With Tax Increases Looming, CBO Does About-Face and Frets about Deficits and Debt

Like the swallows returning to Capistrano, the Congressional Budget Office follows a predictable pattern of endorsing policies that result in bigger government. During the debate about the so-called stimulus, for instance, CBO said more spending and higher deficits would be good for the economy. It then followed up that analysis by claiming that the faux stimulus worked even though millions of jobs were lost. Then, during the Obamacare debate, CBO actually claimed that a giant new entitlement program would reduce deficits. Now that tax increases are the main topic (because of the looming expiration of the 2001 and 2003 tax bills), CBO has done a 180-degree turn and has published a document discussing the negative consequences of too much deficits and debt.

…persistent deficits and continually mounting debt would have several negative economic consequences for the United States. Some of those consequences would arise gradually: A growing portion of people’s savings would go to purchase government debt rather than toward investments in productive capital goods such as factories and computers; that “crowding out” of investment would lead to lower output and incomes than would otherwise occur. …a growing level of federal debt would also increase the probability of a sudden fiscal crisis, during which investors would lose confidence in the government’s ability to manage its budget, and the government would thereby lose its ability to borrow at affordable rates. …If the United States encountered a fiscal crisis, the abrupt rise in interest rates would reflect investors’ fears that the government would renege on the terms of its existing debt or that it would increase the supply of money to finance its activities or pay creditors and thereby boost inflation.

At some point, even Republicans should be smart enough to figure out that this game is rigged. Then again, the GOP controlled Congress for a dozen years and failed to reform either CBO or its counterpart on the revenue side, the Joint Committee on Taxation (which is infamous for its assumption that tax policy has no impact on overall economic performance).

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New Academic Study Shows Obamanomics Will Undermine Prosperity

These results won’t come as a surprise to anyone who has compared long-run growth rates in Hong Kong, the United States, France, and North Korea, but there’s a new study by three economists showing that nations with better tax policy grow faster and create more jobs. There are many other factors that also determine growth, as this video explains, but punishing investors and entrepreneurs with high tax rates is never a good idea. Here’s a passage from the study’s abstract, including a specific warning about the anti-growth impact of Obama’s plan for higher taxes in 2011.

Results indicate that lower tax rates are associated with more favorable economic activity, including growth in GDP, lower unemployment, and higher savings. These findings suggest that at the micro-level, corporate managers should consider tax rates when deciding to locate or not locate business operations within a given country, especially if the goal is to locate where the economy is dynamic. At the macro-level, before making changes to tax law, policy makers should carefully consider how tax rates affect economic activity. For example, policy makers in the US Congress, at the time of this writing, are considering whether to allow the Bush tax cuts to expire in 2010. If the Congress allows that to happen, the outcome would effectively be the largest tax increase in US history.

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Not Just an Ordinary Limousine Liberal…

I don’t know whether he is a poster child for the dangers of inbreeding or a rich dolt who is seeking meaning in his life, but Prince Charles takes left-wing hypocrisy to an entirely new level. His “carbon footprint” almost surely is bigger than 99.9 percent of the world’s population, yet this pampered and clueless aristocrat thinks he was put on the earth to save the rest of us from sins such as “global warming” and “unbridled commerce.” If he gave up the throne and dedicated himself to a life of genuine self-denial, I would call him a clueless moron. Until that happens, he is best categorized as a hypocritical clueless moron.

The Prince of Wales says he believes he has been placed on Earth as future King ‘for a purpose’ – to save the world. Giving a fascinating insight into his view of his inherited wealth and influence, he said: ‘I can only somehow imagine that I find myself being born into this position for a purpose. ‘I don’t want my grandchildren or yours to come along and say to me, “Why the hell didn’t you come and do something about this? You knew what the problem was”. That is what motivates me. ‘I wanted to express something in the outer world that I feel inside… We seem to have lost that understanding of the whole of nature and the universe as a living entity.’ His impassioned comments come during a film about his belief that unbridled commerce has led to the destruction of farmland and countryside. …But the Prince has previously come under fire for hypocrisy over his eco-values. Last year he commandeered a jet belonging to the Queen’s Flight to attend the Copenhagen climate change summit, generating an estimated 6.4 tons of carbon dioxide – 5.2 tons more than if he had used a commercial plane. …Graham Smith, of the anti-monarchy group Republic, said: ‘He is under the impression he has been sent to save the world and deliver us from our sins. It’s quite delusional.

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Political Humor

These came in an email. I can’t vouch for their veracity, but a few of them were amusing enough to share.

 

The liberals are asking us to give Obama time. We agree . . . and wethink 25 to life would be appropriate.

–Jay Leno

 

America needs Obamacare like Nancy Pelosi needs a Halloween mask.

–Jay Leno

 

Q: Have you heard about McDonald’s’ new Obama Value Meal?

A: Order anything you like and the guy behind you has to pay for it.

–Conan O’Brien

 

Q: What does Barack Obama call lunch with a convicted felon?

A: A fund raiser.

–Jay Leno

 

Q: What’s the difference between Obama’s cabinet and a penitentiary?

A: One is filled with tax evaders, blackmailers, and threats tosociety. The other is for housing prisoners.

–David Letterman

 

Q: If Nancy Pelosi and Obama were on a boat in the middle of the ocean and it started to sink, who would be saved?

A: America!

–Jimmy Fallon

 

Q: What’s the difference between Obama and his dog, Bo?

A: Bo has papers.

–Jimmy Kimmel

 

Q: What was the most positive result of the “Cash for Clunkers”program?

A: It took 95% of the Obama bumper stickers off the road.

–David Letterman

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Peter Ferrara’s Too-Nice Attack on Phony Washington Budget Deals

Writing in the Wall Street Journal, Peter Ferrara of the Institute for Policy Innovation explains that Washington budget deals don’t work because politicians never follow through on promised spending cuts. This is a very relevant argument since Obama’s so-called Deficit Reduction Commission supposedly is considering a deal featuring $3 of spending cuts for every $1 of tax increases (disturbingly reminiscent of what was promised – but never delivered – as part of the infamous 1982 TEFRA budget scam). 

Washington’s traditional approach to balancing the budget is to negotiate an agreement on a package of benefit cuts and tax increases. President Obama’s deficit commission seems likely to recommend just this strategy in December. The problem is that it never works. What happens is the tax increases get permanently adopted into law. But the spending cuts are almost never fully adopted and, even if they are, they are soon swept away in the next spendthrift budget. Then—because taxes weaken incentives to produce—the tax increases don’t raise the revenue that Congress initially projected and budgeted to spend. So the deficit reappears. In 1982, congressional Democrats promised President Ronald Reagan $3 in spending cuts for every dollar in tax increases. Reagan went to his grave waiting for those spending cuts. Then there was the budget deal in 1990, when President George H.W. Bush agreed to violate his famous campaign pledge—”Read my lips, no new taxes,” he had said in 1988—in pursuit of a balanced budget. But after the deal, the deficit increased substantially: to $290 billion in 1992 from $221 billion in 1990. 

