Tag Archives: Obama

Is It Time to Make a Deal?

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With the debate intensifying over raising the debt limit and cutting federal spending, all eyes are on the GOP.  Many conservatives are arguing that Republicans must give in to President Obama’s desire for elimination of tax loopholes on corporate taxpayers and other reforms that could raise taxes on the American people.  The mantra of the Republications is quite simple: spending is the problem and there is no need for revenue increases (read tax hikes).

Democrats on the other hand claim that certain programs are untouchable such as Medicare, Medicaid and Social Security.  Thus, the proposals outlined to cut $2-4 trillion from the Federal budget over the next decade must leave these entitlements alone.  These conflicting philosophical positions continue to arise: cutting spending and the size of government alone or continue the course by raising more revenue?  Should Congress agree to spending cuts AND tax increases in order to make a deal and act before the August 2 deadline to raise the debt ceiling?  David Brooks of the New York Times  recently wrote cutting a deal is the “mother of all no-brainers.”  Others are claiming that certainly the wealthiest Americans can afford tax increases (yet these increases are always couched as “allowing the Bush tax cuts expire”).  Consequently, the debate ensues and each side, Republicans and Democrats alike, are blaming each other for the pending default if a deal on the debt ceiling is not reached.

Again Americans are experiencing the tension between politics and economics that is as familiar as a thunderstorm on a hot summer evening.  The political process creates incentives for spending and compromise while the economics reflects an unsustainable budget shortfall that has implications that are not fully known.  The easy solution is to make a deal, raise the debt limit, and spend tax payer and borrowed dollars to oblivion.  Thus, the debate is one of principles that are on very different poles: limited government and incentives push to market participants versus government solutions to basic economic problems with little to discipline political actors.

The debt ceiling is the only tool left that provides for the possibility of fiscal discipline by politicians.  In the past, raising the debt ceiling has been a relatively simple policy option for a spendthrift Congress.  Yet, with the election of conservative Republicans in November 2010 there is a new push toward actually maintaining a principled position regardless of the political cost.  Many Republicans see this issue as that is, spending billions over budget, controlled by special interests, and taking control of the very market incentives that drive economic growth.  Why should high income earners pay higher tax rates (either via marginal rate increases or lost deductions) simply to fund programs that are inefficiently administered via the federal government?  Or to put it more clearly, why are Democrats set on maintaining or growing the current federal budget?

These are the questions that must be asked long before the question of “should the Republicans make a deal?”  According to those close to the debate, the big concern is that failing to raise the debt ceiling could likely lead to skyrocketing interest rates and a plummeting dollar.  Hence, the President and his party are characterizing the Republicans as willing to sacrifice economic stability for wealthy tax breaks.  Once again, this myopic view of the economy is endemic within the political process.  Obama is looking to the 2012 campaign and many in Congress are doing the same, yet the discussion of core principles must remain in this debate.  Any compromise at this point, as obvious as it may seem to some, is tantamount to once again throwing away all the economics for politics alone.  In congressional districts throughout the county, a majority of voters spoke loudly last November saying that they wanted a principled position on tax and spend policies to re-enter the political process.  Many Americans are tired of the bickering over billions when they have made significant cuts in their own budgets.  It is time for Congress to stop pandering to the few and start worrying about spending less for the entire country.

Why You Should Care About the National Debt Ceiling

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Everyone needs to be aware that the debt ceiling is currently set at an incredible $14.294 trillion.  I tackle this debt ceiling and the federal government’s impending shut-down (circle April 8th on your calendar) in my latest BigGovernment.com piece.  Check it out here: http://www.breitbart.com/Big-Government/2011/04/01/Why-You-Should-Care-About-The-National-Debt-Ceiling or in its entirety below.

WHY YOU SHOULD CARE ABOUT THE NATIONAL DEBT CEILING

by PETER FRANK 1 Apr 2011 

With the Federal government scheduled to shut down on April 8, Congress is not only debating where to spend trillions of dollars in the next fiscal year, but also whether to raise the roof, i.e. the debt ceiling. The debt ceiling simply represents a cap on the total debt the U.S. government can hold, and it is currently set at a whopping $14.294 trillion. Though the resolution for this limit was signed a mere year ago, we are quickly approaching the limit and should reach it sometime in the first week of April. Keep in perspective that it would take more than 31,000 years of earning $1 a day to make a measly $1 trillion of the total debt. The government has added to the total debt every year since 1960 (except for two years). Worse yet, it has added over $5 trillion in the past three and a half years alone. Wouldn’t common sense indicate that there’s little room to borrow more? Apparently not.

