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9/10/2012
About That $897 Billion of Unspecified Cuts in the Ryan Budget…

Thomas Edsall, writing in the New York Times, has found what he calls a “sinkhole” in Rep. Paul Ryan’s proposed budget.

Reading the fine print, Edsall has discovered $897 billion in unspecified budget cuts that, if enacted, would decimate programs that fund “education, food and drug inspection, workplace safety, environmental protection and law enforcement.”

I’m not a wonkish sort, and the torturous explanation given by Edsall gave me a bad case of MEGO. But essentially, his analysis appears to me to be correct. The Ryan budget has nearly a trillion dollars in unspecified cuts in discretionary spending that affect programs most Americans would consider essential.

After explaining a little about how the budget divides government spending into 20 “budget functions,” Edsall takes a look at the $897 billion in “allowances” earmarked for something called “Function 920.” In budgetese, here’s the definition of what Function 920 is for:

Function 920 represents a category called “allowances” that captures the budgetary effects of cross-cutting proposals or contingencies that impact multiple functions rather than one specific area of the budget. It also represents a place-holder category for any budgetary impacts that the Congressional Budget Office has yet to assign to a specific budget function. C.B.O. typically reassigns the budgetary effects of any legislation enacted within Function 920 once a new baseline update is released.

In other words, Function 920 appears to be a catchall category for spending across several different categories. And as Edsall points out, “These invisible cuts are crucial to the Republican claim that the Ryan budget proposal will drastically reduce the federal deficit (eliminating it entirely in the long run) and ultimately erase the national debt.”

But here’s where the rubber meets the road as far as deficit cutting is concerned:

Under the Ryan budget, “Mandatory and Defense and Nondefense Discretionary Spending” – which includes Function 920 Allowances, but excludes Social Security, Medicare and Medicaid — would fall from 12.5 percent of Gross Domestic Product in 2011 to 6.75 percent in 2023, 5.75 percent in 2030, 4.75 percent in 2040 and 3.75 percent in 2050, according to an analysis by the Congressional Budget Office.

The C.B.O. cautiously notes how difficult it would be to cut such spending to 3.75 percent of G.D.P.:

By comparison, spending in this category has exceeded 8 percent of G.D.P. in every year since World War II. Spending for defense alone has not been lower than 3 percent of G.D.P. in any year during that period.

As a practical matter, what does this mean for non-defense discretionary spending — everything the government spends money on, including veterans programs, outside of defense, social security, and Medicare?

From a partisan perspective, we have the president’s take:

The year after next, nearly 10 million college students would see their financial aid cut by an average of more than $1,000 each. There would be 1,600 fewer medical grants, research grants for things like Alzheimer’s and cancer and AIDS. There would be 4,000 fewer scientific research grants, eliminating support for 48,000 researchers, students, and teachers. Investments in clean energy technologies that are helping us reduce our dependence on foreign oil would be cut by nearly a fifth.

If this budget becomes law and the cuts were applied evenly, starting in 2014, over 200,000 children would lose their chance to get an early education in the Head Start program. Two million mothers and young children would be cut from a program that gives them access to healthy food. There would be 4,500 fewer federal grants at the Department of Justice and the F.B.I. to combat violent crime, financial crime, and help secure our borders. Hundreds of national parks would be forced to close for part or all of the year. We wouldn’t have the capacity to enforce the laws that protect the air we breathe, the water we drink, or the food that we eat.

Cuts to the F.A.A. would likely result in more flight cancellations, delays, and the complete elimination of air traffic control services in parts of the country. Over time, our weather forecasts would become less accurate because we wouldn’t be able to afford to launch new satellites. And that means governors and mayors would have to wait longer to order evacuations in the event of a hurricane.

I imagine there is plenty of exaggeration in there, but cutting discretionary spending from 12.5% of the budget nearly in half in the next decade will severely impact all those programs and agencies. There is no getting around it — they can’t spin it away. It’s there own numbers and the cuts they want to make have to be made somewhere.

