still the minority. And well they should, for what have they accomplished since capturing the majority? Nonetheless, the word from the media is: 2008 is a Democrat year.

But why, this Democrat Congress has performed abysmally. Even Democratic voters think so. Congress’ approval ratings are in the toilet; 11% in the Reuters/Zogby poll, which was taken before their “miserable failure” with the budget. Congress’ approval ratings have since plunged to an all time low of 9 % in the Rasmussen poll.

Under the current crop of Democrats, Congress has become the branch of government that folks hold in the most contempt.

If John McCain is to lead Washington back to fiscal sanity, he’ll need help. And that can mean only one thing—real conservatives in Congress. But ending earmarks, cutting pork, and rooting out waste won’t be enough; McCain, a genuine fiscal hawk, will need to reform entitlements. And that will be impossible without a GOP Congress.

To retake Congress, Republicans must create a compelling new vision of what they abandoned in 2001—the Contract with America. Republicans must tell America exactly how, if given the majority, they will balance the budget. And America should listen up, because the GOP is the only party to have actually balanced the budget since 1960.

Forget the barbarians at the gate for a second. If Congress doesn’t soon get a handle on its infernal spending of money it doesn’t have, Congress itself will be quite enough to bring about the End of America as We Know Her.

It’s the spending, stupid.

Jon N. Hall is a mainframe programmer/analyst from Kansas City.

[1] Democrats like to cite fiscal 1969 as having had a balanced budget. But there was an on-budget deficit of $507 million that year. If you doubt my budget figures, check out the latest budget history from the feds, toggle Bookmarks on the left and click on the third item: Table 1.1—SUMMARY OF RECEIPTS, OUTLAYS, AND SURPLUSES OR DEFICITS (–): 1789–2013. You’ll be on page 25 of Adobe Acrobat, but page 21 of the document itself. (Dial-up users: This 342-page PDF is almost 2.5 megabytes and might take 5+ minutes to download.)

Thursday, January 8, 2009

Trillion dollar deficits

With Trillion dollar deficits “for as far as the eye can see”, Ultracon trots out an article from April of 2007 that appeared in the STAR BUSINESS WEEKLY, page D8. (One slight alteration from the STAR is the dropping of “ic” from “Democratic”, done for Mr. Howard Dean’s sake.)

If you doubt Ultracon’s budget figures, check out the latest budget history from the feds, toggle Bookmarks on the left and click on the third item: Table 1.1—SUMMARY OF RECEIPTS, OUTLAYS, AND SURPLUSES OR DEFICITS (–): 1789–2013. You’ll be on page 25 of Adobe Acrobat, but page 21 of the document itself. (Dial-up users: This 342-page PDF is almost 2.5 megabytes and might take 5+ minutes to download.)

One might quibble with Ultracon’s positing of a better than 50% rating for the GOP. This was based on not counting 1931, 1932 and the first 6 years of the Reagan terms. Although the GOP won the House in 1931, the House was organized, if memory serves, by Democrats due to GOP death(s). Also, during the first 6 years of Reagan, the House was in Democrat control, but cooperation from conservative Democrats, Blue Dogs, coupled with a GOP Senate allowed the GOP to have its way. But go ahead and count those 8 years for the GOP and the GOP still has a 40% rating at balancing the budget as opposed to the Democrat’s less than 10%. However, Ultran was counting 2001 and 2002 for the GOP, but the defection of Senator Jeffords in 2001 put the Senate under Democrat control. In any event, no matter how you look at it, the GOP has a better record at balancing the budget than Democrats. That is, if you think Congress is responsible for budgets.

Now it’s the Democrats’ turn to balance the budget
By Jon N. Hall

Back in 2002, Howard Dean told Greta Van Susteren on her Fox News Channel show: “No Republican president has balanced the budget in this country in 34 years. It seems only Democratic presidents do that.”

Dean was referring to fiscal 1969, the first year of the so-called Unified Budget. The Unified Budget mixes general fund revenue with off-budget revenue from dedicated taxes, such as Social Security. It allows off-budget surpluses to offset (and mask) on-budget deficits. And indeed, 1969 saw an on-budget deficit of $507 million.

But who are these “Democratic presidents” Dean refers to? Certainly not Carter, LBJ or JFK. The last president before Clinton to preside over a balanced budget was Eisenhower, and the last Democrat was Truman.

The biggest problem with Dean’s statement is this: NO president—neither Democrat, nor Republican, nor Whig—has ever balanced the federal budget. “It seems only [Congress does] that.”

Budgets are legislation. Bills. Presidents don’t vote on bills. Presidents only sign bills, which makes them laws. Or they veto them. Which is why Clinton needs to accept at least half of the responsibility for the government shutdown in 1995—he vetoed a budget that would have kept the government going.

The responsibility for the budget rests with Congress, as is illustrated by the current calls to cut funding for the Iraq war. No Congress should rubberstamp any president’s proposed budget. Congress has it within its power to reject any of a president’s budget proposals. Folks should direct their unhappiness over the return to deficits at Congress.

The Democrat establishment has for years laid responsibility for the budget at the feet of the president, crediting Clinton and blaming Republicans. But if Congress has the ultimate responsibility for the budget, why do Democrat congressmen deflect attention elsewhere?

It is because the only balanced budgets during the last 47 years occurred when Republicans controlled Congress.

That’s right. The last balanced budget produced by a Democrat Congress was in fiscal 1960. And going back to 1920, the only other times Democrats balanced the budget were in fiscal 1947, 1951, 1956 and 1957. And since Democrats controlled both houses of Congress for 52 of those years, it means their record is below 10 percent.

The Republicans have certainly disappointed fiscal hawks lately, but they balanced the budget in the 11 years from 1920 through 1930, and in 1948, 1999 and 2000. They controlled Congress for 27 of the years in question and so are averaging above 50 percent.

Democrats might object to the exclusion here of fiscal 1969. But we’re not including any years with Unified Budget surpluses if they ran on-budget deficits. That means we’re also not including 1949, 1998 and 2001, which would accrue to the Republicans’ record.

What does it take for a Democrat Congress to balance the budget? The top tax rate during the period when Democrats balanced the budget was 91 percent. When the top rate was lowered in the 1960s to 70 percent, Democrats never again balanced a single budget.

But now, after 12 years, the Democrats have another shot at balancing the budget. And they have a Trillion dollars more revenue to work with than in their last budget. They’re not used to such large sums. Will it be enough for them to balance the budget? Or will they launch more programs, more entitlements, and just spend it?

Democrat congressmen who continue to lay the responsibility for the budget on the president are doing nothing less than abdicating their own responsibility. And since Congress can pass rescission bills, the Democrats are, as of now, responsible for all the waste, fraud and abuse in the federal budget. (At least the Republicans killed the “bridge to nowhere”.)

Should the Democrat Congress be unsuccessful at balancing the budget, it will be interesting to see if they blame President Bush for it.

[This article originally appeared April 17, 2007 in STAR BUSINESS WEEKLY, put out by The Kansas City Star newspaper.]

Jon N. Hall is a programmer/analyst form Kansas City.

ULTRACON: the blog for Real Americans.