Tag Archives: political economy

Spending Our Tax Dollars

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The table below is constructed from the table and data provided by Laura Saunders in her piece in Friday’s Wall Street Journal.  It shows how $100 in our tax monies paid to the Federal government were spent on a range of government purposes.

Item 2016
Social Security $23.61
Medicare $15.26
National defense $15.24
Medicaid $9.55
Interest $6.25
Other spending $4.94
Veterans $4.58
Civilian federal retirement $2.57
Transportation $2.39
Refundable credits* $2.21
Education $2.08
Food stamps $1.89
Supplemental Security Income $1.53
Justice $1.48
Housing assistance $1.27
Foreign aid and international affairs $1.14
Affordable Care Act subsidies $1.09
Natural resource protection $1.01
Unemployment insurance $0.86
Child nutrition $0.60
Other health† $0.36
National Park Service $0.08
National Endowment for the Arts and National Endowment for the Humanities $0.01
Congressional salaries $0.00
                                                            Total: $100.00

Notice some things (I’m going to ignore some things, too, but this is my post on my blog; I get to do that). The bulk of the Federal social safety net—Social Security, Medicare, and Medicaid—comprises in its aggregate nearly half of those hundred dollars.  Yet these are the most easily and directly privatisable, and as a matter of personal responsibility and individual freedom, they should be.  Each State should take care of its own poor: New Yorkers shouldn’t be paying any part of Illinois’ Medicaid costs in this arena, for instance.  Each individual should be paying toward his own future retirement and retired medical costs (and/or the retirement and medical costs of his own parents, if he—not the Feds—wishes) and not for the current retirement and medical costs of complete strangers.

There are far better uses to which the Federal government should be putting those $48+.  One such is plussing up another major component of the Federal social safety net: National defense (OK, I’m not using the standard definition of social safety net here, but I suggest that absent an effective national defense establishment, in very short order there won’t be any social to be kept safe).  National defense currently takes up only a bit over 15% of that C-note, and it certainly could use some increases in order to fund more troops, more and better equipment, and much more rapid and broad R&D.

Then there’s that Interest cut.  Those $6+ dollars are the interest on the national debt, a debt that continues to grow, courtesy of another datum Saunders provided.  It takes an additional $15.24 beyond that Benjamin to cover the Federal budget deficit that’s growing our debt.  A significant fraction of those $48+ could be sent toward the debt’s principle as well as those interest payments—which are only going to get larger as the underlying interest rates go up now that the Federal Reserve Bank (finally) is easing up on its artificially depressed interest rates.

One minor side note: congressional salaries aren’t actually zero; they’re just a good approximation of zero on this scale.  But you already knew that.

Shrinking the Federal Government

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…is more than just reducing spending; although that’s a major component of the necessary shrinkage.  Shrinking also must include reducing the physical size of the government, reducing its payroll.  To that end, the moves by President Donald Trump and OMB Director Mick Mulvaney will prove valuable if Congress will cooperate.

The hiring freeze of the last 11 weeks was an important first step, but it produced no actual shrinkage.  Its value consisted in halting the growth in payroll and in demonstrating over the last 11 weeks the lack of need of additional hiring.  In this latter regard, it’s much like the government shutdown of 2013, during which many Departments and Agencies were forced to furlough many of their employees—and still functioned.  The EPA, for instance, furloughed nearly 95% of its employees and ran just fine.  Treasury, Labor, and Interior furloughed over 80% each and those Departments did just as well as before.

Now the broad-based hiring freeze is about to be lifted, but all Departments and Agencies are being required to form plans to do targeted reductions in their work forces in expectation of seeing actually reduced budgets, with effect FY2019, which begins in October 2018.

This is all on the right track.  Now, it’s certainly true that the hiring freeze didn’t reduce the number of folks actually working these last several weeks, as I noted above.  It’s also true that the agencies during the government “shutdown” were on emergency manning and only so for roughly the same number of weeks.  But domestic matters should be handled, in the very large main, by the States.  The Federal government should be involved in domestic matters, in the very large main, only in emergencies.  Thus, the Departments and Agencies, in the very large main, don’t need employee complements much larger (but some larger) than emergency levels.

There are a couple of exceptions to these planned reductions.  Budget increases coupled with commensurate hiring increases will be proposed for Defense and Veterans Affairs.  The VA’s planned increases are from the best of intentions—the nearby backlog of veterans’ claims has exceeded 100,000, and so more bodies added to the payroll would seem to be needed in order to reduce this additional VA wait list fiasco, for instance—but the VA’s long-term, broad, and resolutely uncorrected failure to perform, too often with lethal results, mandates a different outcome.