They may decide to cut more out of defense, but how much? It’s a dangerous world out there and I doubt whether they can find more savings from the defense budget that the president hasn’t already proposed (without sequestration, around $400 billion over a decade — $1.2 trillion with it).

Before your eyes glaze completely over, let’s get to the point. As I keep trying to explain to my conservative friends, the federal budget bears no resemblance whatsoever to your household budget. The federal budget is a statement of national purpose, not a ledger with dollars and cents that are supposed to add up to zero when it’s balanced. The questions we should be asking after glimpsing the kinds of cuts Paul Ryan envisions is what kind of government do we want? What kind of government do we need?

What is the nature and purpose of the federal government in this, the 21st century, in an industrialized, urban nation of 300 million people?

The problem, as I see it, is that in order to maintain a reasonably safe, reasonably secure civilized society, we must necessarily ask government to perform an amazing array of functions. A federalist might argue that many of the duties that Washington has taken upon itself can be performed by the states. But that only spreads the responsibility among 50 governmental entities.

Take food safety inspections. Arkansas might inspect chickens at the Perdu processing plant, but those birds are going to end up on my dinner table in Illinois. Can I trust the state government of Arkansas to perform inspections at the same level of competence as the FDA?

The reason many functions were assumed by Washington is because states were unwilling or unable to perform them by themselves. A good example is a program like Head Start. Many states had programs that dealt with children in poverty, but others did not. The problem is a national one and demanded a national means to address it.

Do we want 50 different air and water quality standards? Do we want 50 different regulatory regimes that protect the health and safety of workers? There is no doubt a greater role for federalism in the grand scheme of government than is currently in evidence. But many functions of government simply do not lend themselves to a local solution.

Many conservatives just don’t get this. They envision a “small” government — a pining for a federal government from the 19th century when collecting duties on imports, raising an army, and delivering the mail was a large portion of government responsibility. But that government — that country — doesn’t exist anymore. Back then, the urban/rural split was 30-70. Today, those numbers are reversed and 80% of us live in densely packed urban areas. I can’t make an argument that cities would be more livable, or as safe without a big government in Washington.

How big? There’s the rub. I refuse to believe that every dollar being spent by Washington today is necessary or desirable. But in a $3.7 trillion budget, how do you cull those contracts, programs, commissions, agencies, grants, loans, line items, and salaries that a majority of lawmakers would agree are “unnecessary?” The budget, at bottom, is a political document — a statement of national hopes, dreams, desires, and necessities. One man’s waste is probably another’s vital program.

Case in point: transportation. A few hundred thousand dollars to expand an intersection in a small town might look like unnecessary spending to some. But for those town people, it represents an improvement in their quality of life, not to mention an improvement in safety. Should it be cut from the budget because the project has no national purpose and is therefore, better left to be funded by the state? It’s a compelling argument until you start multiplying that project to include the dozens and dozens of towns in that state who need a bridge repaired, another lane for the main highway to handle an increase in population, a road extension to connect to the new mall — the list is endless. I think there are probably many projects in the transportation bill that are unnecessary and wasteful. But with thousands of line items, how do you sort through them all to remove those that most of us would see as offensive to rational government?

The fact is, government has grown beyond our capacity — perhaps beyond human capacity — to manage in any reasonable and rational manner. It’s too big, too vast, and has assumed too many responsibilities. Ryan’s cuts may be draconian and are certainly unrealistic. But his blueprint represents the first effort to my knowledge to try and come to grips with the definition of what we want and need from government. And he is addressing a problem that many respected economists believe to be looming in the near future; that our current levels of government spending are unsustainable and that if we don’t do something to address the problem, we will drown in a sea of debt, taking down our economy and probably social order with it.

It’s not good enough just to rail against Ryan’s plan. Time to start proposing some ideas of your own.

By: Rick Moran at 11:39 am | Permalink | Comments & Trackbacks (1)

9/8/2012
The Real Crisis Facing America

Stanley Kurtz writing at The Corner:

As the Romney campaign sees it, the tiny sliver of remaining undecided voters consists of mildly disillusioned former Obama supporters, or at least voters who personally like Obama. Coaxing these folks to “break up” with their erstwhile beau means not making them feel like they were fools to buy into Obama’s vision to begin with. That cuts against any effort to unmask the president’s overweening leftist ambitions. Let’s just say that the president’s a nice guy who’s in over his head instead.