As the excerpt indicates, Peter’s column is solid and everything he writes is correct, but it suffers from one major sin of omission. He should have exposed the dishonest practice of using “current services” or “baseline” budgeting. This is the clever Washington practice of assuming that all previously planned spending increases should go into effect and categorizing any budget that increases spending by a lower amount as a spending cut. In other words, if the hypothetical “baseline” budget increases by 7 percent, and a budget is proposed that increases spending by 4 percent, that 4 percent spending increase magically gets transformed into a 3 percent spending cut.
 
Politicians love “current services” or “baseline” budgeting for two reasons. First, it allows them to have their cake and eat it too. They can simultaneously shovel more money to interest groups while telling voters they are “cutting” spending. Second, it rigs the process in favor of bigger government. This is because lawmakers who actually propose to restrain the growth of spending can be lambasted for wanting “savage” and “draconian” budget cuts totaling “trillions of dollars” when all they’re actually proposing is to have spending grow by less than the so-called baseline. But since people in the real world use honest math rather than “current services” math, they assume that spending is being reduced next year by some large amount compared to what is being spent this year. And if the phony budget cut numbers sound too big (especially for specific programs such as Medicare or Medicaid), they sometimes conclude that it would be better to raise taxes.
 
Speaking of which, the same misleading process works on the revenue side of the budget. The politicians automatically get to keep whatever additional revenue is generated by population growth and higher incomes, which is not trivial since revenue in a typical year grows faster than nominal GDP. But when they do a budget deal featuring X dollars of tax increases for every Y dollars of spending cuts, the additional taxes are always on top of the revenue increases that already are occurring. And since the supposed spending cuts invariably are nothing more than reductions in planned increases, it should come as no surprise that the burden of spending always seems to increase.
 
Defenders of “current services” or “baseline” budgeting will respond by arguing that spending should automatically increase because of factors such as inflation and demographic change (i.e., more seniors signing up for Medicare). Indeed, they will point out that the government is legally obligated to spend more money for entitlement programs based on current law.
 
But that’s not the point. The issue is whether the American people are being presented with honest numbers. If the fans of big government want to argue that spending should increase by 7 percent for various reasons, they should openly and honestly explain what they are trying to do. And if they disagree with lawmakers who want spending to increase by 4 percent, they should be forthright and tell voters that “this proposal does not increase spending by enough because of…” and list the reasons why they want spending to grow even faster.
 
Unfortunately, deceptive budget practices in Washington are a feature, not a bug. But if you pay close attention, they are very revealing. If the President’s Deficit Reduction Commission uses “baseline” or “current services” budgeting as a benchmark for determining spending “cuts” and tax increases, that’s a good sign that the crowd in Washington wants to pull a fast one on the American people.

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Government Intervention, Favors for the Rich, and Economic Damage

Whether we’re looking at TARP bailouts, Obamacare, or tax loopholes, a common theme is that politicians implement a policy by arguing they want to help the less fortunate. When the dust settles, however, it is often the case that politically well-connected rich people are the big beneficiaries. The overall economy tends to be weaker, meanwhile, and the specific sector suffers because of resource misallocation, so poor people actually fall farther behind. A good example is rent control. The Wall Street Journal has an editorial citing the case of Bianca Jagger to illustrate how the law has become a giant rip-off that deprives landlords of their property rights while lining the pockets of the elite. Those lower on the income scale, by contrast, suffer because of a housing market crippled by government intervention.

Jetsetter and social activist Bianca Jagger has lost her legal bid to keep her knock-down-price rental at 530 Park Avenue. A New York state judge last week ordered Mick’s ex to pay $708,600 in back rent and other fines to her landlords. Ms. Jagger spent nearly 20 years in the two bedroom apartment—rent-stabilized at $4,600 a month. But then she complained about poor upkeep. The landlords in turn noted that Ms. Jagger, in the U.S. on a tourist visa, shouldn’t pay the lower rent since New York isn’t her “primary residence,” one of the criteria under rent control laws. A state appeals court sided with them in 2008 and last week another court upheld the decision and said she could be evicted. As part of the fine, the judge ruled that Ms. Jagger owes $246,468 for the “fair market use and occupancy” over the years she was in dispute with the landlords. They said the apartment would have gone on the open market for $8,800 a month. The case sums up the insanity of regulating prices in one of the world’s most competitive and dynamic real estate markets. Rent control, a “temporary” World War II-era measure that survives into this century, creates housing shortages, drives up prices for non-rent control real estate and contributes to middle class flight. As Ms. Jagger perhaps found out with her moldy apartment, artificially keeping down rents gives landlords the rational financial incentive to skimp on upkeep. Worse than that, rent control disproportionately subsidizes the affluent. A Harvard University study in the late 1980s found that rent-controlled apartments were in some of the cities best neighborhoods, that 94% of its tenants were white and roughly three-quarters were families without children.

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The Filming of Atlas Shrugged

Reason TV gives us a taste of what to expect when the movie version of Ayn Rand’s classic is released. The two stars we see in this video are not how I pictured Dagny Taggart (wasn’t she a brunette) and Hank Reardon, but so what. I’m looking forward to the movie and I hope it does justice to the book.

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Are These Stories Examples of Washington Corruption? Well, if It Walks Like a Duck and Talks Like a Duck…

The “appearance of impropriety” is often considered the Washington standard for corruption and misbehavior. With that in mind, alarm bells began ringing in my head when I read this Washington Times report about Jacob Lew, Obama’s nominee to head the Office of Management and Budget. Why did Citigroup decide to hire a career DC political operator for $1.1 million? As a former political aide, lobbyist, lawyer, and political appointee, what particular talents did he have to justify that salary to manage an investment division? Did the presence of Lew (as well as other Washington insiders such as Robert Rubin) help Citigroup get a big bucket of money from taxpayers as part of the TARP bailout? Did Lew’s big $900K in 2009 have anything to do with the money the bank got from taxpayers? Is it a bit suspicious that he received his big windfall bonus four days after filing a financial disclosure? Read this blurb from the Washington Times and see if you can draw any conclusion other than this was a typical example of the sleazy relationship of big government and big business.

President Obama’s choice to be the government’s chief budget officer received a bonus of more than $900,000 from Citigroup Inc. last year — after the Wall Street firm for which he worked received a massive taxpayer bailout. The money was paid to Jacob Lew in January 2009, about two weeks before he joined the State Department as deputy secretary of state, according to a newly filed ethics form. The payout came on top of the already hefty $1.1 million Citigroup compensation package for 2008 that he reported last year. Administration officials and members of Congress last year expressed outrage that executives at other bailed-out firms, such as American International Group Inc., awarded bonuses to top executives. State Department officials at the time steadfastly refused to say if Mr. Lew received a post-bailout bonus from Citigroup in response to inquiries from The Washington Times. But Mr. Lew’s latest financial disclosure report, provided by the State Department on Wednesday, makes clear that he did receive a significant windfall. …The records show that Mr. Lew received the $944,578 payment four days after he filed his 2008 ethics disclosure.

