About Me

In writing the "About Me" portion of this blog I thought about the purpose of the blog - namely, preventing the growth of Socialism & stopping the Death Of Democracy in the American Republic & returning her to the "liberty to abundance" stage of our history. One word descriptions of people's philosophies or purposes are quite often inadequate. I feel that I am "liberal" meaning that I am broad minded, independent, generous, hospitable, & magnanimous. Under these terms "liberal" is a perfectly good word that has been corrupted over the years to mean the person is a left-winger or as Mark Levin more accurately wrote in his book "Liberty & Tyranny" a "statist" - someone looking for government or state control of society. I am certainly not that & have dedicated the blog to fighting this. I believe that I find what I am when I consider whether or not I am a "conservative" & specifically when I ask what is it that I am trying to conserve? It is the libertarian principles that America was founded upon & originally followed. That is the Return To Excellence that this blog is named for & is all about.

Thursday, August 25, 2022

The Inflation Reduction Act Addresses The Green New Deal Not The Real Time Sensitive Issues - Social Security & Medicare

"It seems the only thing we can do on a bipartisan basis is spend more money than we have." - Former Senator Jeff Flake (R, AZ)

Click on graphic to enlarge

This post is written to answer what I had hoped would be the fifth question asked to Biden & Trump during the 2020 presidential debates - do you support the "cut, cap, & balance" plan to control federal spending so that projected borrowing is cut in half next year (not ten years from now), spending would be capped @ 18% of GDP (it was 21% before the pandemic), & the president would be required, under a balanced budget amendment, to submit a balanced budget within the foregoing guidelines that call for super congressional majorities to raise future debt limits or tax rates?

Based on their records it is obvious that neither Trump nor Biden would support such a measure.  On March 23, 2018, swearing he would never sign such a bill again, Trump signed a 2,232 page, $1.3 trillion omnibus spending bill that kept the government open until September 30, 2018 - only to sign an even larger omnibus of $1.4 trillion in December, 2020.  In between, for the fiscal 2019 cycle Trump signed three separate spending packages centered around a 35-day partial government shutdown.

Regarding the March 2018 omnibus Trump had said ""I say to Congress: I will never sign another bill like this again. I'm not going to do it again. Nobody read it. It's only hours old. Some people don't even know what is in — $1.3 trillion — it's the second-largest ever."  This turned out to be only so much bluster as Trump signed them all.

In March 2020 Trump signed the $2.2 trillion CARES Act (Coronavirus Aid, Relief, & Economic Security Act) that included direct cash payments to households ($1,200 per adult plus $500 per qualifying child under 17), an additional $600 per week in unemployment compensation through July, bailouts for airlines & other businesses, & loans & grants to small businesses.  By the time CARES was done $2.7 trillion had been added to the national debt.  

Then during the week of December 21, 2020 the fourth, & first since March, Covid relief bill (The Coronavirus Response & Relief Supplemental Appropriations Act) for $900 billion & the aforementioned $1.4 trillion omnibus Consolidated Appropriations Act for 2021 were both signed into law by Trump.  The Covid relief bill included direct cash payments in the form of income tax rebates of $600 per adult plus $600 per child; an increase of $300 per week in federal unemployment compensation; an allowance for employers to voluntarily provide paid leave through March 31, 2021 thereby receiving a payroll tax credit; an extension of the federal eviction moratorium through January 31, 2021 including $25 billion in emergency rental assistance to help renters impacted by Covid-19 to pay for past due rent, future due rent, & utility bills to prevent power shutoffs; a 15% increase to SNAP (food stamps) benefits through June 30, 2021 estimated to be an extra $25 to $30 a month for everyone enrolled in the program; $69 billion for Covid-19 vaccines, testing, & tracing; $3.2 billion to expand broadband access to low-income families; & $100 million for the Administration for Community Living to address abuse, neglect, & exploitation of the elderly.

On Thursday March 11, 2021 Biden took the spending baton & made his first presidential prime time TV address to mark the one year anniversary of the Covid-19 pandemic in America.  The address also coincided with his signing into law the same day of the $1.9 trillion stimulus bill known as the American Rescue Plan Act (ARPA).

Almost half of this gigantic stimulus spending went directly to the well publicized $1,400 per person direct deposits or checks ($8,400 for a family of two adults & four small children), $1,300 per child expanded child tax credits ($5,200 for this same family), bigger food-stamp payments, & $300 per week federal enhanced unemployment benefits in addition to regular state unemployment benefits.  And $350 billion payments were made to states - the majority of which went to Democrat states that have been financially irresponsible for decades meaning that states like Tennessee, Florida, Texas, & Georgia bailed out New York, New Jersey, Illinois, & California.  For instance, New York received more money from the bill than Florida despite New York having a smaller population than Florida - one of the consequences of the November, 2020 election. 