Okay, but Michelle Obama did a very effective job of pressing undecideds to give her nice-guy another try. And the convention as a whole did a better job of redefining government as nice-guyism writ large than Republicans would like to admit. Charles Krauthammer says that the counter to all this is exposing Obama as “a deeply committed social democrat” using his presidential power to enact the same “ambitious left-wing agenda” he “developed in his youth.” Well, yes. So far as I can tell, however, this sort of argument is the last thing the Romney campaign wants to make right now. Don’t want to drive away that tiny sliver of Obama’s wavering admirers.

I can’t say for certain that Romney’s strategy is wrong. But I do think it’s far riskier than we realize. Treating Obama as a nice guy in over his head, rather than a smart leftist who knows exactly what he’s doing, leaves the Democrats’ bogus narrative about government unanswered. America is changing, and Republicans are naive to rely on the public to simply recognize the problems in the Democrats’ claims without significant help from our nominee.

This is the civilized version of the internet right’s demand that Romney begin to savage Obama by calling him a socialist or communist, and start attacking the president for “taking away our freedoms.” Kurtz actually hits the nail on the head when he says America is changing and that the Democrat’s Santa Claus vision of government is gaining ground. Even if Romney were to point out that Obama’s ideas are liberal dogma going back to the 1960’s, the average voter would shrug his shoulders and say, “So what?” Government as a goody factory is just fine with a growing number of Americans who want their lives made easier by latching on to government programs that promise free or cheap services.

The bulk of government cash no longer goes to what we would define as “the poor.” As Nicholas Eberstadt points out in an essay based on his book, “A Nation of Takers,” it’s the “Middle Class” that is now the greatest beneficiary of entitlements:

According to a Census Bureau data run requested by the Wall Street Journal, just over 49 percent of U.S. households were using at least one government benefit to help support themselves in early 2011 (see Figure 16). This was a tremendous increase over the early 1980s, at which time about 30 percent of households were already estimated to be on at least one of the government’s many benefit programs, although the rise was not entirely uninterrupted. In the late 1990s (in the aftermath of welfare reform and at a time of relatively robust economic growth), the prevalence of benefit recipience declined temporarily before continuing on its further ascent. If the Census Bureau reports that over 49 percent of U.S. households are obtaining at least one government benefit, we can safely say that the true number is actually already well over 50 percent. To put it another way: a majority of homes with voters in them are now applying for and obtaining one or more benefits from U.S. government programs.

The prevalence of entitlement program usage is by no means uniform by age group or ethnicity. Meaningful variations within American society and the public at large are illustrated in Figure 17, Figure 18, and Figure 19. In 2004, according to a study based on CPS data conducted by a researcher at AARP (formerly the American Association of Retired Persons), nearly 48 percent of American families were already obtaining at least one government benefit (a somewhat higher level than Census Bureau researchers indicated for 2004 [see Figure 16]). By these numbers, nearly every household (98 percent) with someone sixty-five or older was obtaining at least one benefit, with 95 percent of them obtaining benefits from two programs—generally speaking, Medicare and Social Security / Old-Age and Survivors Insurance (OASI).[18]

Perhaps more striking, though, is the proportion of households with no one sixty-five or older obtaining government benefits: entitlement prevalence for this group was already at 35 percent in the year 2004. Relatively few of these beneficiaries were Social Security / OASI or Medicare cases—and of the rest, only a minority was accounted for by unemployment or disability benefits. The overwhelming majority instead were accounted for by households and families availing themselves of means-tested benefits or antipoverty programs.

Fewer and fewer of us are willing to make self reliance part of our value system. And why should we when one is seen as a chump for not taking what’s being so generously bestowed by government? “Our tax dollars fund these programs so why not take advantage of them?” might be a common justification for grabbing for your share of the goodies, but if that also means trillion dollar deficits, unsustainable levels of debt, and eventual national bankruptcy, one might legitimately inquire, “Who’s the chump now?”