Lest anyone think I’m being partisan, let’s now look at another story featuring Senator Richard Shelby. The Alabama Republican and his former aides have a nice incestuous relationship that means more campaign cash for him, lucrative fees for them, and lots of our tax dollars being diverted to moochers such as the state’s university system. Here are some of the sordid details.

Since 2008, Alabama Sen. Richard Shelby has steered more than $250 million in earmarks to beneficiaries whose lobbyists used to work in his Senate office — including millions for Alabama universities represented by a former top staffer. In a mix of revolving-door and campaign finance politics, the same organizations that have enjoyed Shelby’s earmarks have seen their lobbyists and employees contribute nearly $1 million to Shelby’s campaign and political action committee since 1999, according to federal records. …Shelby’s earmarking doesn’t appear to run afoul of Senate rules or federal ethics laws. But critics said his tactics are part of a Washington culture in which lawmakers direct money back home to narrow interests, which, in turn, hire well-connected lobbyists — often former congressional aides — who enjoy special access on Capitol Hill.

Some people think the answer to these stories is more ethics laws, corruption laws, and campaign-finance laws, but that’s like putting a band-aid on a compound fracture. Besides, it is quite likely that no laws were broken, either by Lew, Citigroup, Shelby, or his former aides. This is just the way Washington works, and the beneficiaries are the insiders who know how to milk the system. The only way to actually reduce both legal and illegal corruption in Washington is to shrink the size of government. The sleaze will not go away until politicians have less ability to steer our money to special interests – whether they are Wall Street Banks or Alabama universities. This video elaborates.

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Europe Is Royally %$(#&@, and America May Be Next

Jim Glassman has a thorough article in Commentary explaining that Europe is in deep trouble both because high tax rates discourage work and production and because excessive handouts encourage sloth and dependency. This should be a common-sense observation, but most politicians get votes by convincing voters they can have comfortable lives without producing. The inevitable result is what happened in Greece, though the negative effects of that debacle are being postponed (but also magnified) by the European bailout. Considering what’s happening, it’s hard to have any optimism about the long-term result. Here’s a long excerpt, but the whole article is worth reading since the same thing will happen in America if the Bush-Obama policies are not reversed.

Prosperity, it seems, can bring sloth, which in turn disrupts the virtuous cycle, though not immediately. There is a period, which I believe we are in right now, where the disruption is not apparent, where it can be obscured through government monetary and fiscal manipulation. But eventually, a simple rule will prevail: you can’t live well if you don’t work. It is hardly surprising that work produces well-being, and if work diminishes, then well-being, even in the most advanced economy, will slow down, stop, or shift into reverse gear. “Decadence,” with its connotations of self-indulgence and decline, is not too strong a word for the response we have seen to economic success, especially in much of Europe, over the past few decades. …In 2004, the year he won the Nobel Prize, Edward Prescott, an economist at the Federal Reserve Bank of Minneapolis, published a paper titled “Why Do Americans Work So Much More than Europeans?” The data were stunning. Prescott found that the average output per adult between 1993 and 1996 in the United States was 75 percent greater than in Italy, 49 percent greater than in the United Kingdom, and 35 percent greater than in France and Germany. “Most of the differences in output,” he wrote, were “accounted for by differences in hours worked per person and not by differences in productivity.” …Prescott showed that these differences are of fairly recent origin. During the period from 1970 to 1974, Europeans—including the French, Germans, and British—generally worked more than Americans. At that time, however, Europeans were less productive than Americans, so their overall output per person was about the same as it was in 1993-96: around one-third below the U.S. level. So, as Europeans became more efficient (producing more goods and services per hour of work), they cut back on their hours, choosing leisure over work. And the gap has widened. By the time Prescott won his Nobel Prize, Americans were working 50 percent more than the French. …In his paper, Prescott fingered the culprit: high taxes. “The surprising finding,” he wrote, “is that this marginal tax rate [difference between Europe and the U.S.] accounts for the predominance of differences at points in time and the large change in relative labor supply over time.” Taxation rates on the next euro of income became so high that people were discouraged from working—especially with the enticements of early retirement. But this explanation is incomplete. Why are taxes so high in Europe? Certainly not to maintain a strong defense but rather to pour money into a welfare state that provides lavish support to retirees, perennial students, and others who aren’t working. In other words, Europeans have chosen to have workers support non-workers in their leisure. …A financial crisis can pull the covers away to give us a clear look at what’s underneath, and the current crisis has exposed Europe as a fool’s paradise. “The fundamental cause of the financial crisis,” wrote the George Mason University economist Tyler Cowen on his blog, Marginal Revolution, “is people and institutions thinking they are more wealthy than they are.” …The same with nations. Europe supported its welfare state with borrowed money, a practice that can be perfectly healthy as long as both welfare state and debt are modest and loans can be serviced by diligent workers. Europe, however, is not nearly as wealthy as it thought it was, or as wealthy as its national way of life indicated. Take Greece. …Greece joined the European Union in 1981 and the eurozone—the continent’s monetary union—in 2001. Since the second event, especially, Greece has been behaving as if it were truly rich. The secret was borrowed money. At the end of 2009, the country had a public debt equivalent to 114 percent of its GDP. That’s on top of the 3 percent of GDP that the European Union contributes as direct aid each year. Meanwhile, Greece consistently violated the EU’s rules for minimum deficit and debt levels. The Greeks, however, lived better and better, with an official retirement age of just 58. Only three-fifths of adult Greeks under age 64 were in the work force. …Default can impose needed fiscal discipline on a government. But in an age of financial magic and euro-solidarity, default for a European nation is not a burden that has to be borne—at least not yet. On the brink of not being able to pay its debts earlier this year, Greece was bailed out with $100 billion in loans from the 15 other eurozone countries and about $50 billion from the International Monetary Fund. This year, the Greek government will make interest payments amounting to 15 percent of GDP on its loans (the U.S. pays less than 3 percent). With Portugal and Spain and perhaps Italy heading for similar trouble, Europe announced it would guarantee debts up to $955 billion. There are two problems with such bailouts. First, they do little or nothing to end the leisure-seeking practices, encouraged by high marginal tax rates and labor regulations, that led to the near-defaults in the first place. Greece may promise austerity as a condition for being saved, but don’t count on delivery. Second is the matter of moral hazard—the tendency of insurance against calamity to provide an incentive toward behavior that produces calamity. I warned of the dangers of moral hazard during the current financial crisis in an article in this magazine last year, and, unfortunately, we are seeing those predictions being realized. Much pain was caused by the crisis, but much was mitigated as well by government policies that kept profligate banks and other businesses alive that should have disappeared—and, of course, Washington took the occasion of the crisis to increase the size of its own welfare state. What the eurozone nations have done in bailing out Greece and pre-bailing Portugal and the others is to introduce a heaping helping of moral hazard that may seem nourishing at first but that inevitably will cause severe indigestion, or worse. …While the United States is not Europe, many of our states clearly have aspirations in the same decadent direction. With high marginal tax rates and regulations that discourage work, California this year is running a deficit of $20 billion, and a recent study found that the pension shortfall for government workers is $500 billion. Investors were recently paying about $300,000 to buy credit default swaps—that is, an insurance policy—on each $10 million in California municipal bonds. That’s a rate 50 percent higher than on bonds issued by Kazakhstan. As a monetary union, the United States may face a decision similar to that of the eurozone nations: should the federal government bail out California? If it does, we will have entered a fool’s paradise on this side of the Atlantic as well.