The ARPA also provided 14 weeks of paid sick, family, & medical leave through September, 2021, while reimbursing local governments for the cost of this leave, provided an additional $25 billion for rental relief & $5 billion to cover home energy & water costs for low income people, extended the federal eviction moratorium through September & allowed people with federally guaranteed mortgages to apply for forbearance until September, provided $40 billion to ensure childcare providers can remain open & expanded the childcare tax credit, provided an additional $15 billion to the Paycheck Protection Program in flexible, equitably distributed grants to small businesses to help them reopen & rebuild, & provided $20 billion to support public transit agencies to ensure that workers keep their jobs & routes are not cut from service.

Under Biden's direction Congress also passed a $1.2 trillion Infrastructure bill (Infrastructure Investment & Jobs Act).  But thanks to Democrat Senators Joe Manchin (WV) & Kristen Sinema (AZ) the much larger $3.5 trillion Build Back Better bill (which originally included the infrastructure bill) failed - only to reappear earlier this month as a smaller $739 billion (new taxes & savings) dishonestly misnamed Inflation Reduction Act of 2022 (IRA).

Breaking out the cost of the Covid stimulus the past two years:  $3.6 trillion under Trump & $1.9 trillion under Biden.  They're both lucky I'm answering the "cut, cap, & balance" question instead of the one about each of them pointing out where the other did not follow the Constitution.

The above graphic has been around since 2007 & its accuracy in depicting the target date when entitlement & net interest spending will exceed government revenue far exceeds the accuracy of AOC saying the world will end in 12 years (now 8.5 years) if climate change is not addressed no matter the cost, yet the IRA does not address the spending excesses but does include a substantial portion of its $433 billion in new spending & tax breaks to address climate change by making a down payment that funds portions of the Green New Deal.  

The negative impact on the country of the economic forecast on the above graph is as plain as the nose on your face while the benefits of spending trillions of dollars on the Green New Deal are suspect.  For instance, the Rhodium Group determined that the IRA's investments in wind, solar, & battery developments coupled with subsidies for certain windows, heat pumps, & other energy efficient products & extending the $7,500 tax credit to buy electric vehicles could help cut greenhouse emissions 31% to 44% below 2005 levels in 2030 in the U.S., compared with 24% to 35% under current policy.  Notice the overlap in these ranges - the same result could be obtained by doing nothing.  Also, world-renowned climate scientist Bjorn Lomborg, using the U.N. climate model & the Rhodium Group's estimate for CO2 emissions reductions, found the IRA will reduce the global temperature rise by 0.028 degrees Fahrenheit in the optimistic case by the year 2100 & 0.0009 degrees Fahrenheit in the pessimistic case.  

In the Green New Deal we're paying a lot of attention & money to something that may not amount to much, especially when China, India, & Africa aren't cooperating & China is even building an estimated 35 to 40 new coal plants.

The IRA focuses on climate, tax, healthcare, & IRS enforcement provisions including most of its $434 billion of new spending over ten years for energy & climate, a 15% minimum tax rate for most large businesses (i.e., a corporate Alternative Minimum Tax where corporations pay 21% of taxable income or 15% of the income reported on financial documents, whichever is more), $64 billion to extend ObamaCare subsidies, $99 billion Medicare drug negotiation savings (i,e,. price controls), & $80 billion to increase the IRS budget which is listed in the bill as a $124 billion net savings anticipating $204 billion in additional revenue from increased IRS audits facilitated by hiring new agents.  

The IRA creates a total of $739 billion in new taxes & savings leaving $305 billion ($739 billion - 434 billion) over ten years for deficit reduction, almost all of which takes place from 2027 to 2031 - but who could believe that if this plan went exactly as drawn up that any politician other than those with a Liberty Score of "A" would think the best use of this $305 billion would be to retire treasury debt?  It is much more likely that the $305 billion will be spent on some aspect of the Green New Deal.

Now Professor Friedman taught that the real enemy in all or any of the government budget battles is not the deficit but rather spending.  The great libertarian professor would rather have a budget of $1 trillion with a $500 billion deficit than a budget of $2 trillion with no deficit.  He taught that the burden borne by the American economy is measured by what the government spends & disposes of, not by whether it calls its receipts "taxes" or "proceeds from bonds."  Accordingly, the real issue is not how you pay for government spending - debt or taxes - but the spending itself.  In short: don't just look @ the deficit, look @ why we have a deficit.  And the reason we have a deficit is pretty simple: the government spends too much. 