We are not going to grow our way out of this crisis. We are not going to spend our way out of it either. Nor will economic growth alone, or government spending by itself lead to a resurrection of a strong Middle Class. Raising the tax rate on the “rich” won’t fix our budget problems, nor will cutting a trillion dollars from the budget solve our long term spending problems. At bottom, entitlements, the budget, taxes — these are all manifestations of how we define our relationship with government. What do we want from Washington? What can we afford? How much do I want to pay?

Until we answer those questions, a government that leans right or left won’t matter. For it is not in ideology that we will find the answers but in placing more value on our liberty, than on what government can do to make our lives easier.

By: Rick Moran at 10:24 am | Permalink | Comments & Trackbacks (1)

4/14/2011
OBAMA’S DEMAGOGY ON THE DEFICIT

I have an article up at FrontPage.com critiquing the president’s speech from yesterday. Needless to say, we were not amused.

As sample:

As for his own plan, the president proposed massive tax increases on the “rich,” cuts in defense spending, Medicare and Medicaid “reform,” and closing tax loopholes, while continuing to “invest” in clean energy, education, medical research, and transportation. He would leave Medicare and Medicaid relatively untouched, while claiming that his plan would cut $4 trillion over the next 12 years.

Yet, the president offered no specifics on the cuts he was advocating except broad, unrealistic dollar amounts. For example, the president believes we can realize budget savings by cutting $1 trillion from interest payments on the debt over the next 12 years. But interest rates are near zero now, and it is highly unlikely that they will remain that low for the next 12 years, especially given the fact that inflation is rearing its head. Some analysts are predicting debt service payments to rise from its current $196 billion to a whopping $800 billion by 2016 as a result of rising interest rates.

The president’s Medicare proposal is equally unclear. Obama proposed that the Independent Medicare Advisory Board can keep costs down. The president said he would do this by “chang[ing] the way we pay for health care — not by the procedure or the number of days spent in a hospital, but with new incentives for doctors and hospitals to prevent injuries and improve results.” Obama clearly believes he can slow the growth of Medicare by strengthening the advisory board, which will recommend the best ways to reduce spending while still providing seniors with adequate care. The president claims that these measures will save an additional $500 billion by 2023. If this number is as real as his $1 trillion in Medicare “savings” to come out of Obamacare - savings that are dubious in the extreme - the result will be little or nothing done about an entitlement program that is going broke and could sink the US economy by itself eventually.

Obama offered no specific cuts in defense beyond savings that would occur in winding down the wars in Iraq and Afghanistan and a promise to look into more cuts. He will do this by conducting a “fundamental review” of our “role in a changing world” and examine our mission and capabilities. Practically speaking, he will look to reducing our readiness, which is the easiest and least painful part of the military budget to cut, but the one which is the most dangerous to skimp on.

The president’s plan was claimed to have been based loosely on the report issued by his Deficit Reduction Commission, which recommended broad cuts in government programs and smaller tax increases. Both parties rejected the findings of the commission as unrealistic and unworkable.

Perhaps most disturbingly, the president seems to believe he is scarcely culpably for the deficit crisis himself. Obama’s long, misleading narrative on how the deficit was created at the beginning of his Wednesday speech, completely absolved him of any responsibility for the $4.5 trillion in debt his administration has piled on in just two years. At times, it was a surreal performance, as the president talked about problems with the deficit as if his administration’s increase of nearly 40% in federal spending never happened. He placed the entire blame for our fiscal woes on his predecessor - something he has been doing since he was sworn in.

Obama had no intention of making this speech a statement of policy. It was a red meat, brutally partisan, dishonest, misleading hash that “poisoned the well” as Paul Ryan remarked, for any kind of bi-partisan negotiations. Extraordinarily irresponsible in its tenor and intent, one could almost hear his liberal base screaming “Yes! Hit ‘em again!”