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Great Moments in Government Waste

I’m sure if you read the Constitution with enough imagination, you’ll find (perhaps in invisible ink) the section stating that the federal government is supposed to provide subsidies to help specific companies market soap made out of goat milk. But my imagination isn’t that strong, so my reaction to this story is that the federal government already has too much money and that the crooks in Washington should not be allowed to raise taxes by even one penny.

A small business in Santa Fe has received a federal grant to help market its natural soaps and lotions. U.S. Senator Tom Udall, D-NM, and Terry Brunner, state director of the U.S. Department of Agriculture Rural Development, held a celebration ceremony for Milk and Honey Soap LLC to highlight the USDA’s Value Added Producer Grant program. The company received $12,500 to market its products. …Daven Lee, owner of Milk and Honey Soap, sells soaps and lotions made from goat milk and beeswax online and at the Santa Fe Farmers Market. She will use the funds to expand her marketing efforts, with the idea of growing it into a wholesale venture.

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Obamacare Complexity vs Free Market Simplicity

Free markets are characterized by voluntary exchange between buyers and sellers. Mapping that relationship is absurdly simply, as this image indicates.

Indeed, the only reason I even bothered to include that image was for purposes of comparison. Here is a new flowchart prepared for the Joint Economic Committee showing the healthcare system under Obamacare. 

It’s worth noting, by the way, that the system already was a disaster even before Obamacare was enacted. In the health care sector, free markets are only allowed to operate in very rare cases, such as cosmetic surgery, laser eye surgery, and (for better or worse) abortion. The rest of the sector was heavily distorted by government intervention. Obamacare simply makes a bad situation worse.

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Some R-Rated Political Humor to Brighten Your Day

Or maybe I should say darken your day, depending on how you interpret what’s on the t-shirt.

Because the message is a tad bit risque, you have to click the icon for a full-size image.

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Blacks and the Collectivist Plantation

Republican is a dirty word for many African-Americans, often for good reason. But blacks should be equally hostile to Democrats – at least if actual results count for anything. This is the basic message of this video sent to me by a black friend. 

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America’s Long-Term Fiscal Crisis: Worse than Greece?

Professor Larry Kotlikoff has some very sobering analysis of America’s fiscal status. Instead of just looking at current deficits, he examines the “present value” of all future expenditures and revenues. Simply stated, America is in worse shape than Greece because of the long-term burden of entitlement programs. Kotlikoff’s conclusion that America is “one foot away from a deep and permanent economic grave” may be a bit too strong, but he is certainly correct that unrestrained spending is going to cause serious damage.

Greek long-term government bond yields are running 700 basis points above comparable US Treasuries. The inference is that America is in far better fiscal shape than Greece. Nothing could be further from the truth. Greek debt totals 120 per cent of gross domestic product, twice the US figure. But debt alone tells us little about a country’s fiscal condition. …During the past half-century, the US has sold tens of trillions of unofficial IOUs, leaving it with liabilities to pay Social Security, Medicare and Medicaid benefits that total 40 times official debt. …Fortunately, theory suggests a label-free measure of fiscal status: the fiscal gap, or the present value difference between all future expenditures and receipts. The Greek fiscal gap is staggering. Calculations developed with my colleagues at Freiberg University put it at 11.5 per cent of the value of Greece’s future GDP. And this huge figure already incorporates Greece’s recently legislated fiscal policy retrenchment. But the US figure, based on the Congressional Budget Office’s just-released projections, is even larger: 12.2 per cent. Clearly, Greece is in terrible fiscal shape. To get its books in order it would have to pull in its belt each year by another 11.5 per cent of GDP. This provides new meaning to the word draconian. But the US is in much worse shape, because the CBO’s projections that reveal the 12.2 per cent fiscal gap already assume a 7.2 per cent of GDP belt-tightening by 2020. …Wishing won’t fix America’s fiscal mess. The US is one foot away from a deep and permanent economic grave. It is far past time to do meaningful long-term fiscal planning, level with the public, and implement radical reforms that permanently put America’s fiscal house in order.

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The Defense Department Is also Filled with Waste, Fraud, and Abuse

Advocates of limited government generally focus on domestic spending, pork-barrel projects, and entitlement programs. This is target-rich territory, to be sure, and especially inviting because most of the relevant programs and department shouldn’t exist. But just because national defense is a legitimate function of the federal government, that doesn’t mean that national security outlays are somehow immune from waste, fraud, and abuse. Here’s an all-too-typical story from Federal News Radio about the Defense Department being unable to account for a staggering 95 percent-plus of the funds channeled through the Development Fund for Iraq.

The Defense Department is unable to account for $8.7 billion of the $9.1 billion in Development Fund for Iraq monies in received for reconstruction in Iraq. This according to a study published today by the Special Inspector General for Iraq Reconstruction. …The Special Inspector General for Iraq Reconstruction (SIGIR) finds that only one Defense organization actually set up the accounts required by the Treasury. “The breakdown in controls left the funds vulnerable to inappropriate uses and undetected loss,” SIGIR says. The study recommends that the Secretary of Defense create new accounting and reporting procedures to avoid such mistakes in the future. It also recommends designating an executive agent to oversee progress, establishing measurable milestones, and determining whether any DoD organizations are still holding DFI funds.

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Budget Deficits Force Local Governments to Do the Right Thing for the Wrong Reason

There are legitimate reasons for local governments to own land, but surely it doesn’t make sense for them to hold on to surplus acreage. Better to get that land back in private hands, where it will be used for some productive purpose. This is why the downturn does have a silver lining. A handful of local governments are so anxious for more property tax revenue that they are going out of their way to make extra government-owned land available to private owners at rock-bottom prices. Ideally, they should have privatized their holdings years ago, but better late than never. Here’s a blurb from the New York Times about this development.