The reality is that many lawmakers want to “stabilize the debt” by increasing the debt ceiling. Of course, you can’t stabilize trillions of dollars. So essentially, the government ends up selling more bonds just to pay interest on the national debt and pay for new spending.What’s a few more hundred billion when you already owe several trillion?

Often, to explain how we must increase the debt ceiling, government plays on one major fear – the fear of U.S. default. Those in support of raising the debt ceiling argue that if it’s not increased the government will not be able to meet obligations. They essentially say the country will go bankrupt. To prevent this very issue, the debt ceiling has been raised 74 times since March 1963. The problem with this rationale is that it’s like urging a boat to take on more water to keep it from sinking. Imagine meeting with your financial planner and hearing him say, “In these tough financial times I recommend you add to your debt in order to stay solvent.” I hope you would quickly find a new financial planner.

In the realm of “real world” spending, consumers cannot increase their total debt with a simple declaration. As consumers approach a high level of debt, their ability to take on more debt is checked by the price (interest rates) and the risk premium they represent to a possible lender. Obviously, no mechanism of natural market discipline exists for government. So instead, the debt ceiling becomes an artificial barrier which is put in place to demonstrate the illusion of fiscal responsibility. Opponents of raising the debt ceiling agree.

When the debt ceiling is reached, it will be the first time we’ve done so without raising the limit. Though there will be implications, don’t expect a government shutdown. For one, the treasury will be unable to borrow more money to meet federal government obligations. Scary? Absolutely, but it might not be a bad thing considering no legislation to date has worked to curb out of control spending. Congress would likely have to pass legislation mandating that the first checks the government writes each month pay for debt service, which would undoubtedly leave fewer dollars available for all other spending. (In a dream world this repercussion would lead government to tighten their belts and make cost effective saving measures). What is certain is that a failure to raise the debt ceiling would not result in government default. Congress has more than enough at its disposal to pay U.S. Treasury bond obligations. The fear of default is misguided.

In a March 30 Wall Street Journal column, U.S. Senator Marco Rubio wrote that he (and others) will only vote to raise the debt ceiling if it’s the last raise ever made and if its accompanied by several measures to tighten and reign in spending. With such emphatic promises from political heavyweights like Rubio, you can bet on a hot debate in coming days.

Public Sector Unions Are Bargaining For Your Salary

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Check out my latest piece at Carolina Journal: http://www.carolinajournal.com/articles/display_story.html?id=7502  or read the entire piece below!

Public Sector Unions Are Bargaining for Your Salary
By Peter Frank
Mar. 10th, 2011

WINGATE — As Wisconsin and other states come to grips with massive budget shortfalls, and protesters seek a voice in the
painful process of spending cuts, we find ourselves questioning the role of public sector unions today.
Look at the basic structure of public vs. private unions. At the core of their collective goals, unions are trying to advocate for the
rights of their members, but this is where the similarity ends. Public sector unions are bargaining over tax dollars, so there is
little discipline or limitation for what they can bargain. Private unions are faced with a very different situation. They are simply
trying to attain a share of the corporate profits, and their bargaining power exists only if they produce a product that consumers
want. Public unions negotiate with those who they help elect to ensure they receive above average pay compared to the private
sector.

Take the current bargaining dispute between the NFL players and owners. Each party walks a fine line because if consumers
get fed up with their haggling, and stop purchasing tickets and merchandise, neither side will get a slice of the $9 billion
industry. Or consider the United Auto Workers in Ohio and Michigan who are no longer employed because General Motors had
to restructure and close over 14 production facilities.

Public sector unions try to explain their plight in terms of basic rights. Yet there is no basic right to negotiate with monopoly
power extracting resources from a democratically elected government. For the teacher union in Wisconsin, collective bargaining
means that those who supply their labor to the public school system essentially can fix their wages and benefits and force all
workers to join the union (or pay not to join). As one commentator put it, it’s equivalent to all airline companies meeting to fix
ticket prices and capacity — obviously a practice that would swiftly be stopped under antitrust law.

These unions essentially are claiming they have an unqualified right to bargain for more taxpayer funds. In Wisconsin, the
average public school teacher earns approximately one-and-a-half times what the average American worker earns. Should they
have the right to bargain for higher wages, improved pension programs, and additional worker benefits without any market
discipline? The problem is there is no “fair” way to set up a public sector union to incorporate a mechanism for compensating
workers without appealing to political patronage. The recent headlines in Wisconsin are a prime example of this problem.

Public sector employee unions should not have an unchecked ability to extract tax dollars from the state budget for their own
well-being. They simply shouldn’t have the right to bargain for more taxpayer dollars without any accountability.
Liberal legislators who are “fighting for working families” clearly don’t see this side of the argument. The transactions costs would be high, but why not put a salary or pension increase to the voters each time a public sector employee asks for more funds? No one is hoping for this outcome, but it does reveal the absurdity of unmitigated bargaining power. How manyAmericans have the ability to negotiate for the salary they desire, and the ability to bind their employer with unqualified monopoly power on the supply of their labor?