Senior editor at the Atlantic Clive Crook:

My instant unguarded reaction, in fact, was to find it not just weak but pitiful. I honestly wondered why he bothered.

There was no sign of anything worth calling a plan to curb borrowing faster than in the budget. He offered no more than a list of headings under which $4 trillion of deficit reduction (including the $2 trillion already in his budget) might be found–domestic non-security spending, defense, health costs, and tax reform. Fine, sure. But what he said was devoid of detail. He spent more of his time stressing what he would not agree to than describing clear proposals of his own.

His rebuttal of the Ryan plan was all very well–I agree it’s no good–but the administration still lacks a rival plan. That, surely, is what this speech had to provide, or at least point to, if it was going to be worth giving in the first place. His criticisms of Ryan and the Republicans need no restating. And did the country need another defense of public investment in clean energy and the American social contract? It wanted to be told how fiscal policy is going to be mended: if not by the Ryan plan, with its many grave defects, then how?

Good question. The answer is, as my radio guests all agreed on Tuesday night, was that serious reform will only come when we have already been pushed over the precipice and are on the way to disaster. Only when fixing things won’t do a bit of good will the Washington establishment bestir itself and act.

This point will probably be reached sooner than any of us can imagine. It may come as a result of service on the debt skyrocketing to the point that we won’t be able to fund much of anything else. Or some other time bomb - pensions, another financial crisis, global depression - goes off and we are left staring at fiscal Armageddon. Maybe the Chinese will simply decide we aren’t worth the trouble and take the hit by dumping their US Treasuries.

The point being, there are so many land mines out there, it is inevitable that we’re going to step on one eventually. God help us when we do.

By: Rick Moran at 11:13 am | Permalink | Comments & Trackbacks (0)

1/27/2011
WHAT OBAMA AND THE GOP DIDN’T SAY

My latest article is up at FrontPage.com and it is about the curious disconnect both parties exhibited between reality and politics.

Neither side made much mention at all of our entitlement crisis.

And a crisis it is.

Cosmetic gambits like “spending freezes” and “doc fixes” can’t even begin to address the danger. This is political gamesmanship and it should anger us that the politicians know it but do it anyway. It’s not that the crisis is hidden, or has come upon us suddenly. We’ve known for decades where we were headed, but Washington chose the easy way: the politicians ignored the problem, kicking the can down the road, assuming they would be well into retirement — living off their extravagant congressional pensions — before history forced our hand.

The can has now been kicked into a cul de sac and there’s no way we can start kicking it back down the road. It may not be our fault, but we’re the ones who are going to have to pay for all of these promises so recklessly made by previous generations. One way or another, a solution will be found — or imposed — on us. Those are the only alternatives. Either the politicians will find the political courage (that they won’t get credit for) to start cutting and slashing at the monster or the monster will solve our problem for us by devouring us.

A few bare bones numbers are needed to prove that this is not hyperbole or political exaggeration. If we were to fulfill the promises made to every American from those born as I write this to the oldest citizen regarding Social Security and Medicare, it will cost us at least $130 trillion. Long before then, the entitlement crunch will have destroyed our economy. By 2016, 71% of the federal budget will be dedicated to paying entitlements of one form or another, the vast percentage of that being Social Security and Medicare.

There are 78 million baby boomers set to retire over the next 30 years, all expecting that monthly Social Security check for the rest of their lives. The significance of this is a matter of demographics. The number of workers paying into Social Security was 5.1 per retiree in 1960; this declined to 3.3 in 2007 and is projected to decline to 2.1 by 2035. We are currently in hock to the Social Security Trust Fund to the tune of $2.5 trillion. This number is expected to rise to $3.8 trillion by 2019. But by 2015, payments to Social Security beneficiaries will begin to exceed tax receipts. And by 2037, payments to recipients would start declining automatically – whether we wanted them to or not. The Trust Fund would be exhausted and Congress would be unable to tap any other revenue streams from the government to pay for it.

I erred in the year that Social Security’s payments to beneficiaries would exceed tax receipts. It’s not 2015. It’s this year.

Ain’t that lovely?