Give away land to make money? It hardly sounds like a prudent scheme. But in a bit of déjà vu, that is exactly what this small Nebraska city aims to do. Beatrice was a starting point for the Homestead Act of 1862, the federal law that handed land to pioneering farmers. Back then, the goal was to settle the West. The goal of Beatrice’s “Homestead Act of 2010,” is, in part, to replenish city coffers. The calculus is simple, if counterintuitive: hand out city land now to ensure property tax revenues in the future. …Around the nation, cities and towns facing grim budget circumstances are grasping at unlikely — some would say desperate — means to bolster their shrunken tax bases. Like Beatrice, places like Dayton, Ohio, and Grafton, Ill., are giving away land for nominal fees or for nothing in the hope that it will boost the tax rolls and cut the lawn-mowing bills. …Officials acknowledge that the benefits sound modest, in the thousands of dollars annually, but say the revenue is needed. “What is the value of a lot to us if it’s empty?” said Tom Thompson, the mayor of Grafton, where an offer of 32 city-owned lots, promoted with a television advertising campaign, has quickly led to eight takers so far. “This is strictly financial — a way to go upstream from the trend.” In Dayton, officials are offering thousands of vacant, foreclosed or abandoned properties under certain conditions for nominal fees — $500, in many cases, to cover the cost of recording fees or $1,200 if the city must initiate tax foreclosure proceedings. The prospect of city savings on mowing fees alone is enormous: each year, Dayton spends $2 million to cut grass on the properties.

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Great Moments in Government Waste

Isn’t it nice to know that the federal government has about 100 separate programs to fund community activities that supposedly help fight crime? And isn’t it even nicer to know that there is no evidence that the money (which gets spent on things like pool parties and donut-eating contests) actually does any good? Senator Coburn has released a report about this wasteful spending and CBS News has a story about how the Department of Justice is squandering your tax dollars.

With a $13 trillion debt, why is the Department of Justice spending money on parties and rollercoaster rides rather than investigating crime, drug cartels, prosecuting terrorists? Untold millions of your tax dollars are paying for recreation in the name of crime prevention: pool parties, rollercoaster rides, and police donut-eating contests. The idea is that fun activities keep kids out of trouble, build self-esteem and prevent crime. …Now, the U.S. Government Accountability Office (GAO)has found nobody is measuring just how much is spent on the recreation – or whether it even works. Sen.Tom Coburn, R-Okla., estimates well over $100 million tax dollars over five years has been spent on recreation to fight crime. Coburn says poor tracking leads to questionable spending. At least $200,000 was spent for officials to attend conferences at golf resorts in Florida and Palm Springs, or a film festival featuring “Santa, The Fascist Years.” …Just last month, an Oklahoma City program was found to have misspent hundreds of thousands of dollars in federal crime prevention funds on things like a giant flat screen TV, 40 pairs of binoculars and $200 Japanese-style swords. Police said most of the binoculars were never used and there was “no legitimate purpose” for the swords. Twelve other federal agencies and 99 programs fund similar community programs.

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The White House Has Declared Class War on the Rich, but the Poor and Middle Class Will Suffer Collateral Damage

The 2001 and 2003 tax cuts are scheduled to expire at the end of this year, which means a big tax increase in 2011. Tax rates for all brackets will increase, the double tax on dividends will skyrocket from 15 percent to 39.6 percent, the child credit will shrink, the death tax will be reinstated (at 55 percent!), the marriage penalty will get worse, and the capital gains tax rate will jump to 20 percent. All of these provisions will be unwelcome news for taxpayers, but it’s important to look at direct and indirect costs. A smaller paycheck is an example of direct costs, but in some cases the indirect costs – such as slower economic growth – are even more important. This is why higher tax rates on entrepreneurs and investors are so misguided. For every dollar the government collects from policies targeting these people (such as higher capital gains and dividend taxes, a renewed death tax, and increases in the top tax rates), it’s likely that there will be significant collateral economic damage.

Unfortunately, the Obama Administration’s approach is to look at tax policy only through the prism of class warfare. This means that some tax cuts can be extended, but only if there is no direct benefit to anybody making more than $200,000 or $250,000 per year. The folks at the White House apparently don’t understand, however, that higher direct costs on the “rich” will translate into higher indirect costs on the rest of us. Higher tax rates on work, saving, investment, and entrepreneurship will slow economic growth. And, because of compounding, even small changes in the long-run growth rate can have a significant impact on living standards within one or two decades. This is one of the reasons why high-tax European welfare states have lost ground in recent decades compared to the United States.

When the economy slows down, that’s not good news for upper-income taxpayers. But it’s also bad news for the rest of us – and it can create genuine hardship for those on the lower rungs of the economic ladder. The White House may be playing smart politics. As this blurb from the Washington Post indicates, the President seems to think that he can get away with blaming the recession on tax cuts that took place five years before the downturn began. But for those of us who care about prosperity more than politics, what really matters is that the economy is soon going to be hit with higher tax rates on productive behavior. It’s unclear whether that’s good for the President’s poll numbers, but it’s definitely bad for America.

Treasury Secretary Timothy F. Geithner took the lead Sunday in continuing the Obama administration’s push for extending middle-class tax cuts while allowing similar cuts for the nation’s wealthiest individuals to expire in January. …The tax cuts, put in place between 2001 and 2003, have become an intensely political topic ahead of the congressional elections this fall. Republicans have argued that extending the full spectrum of tax cuts is essential to strengthening the sluggish economic recovery. Geithner rejected that notion, telling ABC’s “This Week” that letting tax cuts for the wealthiest expire would not hurt growth. …On Saturday, the president used part of his weekly address to chide House Minority Leader John A. Boehner (Ohio) and other Republicans who oppose the administration’s approach, saying the GOP was pushing “the same policies that led us into this recession.”

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Another Sad Example of Mitchell’s Law

I’ve decided my one legacy to the world is the phrase, “Bad government policy begets more bad government policy.” This term, which I am modestly calling Mitchell’s Law, describes what happens when government intervention (Fannie and Freddie, for example, or Medicare and Medicaid) causes problems in a particular market (a housing bubble or a third-party payer crisis), which leads the politicians to impose more misguided intervention (bailouts or Obamacare).

Here’s a good example from Germany. The politicians created government-run healthcare. Overweight people are putting a larger burden on the system, imposing costs on taxpayers. The logical response is to shift to a market-based system where people are in charge of their own healthcare costs. Not surprisingly, that option isn’t being considered. Instead, politicians are using the situation as an excuse to consider even more taxes.

Marco Wanderwitz, a conservative member of parliament for the German state of Saxony, said it is unfair and unsustainable for the taxpayer to carry the entire cost of treating obesity-related illnesses in the public health system. “I think that it would be sensible if those who deliberately lead unhealthy lives would be held financially accountable for that,” Wanderwitz said, according to Reuters. Germany, famed for its beer, pork and chocolates, is one of the fattest countries in Europe. Twenty-one percent of German adults were obese in 2007, and the German newspaper Bild estimates that the cost of treating obesity-related illnesses is about 17 billion euro, or $21.7 billion, a year. …Health economist Jurgen Wasem called for Germany to tackle the problem of fattening snacks in order to raise money and reduce obesity. “One should, as with tobacco, tax the purchase of unhealthy consumer goods at a higher rate and partly maintain the health system,” Wasem said, according to Germany’s English-language newspaper The Local. “That applies to alcohol, chocolate or risky sporting equipment such as hang-gliders.” Others are suggesting even more extreme measures. The German teachers association recently called for school kids to be weighed each day, The Daily Telegraph said. The fat kids could then be reported to social services, who could send them to health clinics.