At its core, the debate over public sector union power is a debate over the public vs. private provision of goods and services.
The matter doesn’t center on some opposing moral issue of giving workers what they deserve vs. stripping school teachers of
a dignifying wage.

Americans must come to grips with an imperfect system of deciding what government workers rightfully earn as they educate
children and police our streets, while public sector unions must consider the reality that most of us rely on market forces and
the desires of consumers to determine our bargaining power.

State of Spending Address Proves Budget is Top Concern

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With the highly anticipated State of the Union Address now behind us, its clear to see that spending was a top priority for Obama during the discussion.  Whether or not this rhetoric will continue out through the election season remains to be seen.  In my latest op-ed for the Richmond County Journal I discuss the points raised in the State of the Union and offer my own analysis.  You can read the original op-ed on the newspaper’s site or you can read the piece in its entirety below.

 

State of Spending Address proves Budget is top concern

RALEIGH — If President Obama’s State of the Union Address proved one thing, it’s that spending is out of control. Even more evident in his collectivist rhetoric was a clear misunderstanding of what it will take to fix our budgetary woes. The president called for a freeze on spending while advocating increased financial support of education, rail transportation, and research, among other special initiatives. He offered far more examples of how he would spend rather than how he would save.

So how does the administration intend to make sense of this spend-to-save policy? Simply re-interpreting costs and revenue changes their math, and it all starts with its views on taxation.

One of the most popular tools in the government arsenal to control human behavior is taxation. If the government wants less of something like cigarette smoking or gasoline consumption, it taxes it. A tax on cigarettes presumably leads to less smoking, and the government says that is good. But, when the government advocates a tax on income that will work like any other tax, and reduce the incentive to earn income, they say the “tax to deter” rule doesn’t apply.

Rather than viewing the December tax cut extensions as a benefit to American citizens, the government calls the extension of rates a “cost” to the federal government. This argument takes focus away from earners generating wealth in the private sector, because a “cost” to the federal government is really a gain to earners. Moreover, if the federal government wasn’t spending billions more than it “earned” in tax revenue each month, an extension of the current tax rates would never provoke discussion of the “cost” of existing tax policy.

The initial approach to the tax bill debate was the Obama administration’s masterful attempt to couch the issue as an extension of mistaken Bush-era policy. The debate became focused on revenue alone and how the government must fund its ballooning debt. And, the underlying assumption was that Bush-era economics led us astray from an optimal tax rate.

Is this really the case? Were the tax rates that existed under the Clinton administration perfect and we are now suffering after those golden years? Should the American people pick some optimal level of personal spending and then hope their income matches up?

All talk about optimal tax rates and the extension of Bush tax cuts focuses the discussion solely on government revenue. Where is the debate over government spending as it relates to taxation? Rep. Paul Ryan, R-Wisc., briefly touched on the issue in the Republican response to the State of the Union by acknowledging the government’s tendency to control and tax too much. Sadly, the president publicly came to the conclusion that the current tax rates were OK to keep because they were for the good of the country (and the good of his re-election). The reality is that the president believes that keeping taxes at the current rates will “cost” billions over the next few years. A tax rate has never cost the government a dime (apart from collection costs).

The recent tax bill marks the beginning of what is certain to be an ongoing debate as Congress moves through this session. Now that the current tax rates have been extended, House Speaker John Boehner and his colleagues should change the focus away from what rates will “cost” toward how federal spending can get in line with revenue.

Whether or not the current tax rates are extended, the federal government does not have an impending revenue problem; it has a spending problem.

Is this the year Congress finally will stop ignoring the truth about our ballooning budget crisis and come together to make hard decisions? In November 1973, Sen. Jesse Helms, backed by a small group of his conservative colleagues, offered a balanced budget amendment that was tabled by a 46-43 vote. Sadly, the same fiscally destructive tradition has been repeated each year as some version of a balanced budget amendment is offered with great fanfare, then rejected by the very people who have sworn to “faithfully discharge the duties of their office.”

Perhaps leaders and citizens alike will heed the advice of Ryan, chairman of the House Budget Committee. “Our debt is out of control,” he warned. “What was a fiscal challenge is now a fiscal crisis. We cannot deny it; instead we must, as Americans, confront it. … So hold all of us accountable.”

Government’s refusal to act will not change until Washington stops considering taxes as income. Voters, armed with the sage advice of economists, must voice their opinions. Change will come when informed voters demand it.