Eliminating the VA and using its budget for veterans’ vouchers would be entirely consistent with shrinking the government’s payroll, even if spending associated with the VA would not shrink.  But in this case, at least the spending could be known to be going to the purpose for which it was passed originally—our veterans’ well-being, both now and, since the VA manages our military cemeteries, post mortem.

Veteranos Administratio delende est.

Social Security Trust Fund Investing in the Stock Market

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The Wall Street Journal held one of its aperiodic debates last Sunday, this time on whether the Social Security Trust Fund should be allowed to invest in stocks.  One debater argued that such investing would reduce the need for dependence on benefit cuts or tax increases; the other claimed that government should stay out of the market.

It’s certainly true that investing in the stock market could produce better returns than the Trust Fund’s current requirement to invest wholly in (unmarketable) Federal debt instruments.

Stocks are riskier than bonds, so shifting some Social Security assets from low-risk, low-return Treasury bonds to high-risk, high-expected-return stocks would expose the program to greater financial risk. This risk, however, has to be balanced against the likelihood of a larger trust fund and thereby less need for benefit cuts or tax increases to shore it up down the road. Economists also make a theoretical argument that the plan would especially benefit the young—who haven’t yet accumulated much financial wealth—by enabling them to invest in high-yielding financial assets without direct exposure to market risk.

The problem with this, though, is that a realized loss risk in those stock investments would negatively impact everyone so invested: every person with a present or future claim on the Trust Fund were Social Security to take such a chance, rather than only those individuals who make the choice for themselves.  I’m one of those confident in the long-term profitability of stock investing, but that’s my choice.  No one else should be dragooned into the outcomes of my choice were I to turn out wrong and wind up eating cat food inside my cardboard box under a bridge abutment.

[N]o one wants the Social Security trust fund to control the stock market. Even if the entire trust fund was plowed into stocks, it would account for only a fraction of the market.

This is disingenuous.  It’s the government doing the investing; of course, it will move to protect its investment with laws attempting to bar losses, laws attempting to dictate the kinds of risks companies in the market should be permitted to take, laws demanding taxpayers make the Trust Fund whole from market downturns, laws….  Politics cannot be divorced from the Trust Fund’s investments or the outcomes of those investments.  Especially since, as is currently the case, so much of the Trust Fund’s contents finds its way into the general treasury through “borrowing.”  All for the welfare of our seniors, of course.

Better to duck the question altogether, and make an even more radical change to our retirement safety net: privatize Social Security, as I’ve suggested before.  Let individuals invest their monies (including those, if any, by law earmarked) for their own future retirement in the stock market—if they wish—and be responsible for their own outcomes only and not, as taxpayers, for the government’s, and so everyone else’s, outcomes also.

Democrats and Tax Reform

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They’re plainly not interested in real tax reform, and so they’ll move to block all attempts to achieve reform that would benefit all Americans and so our economy.  This is illustrated by Senator Ben Cardin’s (D, MD) position on the matter.

Tax reform’s got to be responsible and it’s got to be progressive[.]

Pick one; these are mutually exclusive goals.  Punishing particular Democrat-disfavored groups of Americans for their success is the height of irresponsibility in a taxing venue.

On the other hand, a responsible tax reform package would lower corporate tax rates sharply enroute to an eventual elimination of corporate taxes, lower income taxes to the neighborhood of 10%-15% on all income, regardless of type or source, and eliminate most or all subsidies, credits, transfers, and other loopholes—which would have little value to the beneficiary of such distortions anyway at the lower rates.

Here’s the IRS’ (Internal Revenue Bureau then) Form 1040 from 1913, the first year of an income tax exaction after ratification of the 16th Amendment.  Not quite a post card, but it’s still pretty simple, and it’s the level of complexity we could expect for the form necessary to collect income taxes after a responsible tax reform today.

Until Democrats agree to stop using our tax code for their social engineering goals, though, don’t expect any serious effort toward bipartisanship to originate from them.

Obamacare

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As The Wall Street Journal rightly pointed out, regarding the failed Obamacare repeal and replacement effort and the failing renewed discussions between the House Republican Conference and the Freedom Caucus of No,

The fury…suggests that some Freedom Caucus opposition is more cynical than sincere. Do its members want to appear to negotiate in good faith but insist on changes that centrists can’t accept, so they can then accuse centrists of killing the reform revival?

And

…perhaps there’s still hope for health-care reform. But first Republicans have to decide if they can accept progress that is short of perfection. If they can’t, then they’ll blow their best, and maybe only, shot at repealing and replacing a failing entitlement.

Here’s the problem, though: the Freedom Caucus of No already has betrayed their constituents once through that first failure by inflicting on them continued Obamacare instead of an improved system because the improvements weren’t perfection.

For how long will the No-ers continue to betray their employers? The No-ers are carefully eliding the back half of Reagan’s remark about half a loaf: come back tomorrow for the rest. Of course, that requires accepting the first half first….