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Driving Companies from the U.S. Market with too Much Regulation and Litigation

Almost every regulation presumably produces some benefit. The real issue is whether the benefits are significant and – even more important – whether they exceed the costs. Unfortunately, most regulations fail this common-sense test. A German magazine provides some good evidence, reporting that major companies from Germany are choosing to “de-list” from the New York Stock Exchange because of pointless regulation and costly litigation. This may not seem like much, but it is symbolic of a market that is increasingly unfriendly to business and entrepreneurship. Something to think about the next time you hear a politician wonder why more jobs aren’t being created.

With expensive accounting rules, an increased threat of litigation and hundreds of millions of dollars in fines for some firms, the once prestigious New York Stock Exchange and other American markets have become unattractive to Germany’s biggest companies. Daimler and Deutsche Telekom have fled this year and the few remaining are likely to follow. …regulations introduced by the United States government in the wake of the accounting scandals in the early 2000s brought extra oversight and added costs for foreign companies listed on the NYSE. Of the 11 firms on Germany’s DAX index of blue chip companies that were at one time listed on the NYSE, only four still remain: Deutsche Bank, Fresenius, SAP and Siemens. …The attractiveness of the American capital market to German firms began to erode with Sarbanes-Oxley. …From the start, companies voiced their displeasure with the high costs required to comply with the reforms. In one provision, companies were obligated to hire an independent auditor to monitor and report on the company’s financial reporting. …German firms cross-listed in the United States spent between €10 and €15 million annually on SEC compliance, a survey conducted by Stadtmann and his colleagues found. Most companies would not disclose the exact amount of money they spent on SEC compliance, but a Deutsche Telekom spokesperson told SPIEGEL ONLINE costs were in the “low double-digits” of millions of euros and another at Daimler said they did not exceed €10 million. When Telekom and Daimler announced their departures from the NYSE in April and May respectively, the main reason the companies said publicly was to reduce the complexity of financial reporting and administrative costs. On average, companies must add another five to 10 people to their payroll for SEC compliance alone, and a company may need a dozen workers for required executive compensation disclosures, says Miers. …The double-digit costs of SEC compliance, however, are paltry compared the hundreds of millions of dollars in liability — either through lawsuits or investigations and prosecutions — to which a US listing can expose foreign firms. …”What the SEC fully doesn’t grasp to today is that dealing with the US regulation system is a nightmare,” he says. “It’s another reason to run to the exit door.” Sarbanes-Oxley reforms also require a company executive to approve on all financial reports. “The most important thing (about Sarbanes-Oxley) is that the CEO and CFO sign for the financial statements,” says Stadtmann. “All it takes is one person in the company to make a mistake and (an executive) can go to jail.” …Stadtmann believes Siemens will pull out at the first opportunity.

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Great Moments in Government Waste, the European Version

It’s aggravating and maddening to send tax dollars to Washington and watch them get wasted on pork-barrel projects and inefficient programs. Imagine how much worse it would be, though, to send tax dollars to an international bureaucracy and be utterly helpless to stop the worst kinds of boondoggle spending. That’s how taxpayers from European nations must feel when they discover, as the Daily Mail reveals, that the European Commission bureaucrats squandered close to $20 million to conclude that fruit is a healthy food and to create a “Mr. Fruitness” superhero character.

EU bureaucrats have squandered millions of pounds on a study which reached the unsurprising conclusion that fruit is good for you. An astonishing 13.8million euros – some £11.7million – has been spent on research involving 200 scientists which found that ‘two apples a day keep cholesterol at bay’. Much of the money went on developing and promoting a green-skinned EU superhero called Mr Fruitness designed to persuade children to eat more fruit. …The multi-million pound project called IsaFruit lasted four years. …The website set up to publicise Mr Fruitness…describes him as ‘a superhero with special powers that come from the nutritional substances in fruit – vitamins and others; key components of an intelligent and conscious diet’.

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Bush, Pelosi, and Reid Deserve Scorn for Destroying Jobs for Teenagers

Anybody with an IQ above room temperature understands that companies only hire workers when they expect to generate net revenue (i.e., the total receipts associated with a new worker are expected to be higher than the total costs). That’s why it was so reprehensible for Congress to approve a 40-percent hike in the minimum wage – a step that was guaranteed to kill jobs. The Wall Street Journal’s editorial page reports on new research showing 100,000-plus jobs were wiped out. This awful legislation was approved in 2007, and all politicians associated with that choice should be ashamed of themselves.

Economic slowdowns are tough on many job-seekers, but they’re especially hard on the young and inexperienced, whose job prospects have suffered tremendously from Washington’s ill-advised attempts to put a floor under wages. In a new paper published by the Employment Policies Institute, labor economists William Even of Miami University in Ohio and David Macpherson of Trinity University in Texas find a significant drop in teen employment as a direct result of the minimum wage hikes. The wage hikes were implemented in three stages between 2007 and 2009, and not all states were affected because some already mandated a minimum wage above the federal requirement. But for the 19 states affected by all three stages of the federal wage increase, “there was a 6.9% decline in employment for teens aged 16 to 19,” write the authors. And for those who had not completed high school, “we estimated that the hikes reduced employment by 12.4%,” which translates to about 98,000 fewer teens in the work force. After isolating for other economic factors and broadening their analysis to include all 32 states affected by any stage of the federal wage increase, the authors conclude that “the federal minimum-wage hikes reduced teen employment by 2.5% translating to approximately 114,400 fewer employed teens.”

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Europe’s Dishonest “Stress Test” for Banks

The Wall Street Journal correctly pulls aside the veil and exposes the dubious gimmick that European politicians used to declare that banks are reasonably health. To put it bluntly, they assumed no government would ever default, which really means that the stress test was a fraud or German taxpayers are now on the chopping block to bail out every other nation.

Two months ago, credit markets in Europe nearly went off the rails over concern about what a sovereign debt default in Greece would do to the Continent’s banks. After last night’s release of the result of a Europe-wide stress test, we’re not much wiser. The EU’s committee of national bank regulators repeatedly says that its stress test includes a “sovereign shock” scenario. But crucially, “a sovereign default was not included in the exercise,” in the dry language of the committee’s summary report. This means the test only looked at government debt held in trading portfolios, while ignoring any government bonds listed as held to maturity. Earlier this month, regulators made it clear that they opposed testing the consequences of a sovereign debt default on European bank balance sheets. The German magazine Der Speigel reported that regulators felt including sovereign default in the tests might imply that the EU’s €750 billion ($960 billion) bailout fund wasn’t guaranteed to work. In other words, bank regulators in Europe think Greece, Spain, Portugal and the rest are too big to fail. Germany and France will always save them in the end, so the consequences of a default don’t even need to be considered.