The following graph illustrates this point.  

 Click on image to enlarge.

Both spending & revenue are projected to grow faster than the economy but spending is growing @ a much faster pace - look @ the slope of the two lines for the out years.  The red line is @ a 45 degree angle.

The "cut, cap, & balance" plan meets Professor Friedman's test & addresses the real budget problem by holding down spending as a fraction of  national income.

What we are currently doing under Biden is proceeding with spending on the Green New Deal supposedly because of the 8.5 year emergency time frame AOC has declared remaining for life on Earth.  With a higher degree of confidence than that of AOC's declaration the Medicare Trustees' 2022 report determined the Hospital Insurance (HI) Trust Fund will be able to pay scheduled benefits until 2028, afterwhich "the fund's reserves will become depleted & continuing total income will be sufficient to pay 90% of total scheduled benefits" & as early as 2000 the Social Security Trustees have warned of about a 25% reduction in Social Security benefits starting around 2034.  Yet the nation proceeds with spending on the Green New Deal while never mentioning the ever approaching economic shortfalls of Social Security & Medicare.  

Not that Trump or Biden would have told us during the debate, if asked, but "cut, cap, & balance" would fit right in complementing my answers to the first four debate questions that respectively pertained to the significance of the national debt, a redistribution of 74% of income levied on people in the top two income quintiles being needed to bring every family in America to average, changing the Social Security benefit formula so that the initial benefit is based on CPI inflation rather than the growth of average real wages, & a premium support system unindexed to inflation to replace traditional Medicare.  It is important to understand the answers to these five questions before going on to the next nine questions, all fourteen of which were written for the American people, not two politicians.

But instead of "cutting, caping, & balancing" Biden has been getting us in deeper since the very start of his presidency.  The IRA is just the latest assault on our freedom. 

Early in BO's administration Ann Coulter recommended the elimination of the Departments of Health & Human Services, Education, Commerce, Agriculture, HUD, Transportation, the EPA, the National Endowment of the Arts, the National Endowment for the Humanities, & the progressive income tax & instituting a flat tax.  At the time, I seconded Ann's recommendations except I recommended eliminating the progressive income tax & replacing it with the FairTax.

A mindset change in America, away from Biden's irresponsible government dependence mentality, more in line with Ann Coulter's above list along with "cut, cap, & balance" principles, basing Social Security's initial benefit on the CPI rather than the wage index, & implementing a premium support system for Medicare are needed for the return to excellence this blog is all about.  Doing so reduces both the significance of the national debt & the claim the government makes on earned income.

Stuart L. Meyer typifies the thinking I am talking about when he wrote in the WSJ that the hiring of 87,000 new IRS agents under the IRA should not only be economically justified by how much more money these agents will raise above their cost but also justified by including "all the opportunity cost of the expenditure of nonproductive effort."

In short:  economists asking "is this the best use of these people?"

Sunday, August 7, 2022

Pandemic Quiz

I was surprised how many people got the right answer to the DJIA quiz back in January.  One such surprise person, in the unlikely camp, told me "even though I am not good at math per se, due to my profession (real estate investing) I do understand finance math and the time value of money.  I even teach financial calculator and 'Time Value of Money" classes from time to time."

So let's up the ante.

Due to the pandemic many government & private company reports can show distorted year over year results when comparing a pandemic locked-down year like 2020 to a pre-pandemic year.  For instance a company's earnings report could look disastrous comparing 2020 results to those of 2019.  Both government & private companies solved this problem by comparing 2021 results to those of 2019 - i.e., comparison of two years ago rather than one.  See graph below that shows a smooth curve for "To two years prior" for the entire time frame shown & a similar curve for "To one year prior" except for the spike when comparing the results of 2020 to 2019.

  Click on graphic to enlarge

A second tactic involved taking data from 18 months or longer & displaying the data on an annual basis.

Our quiz involves a problem based on the second approach.

Pandemic Quiz

Due to the pandemic a certain index could not be determined at all after December, 2019 until the close of March, 2022.  The index had a reading of 10,000 on December 31, 2019 & 16,809 on March 31, 2022.  The institution responsible for the index likes to post the percent change of the index every January that represents the change for the past year determined from the end of December values of the index for the respective years.  The index follows the compound-interest law.  Based on the two index readings given above, what is the value of the index on December 31, 2020 & the percent change of the index from December 31, 2019?