There are only two ways this is going to end and neither is without massive pain. The first is, we find the courage to confront the crisis and make the painful adjustments necessary to salvage our future. Or, we do nothing and get rid of the problem when the economy collapses.

Matt Welch writes that we “don’t do big things” anymore.

Here’s a reality check: We will not have high-speed rail within Segwaying distance of 80 percent of the country, ever. We will not get 80 percent of our electricity from “clean energy sources” by 2035, unless someone far outside the halls of government invents a snail that eats trash and poops hydrogen. Obama won’t veto every bill that arrives on his desk with earmarks–re-watch that part of the speech last night; no one believed him.

Why won’t these things happen? Because, as Rep. Paul Ryan rightly emphasized last night, the only real policy issue in America right now is that we are on the verge of fiscal catastrophe because cannot afford the government we’re paying for today, let alone the one we’re promising for tomorrow. And the president, though he is much more serious on this issue than a huge swath of his political party, is nonetheless not remotely serious about this issue. Vowing to cut $400 billion over 10 years (a plan that, judging by the two people clapping when he proposed it, will likely be cut to ribbons if it survives through Congress), at a moment when the deficit for this year is more than three times that, indicates that Democrats (and a helluva lot of Republicans as well) are hunkering down in our awful status quo–half-heartedly tinkering around the edges of spending, making incremental changes this way and that, then launching new moonshots and redoubling old impotent efforts. Politicians have put us on the precipice of financial ruin, and they show no indication of doing a damned thing about it.

[...]

There are more than a quarter million people working at the Departments of Agriculture and Commerce. Veterans Affairs and Homeland Security combined nearly pass the half-million mark. And at a moment of grave fiscal peril, we continue to spend half the planet’s money on defense, with Obama et al expecting thunderous applause for snipping out “tens of billions” from future defense spending growth. We continue to arrest 800,000-plus people a year for smoking or trading a plant that makes you want to eat Pop Tarts.

No, these people are not serious about the task at hand. The state of our union, as measured by the competence of people in power, is a f***ing disgrace.

It would be the biggest thing America has done since Apollo if we could attack the entitlement problem successfully. It will require the same amount of effort, despite the obvious fact that it isn’t very sexy, nor will it excite the American people.

In fact, it will have the opposite effect. In order to tackle Medicare and Social Security unfunded liabilities, no less than a drastic alteration in the way Americans think about government will have to take place. Old people will be scared and angry. Younger people might feel betrayed. The only ones who will be grateful are those yet unborn or in their infancy who will have vestiges of these programs to help them when they get older.

One big adjustment Americans are going to have to make is they are going to be paying more for their own health care. Hopefully, this will make everyone realize that there is no free lunch and that a kind of self-rationing protocol where people will only use the health care system when they truly need it will gradually take hold. The “fee for service” model will have to go and other ways to reimburse doctors and hospitals for their work will have to be found.

As for Social Security, there will probably never be a political consensus to privatize it - no matter how bad it gets. The program is much easier to deal with, however, simply by raising taxes and/or increasing the retirement age. That might buy us a few decades. Eventually, even that bandaid won’t be enough and we’ll be back to where we are today. Why some kind of means test, where those who are tapping another pension, or whose income without Social Security is above a certain level could receive less is a mystery. We have means tests for all kinds of entitlements and Social Security should be similarly administered.

Every year we delay adds a few trillion to our unfunded liabilities - now standing at $130 trillion. Here’s Bruce Bartlett on what we have to look forward to:

To summarize, we see that taxpayers are on the hook for Social Security and Medicare by these amounts: Social Security, 1.3% of GDP; Medicare part A, 2.8% of GDP; Medicare part B, 2.8% of GDP; and Medicare part D, 1.2% of GDP. This adds up to 8.1% of GDP. Thus federal income taxes for every taxpayer would have to rise by roughly 81% to pay all of the benefits promised by these programs under current law over and above the payroll tax.

Times’s up, Congress, Mr. President.

By: Rick Moran at 1:12 pm | Permalink | Comments & Trackbacks (0)