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The Founding Fathers Would Be Even More Horrified by Today’s Spending

The Washington Examiner explains that America’s Founders would be aghast to see how modern politicians have accumulated $trillions of debt. That may be true, but the editorial is nonetheless unsatisfactory because it’s quite likely that the founders would be even more horrified by the amount of spending. After all, the Constitution permitted debt, but Article I, Section VIII, specified the allowable functions of the federal government – and much of the what the federal government does today would cause them to spin in their graves.

In the period spanning the final year of George W. Bush’s second term in the White House and President Obama’s tenure to date, the national debt has exploded from $9.1 trillion to nearly $13.2 trillion, reaching 90 percent of the gross domestic product. …There is no doubt that George Washington, our first president, Alexander Hamilton, our first secretary of the treasury, and Thomas Jefferson, drafter of the Declaration of Independence and our third president, would be horrified by the present financial condition of the federal government. Public debt was anathema for Washington, who in his Farewell Address admonished us to “cherish public credit,” noting that “one method of preserving it, is to use it sparingly … avoiding likewise the accumulation of debt.” …” …Jefferson was Hamilton’s great nemesis in the political world, but the two adversaries agreed on the evils of public debt. …President Obama has recently observed that the national debt and federal entitlement spending have reached levels that are “unsustainable.” It would be difficult today to find any politicians in either of the two major parties who would disagree with that assessment. But they’ve talked this talk for years without making the hard decisions that come with walking the walk. The time for talk is past.

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Time to Shut Down the TSA?

In his Chicago Tribune column, Steve Champman suggests that the TSA’s bureaucratic inefficiency does more harm than good, especially if we place any value of liberty.

Get rid of the no-fly list entirely. For that matter, get rid of the requirement that passengers provide government-approved identification just to go from one place to another. Americans have a constitutionally protected right, recognized by the Supreme Court, to travel freely. They also have the right not to be subject to unreasonable searches and other government intrusions. But in the blind pursuit of safety, we have swallowed restrictions on travel and infringements on privacy we would never tolerate elsewhere. The no-fly list is a punishment in search of a crime. As Richard Sobel, a director of the Cyber Privacy Project and a scholar at Northwestern University, points out, it inflicts a penalty without a trial or any other form of due process. The TSA doesn’t say what it takes to get on the list, and it doesn’t make it crystal clear how to get off. If it acts in an arbitrary or malicious way, the victim has little recourse except appealing to the agency’s better angels. But the whole idea behind the list doesn’t make much sense. Supposedly, we have hundreds or even thousands of U.S. residents who are too dangerous to be allowed on a plane — but safe enough to be trusted in all sorts of other places (subway trains, sports venues, shopping malls, skyscrapers) where someone carrying a bomb or a gun could wreak havoc. If those on the list are truly dangerous, the government should arrest and prosecute them, with their guilt decided by courts. If they are not dangerous enough to arrest, they should have the same freedom to travel as everyone else. We don’t prohibit all ex-convicts from flying. How can we justify barring people convicted of nothing? …Not so many years ago, Sobel notes, you could show up without a reservation or a ticket at Washington’s National Airport (now Reagan National Airport), walk onto the hourly shuttle to LaGuardia, take a seat and pay your fare in cash. No one knew who you were, and no one cared.

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Taxes Are for the Little People, not John Kerry

In the future, all dictionary publishers should get rid of their existing definitions for “hypocrisy” and replace them with a photo of Massachusetts Senator John Kerry. He’s just been caught committing the horrible sin of saving his family more than $500,000 by domiciling his new yacht in Rhode Island (which is a tax haven for such luxuries) rather than his home state. Or at least Senator Kerry says that tax planning is a horrible sin with conducted by “Benedict Arnold” companies and facilitated by those wicked tax havens. But I guess that it’s not such a bad thing when Senator Kerry is protecting his wealth. For the rest of us peasants, it’s our job to meekly get in line and submit to whatever taxes Senator Kerry graciously decides to impose.

Sen. John Kerry, who has repeatedly voted to raise taxes while in Congress, dodged a whopping six-figure state tax bill on his new multimillion-dollar yacht by mooring her in Newport, R.I. Isabel – Kerry’s luxe, 76-foot New Zealand-built Friendship sloop with an Edwardian-style, glossy varnished teak interior, two VIP main cabins and a pilothouse fitted with a wet bar and cold wine storage – was designed by Rhode Island boat designer Ted Fontaine. But instead of berthing the vessel in Nantucket, where the senator summers with the missus, Teresa Heinz, Isabel’s hailing port is listed as “Newport” on her stern. Could the reason be that the Ocean State repealed its Boat Sales and Use Tax back in 1993, making the tiny state to the south a haven – like the Cayman Islands, Bermuda and Nassau – for tax-skirting luxury yacht owners? Cash-strapped Massachusetts still collects a 6.25 percent sales tax and an annual excise tax on yachts. Sources say Isabel sold for something in the neighborhood of $7 million, meaning Kerry saved approximately $437,500 in sales tax and an annual excise tax of about $70,000. …state Department of Revenue spokesguy Bob Bliss confirmed the senator “is under no obligation to pay the commonwealth sales tax.”

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Democrat Tax Cutters?

The Wall Street Journal ponders the mini-tax revolt among some Democrats, ranging from Kent Conrad in the Senate to Jerrold Nadler in the House, who are suddenly making arguments that it would be a bad idea to allow higher tax rates in 2011 (because the 2001 and 2003 tax cuts automatically expire).
 
I’m not holding my breath waiting for good results. Almost all of the Democrat “tax cutters” are making flawed Keynesian arguments, so they don’t even understand why it’s a good idea to focus on lowering marginal tax rates. But the WSJ’s editorial makes a good point about accepting good policy even if it’s based on bad analysis. But since extending the 2001 and 2003 tax cuts would require the support of almost 20 Democrat Senators and 40 Democrat Congressmen, I’m afraid it’s a moot issue – especially since the Obama White House is dominated by the hate-n-envy class-warfare crowd.

The revelation that tax increases could hurt the economy has recently been heard from Senators Evan Bayh of Indiana, Ben Nelson of Nebraska, and, most surprising, even from Kent Conrad of North Dakota. On a scale of unlikely events, this is like the Pope coming out against celibacy. As Senate Budget Chairman, Mr. Conrad has rarely seen a tax increase he didn’t like, but this week he averred that “As a general rule, you don’t want to be cutting spending or raising taxes in the midst of a downturn.” …Even Jerrold Nadler, a liberal from central casting, is worrying publicly that the tax hike will hit his New York constituents too hard. And he’s certainly right given that the combined top state and federal income tax rate will be close to 54% in 2011 in New York City. Mr. Nadler is proposing—seriously—to adjust the income tax brackets based on regional cost of living so fewer New Yorkers pay the rates …These are hardly supply-side conversions, but they’re a start. The economic recovery is far from robust, and socking it with one of the largest tax increases in history in January is not going to make anyone more eager to invest or create new jobs. Even Lord Keynes opposed raising taxes in a recession, and good Keynesian Democrats like the late economist Walter Heller persuaded JFK to cut tax rates in the 1960s. Those cuts kicked off that decade’s economic boom. Only in the age of Obama have Democrats convinced themselves that the best “stimulus” is higher spending and higher taxes. …even if all the 2001 and 2003 tax cuts are made permanent, the share of national output that goes toward federal income taxes will in every year stay well above the post-World War II average of 8.2%. Income tax receipts will rise gradually to 10% of GDP, even with the current tax rates intact, because as the economy grows the progressive tax code takes a larger share. If tax increases weaken the economy, revenues won’t increase as fast as Democrats hope and the deficit won’t fall by as much in any case. Which brings us back to the Speaker, Treasury Secretary Tim Geithner and Mr. Obama, who remain prisoners of their spend-and-tax dogma. Even as the Democratic tax revolt broke into the open yesterday morning, the White House rolled out Mr. Geithner to declare that the tax increases will arrive as scheduled. So the same Mr. Geithner who says the economy is weak enough that we must have new spending “stimulus” says it is strong enough to endure a huge tax increase.

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Great Moments in Government Waste and Taxpayer Ripoffs

Senator Coburn’s office circulates a “Pork Report” every day, which I probably shouldn’t read since my blood pressure spikes. Today’s collection of stories included this outrageous example of federal bureaucrats living the good life with our tax dollars.

Federal investigators said Benjamin Clayton, a former U.S. Department of Energy employee is a crook who racked up $10,000 in unauthorized purchases by using his government issued gas card over and over again.’ Clayton served 25 days in a lockup. In Ohio, a top Commerce Department official, David Mullins, was investigated and fired for misusing his gas card and his government vehicle for unauthorized fill-ups and unauthorized drives through Ohio and forged receipts. Our investigation of government records, handwritten memos and audits found hundreds of pages of reports. Federal workers have been misusing their debit cards in recent months for everything from steak dinners to video game systems, college tuition, drinks, flights, hotels and travel. So how many government workers are walking the street with government-issued credit cards? It is a shocking 1.7 million workers. …government debit card purchases will top $30 billion nationwide this year. That is $4 billion more than just a year ago.

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Noncompliance Leads to a Victory for Liberty

I’m glad I read Instapundit, because my day has been made brighter by the news that Arizona’s statists have given up on their money-grubbing speed camera program. Here’s a cheerful story which explains that widespread noncompliance was the key.

Dozens of photo-enforcement cameras on freeways throughout the state are coming down this week. A total of 76 cameras will cease operation on Thursday. …While the cameras have done a good job at snapping speeders, drivers have been ignoring the tickets. According to the Department of Public Safety, the cameras led to more than 700,000 tickets in the first year of operation. Many of those people, however, never paid the fines. …Any driver who ignored a photo-enforcement ticket was supposed to have been served. One problem was that process servers were inundated and simply couldn’t get to everybody. If a person was not served, his or her ticket became invalid after three months. The speeding tickets should have generated about $90 million in the first year of the program. About one-third of that was actually collected.

And here’s a website with further details, including about how one group of activists were vandalizing the revenue cameras. As the person who wrote the article says, “I say to the people of Arizona: Bravo! How very American of you.”

The State, as an institution, thrives on confrontation. The best antidote is peaceful non-compliance. Simply ignore the State, disengage, and the State is rendered impotent. Through the highway camera system, it was hoped that an additional burst of revenue would roll in. Instead, it became a massive drain on the state’s budget. Not only did it not bring in the hoped-for revenue, it didn’t even make enough money to pay for expense of installing and maintaining the cameras. The citizens simply ignored the tickets that arrived in the mail. The state of Arizona doesn’t have the money nor the resources to follow up on the unpaid tickets. To top that all off, a group of activists went around vandalizing the traffic cams ‘” icing on the cake. 

Allow me to conclude with my personal experiences. I’ve been nailed by speed (revenue) cameras twice. In both cases, the speed limits were set absurdly low. In one case, it was a 45-mph limit on a stretch of interstate highway. In the other case, a 25-mph limit on a six lane major artery. Sadly, I had to pay. But the real outrage is that there is no plausible explanation for those speed limits/camera placements other than to rip off drivers. I just hope someday I have jury duty and the case is about somebody arrested for vandalizing a camera.

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Obama’s Jobs Fantasy

In a column in today’s New York Post, I mock White House unemployment calculations and then explain why companies are not anxious to hire more workers.

The White House last year released a supposedly scientific analysis that claimed to show that adopting the “stimulus” bill would cut unemployment. Indeed, the report specifically estimated that the unemployment rate today would be down to 7.5 percent. Something obviously went wrong. The actual unemployment rate is 9.5 percent, a statistic that doesn’t include the millions who’ve given up looking for work or can only find part-time jobs. What were President Obama’s biggest mistakes? …the bigger stumbling block is the folks in the White House seem to have no clue how the real-world economy works. Critics have noted that the Obama Cabinet sets the record for the lowest-ever level of private-sector experience. That doesn’t necessarily mean people who don’t understand how and why jobs are created — but that seems to be the case with this administration. Let’s start with two common- sense observations. First, businesses are not charities. They only create jobs when they think that the total revenue generated by new workers will exceed the total cost of employing those workers. In other words, if it’s not profitable to hire workers, it’s not going to happen. …Unfortunately, almost everything Washington’s done the last 18 months has sent the opposite message. The “stimulus” boosted federal spending, thus draining funds from private-capital markets and diverting resources from the productive sector of the economy. The main jobs that it “saved” were employees of state and local governments — shielding the public sector from pain even as it inflicted more agony on the private sector. …The health-care law is a cornucopia of new taxes, mandates and regulations — directly increasing the cost of hiring new employees (as well as of keeping old ones on). By telling employers that the cost of hiring is set to rise sharply in the years ahead, it makes them far more cautious about hiring. …Investors, entrepreneurs and other job creators also look into the future. If they think economic conditions will improve and that they can make money by expanding employment, they’re more likely to take that risk. But what’s happening in Washington gives them little reason to feel optimistic. A big challenge is that tax rates are going to rise. The 2001 and 2003 tax cuts are scheduled to expire as the ball drops in Times Square on New Year’s Eve. This means higher income-tax rates, higher dividend-tax rates, more double-taxation of capital gains and a reinvigorated death tax. Each provision will increase the cost of productive behavior and specifically make it more expensive to provide the capital needed for job creation. …The good news is that the economy is creating some jobs. This is to be expected — the private sector is naturally self-correcting and capable of withstanding lots of bad policy. It takes a lot of missteps in Washington to keep an economy in recession. The bad news is that the United States is gradually becoming a European-style welfare state. This means that we’ll have growth in most years, but it will be tepid growth. It means jobs will be created — but probably not enough to move the unemployment rate from its unacceptably high level. To get truly robust job creation, we need to stop growing government and start getting it out of the way.

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