My November 2008 Predictions, post 1 of 3

On 11/8/8 I made a series of 27 predictions about what the first two years of the Obama Administration would bring. Many of the Democrats/Liberals who read this blog took exception to my predictions; they felt they were too negative. The truth of the matter is my predictions were eerily accurate and in fact my predictions on the economy were not grim enough.

Below is the first part of my 11/8/8 post, my current comments on the predictions are in italics.

I hope that many of you will respond to this post with predictions of your own. I did a post similar to this two years ago and the results were interesting to say the least. Here are my predictions on what will happen in the next two years in Federal politics.

Many of you did respond to this post back in November of 2008, there were 71 comments…

Fort Wayne City Court

The Henry Administration has embarrassed itself, again. Over the last couple of weeks the Henry Administration asked the Fort Wayne City Council to approve a “City Court.” The Henry Administration declared this an emergency request and wanted the approval to be expedited.

No matter what the request is; taxpayers need to be worried anytime ANYONE says that it is an emergency and the request must be approved now. Look back at what happened when the Bush Administration asked for its various emergency measures to fight the financial crisis…

Even with Marty Bender, the supposedly “Republican” leader of City Council, immediately supporting the Mayor; as he ALWAYS does, the Mayor was not able to secure the support of all four of the remaining Democratic members of City Council.

So the Mayor has already withdrawn his request… It must not have been that much of an emergency…

This was a blatant attempt by the Mayor to take even more revenue from the County in order to bolster City revenues.

I oppose the idea of a “City Court” for two main reasons:

1. Most troubling was the emergency nature of the request. There is no emergency and we have operated without a city court for many, many years.
2. I find it hard to believe that operating multiple courts will save the taxpayers money; in fact, I am almost certain that it would cost the taxpayers more money since City employees are paid more the county employees and running two smaller courts would be more expensive then running one larger court.

I certainly hope Mayor Henry is defeated in the upcoming election.

Mike

Analysis of the Bush Tax cuts as far as revenue effects

In an earlier post Lockwood and I disagreed about the effect of cutting tax rates. In Lockwood’s comment he lamented the lack of data analysis based on real figures.

The truth of the matter is the Democrats and their economists use statistics that support their point of view that tax cuts lower revenues; the Republicans and their economists use statistics that support their view the cutting taxes increases revenues.

In my opinion both sides are wrong and the truth is somewhere in the middle. Based on Lockwood’s comment I decided to do some basic analysis.

I got all of my data from the Bureau of Economic Analysis. The Bush tax cuts were passed into law in 2001 and 2003. They lowered the amount of personal income taxes paid by all Americans. I looked at two statistics that I thought would help analyze the effects of the Bush tax cuts.

First I looked at GDP for each year. I used GDP in current dollars. This is basically the GDP that was calculated just after the close of each year and this number is not adjusted for inflation. Second I looked at the total amount of personal Federal income taxes paid.

I then divided the personal Federal income taxes paid by the GDP in current dollars. This shows what percentage of GDP was paid in Federal income taxes each year in relation to the total size of the economy. I think this is the best way to analyze this because the Republicans claim that the tax cuts end up increasing the size of the economy which in turn increases tax revenues.

I looked at 20 years of data; 1990 - 2009:

1990, 10.2%
1991, 9.8%
1992, 9.6%
1993, 9.7%
1994, 9.7%
1995, 10%
1996, 10.6%
1997, 11.1%
1998, 11.7%
1999, 11.8%
2000, 12.4%
2001, 12%
2002, 9.9%
2003, 9%
2004, 8.8%
2005, 9.6%
2006, 10.1%
2007, 10.6%
2008, 10%
2009, 8.1%

What conclusions does this data lead you to Lockwood?

Mike

Many Republicans are stupid…

Yes, you read the headline right. “Many Republicans are stupid.”

Yes, I became a Republican (again) a couple of years ago. Yes, I still consider myself a Republican; however, they really irritate me sometimes. I am sick and tired of Republicans who do NOT understand tax cuts and deficits so I am going to explain some things that every Conservative talk radio host in America needs to spend some time learning and understanding.

Each and every year the Congressional Budget Office (CBO) creates several economic projections that cover the next few years. There are multiple versions of this economic analysis and they follow different rules. In these analyses the CBO estimates economic growth, Federal revenues, and Federal expenditures based on current law, expected law, etc.

These economic reports “project” the future financial picture of the US and they “project” annual budget deficits and the national debt.

Roughly speaking, based on current reports, the tax cut compromise will add about 900 billion dollars to the National Debt in relation to the last CBO projections. Let me repeat that for those of you who believe the crap you are hearing on Conservative talk radio. Roughly speaking the tax cut compromise will add about 900 billion dollars to the National Debt in relation to the last CBO projections.

The reasons for this are relatively simple:

There is ”about” 200 billion in new spending that is not paid for. This increases the National Debt because this is money the Federal Government will spend and does not have. It will be borrowed.
There is about 700 billion in decreased tax revenues. This comes from several sources. First is the extension of the Bush tax cuts. The CBO projections assumed the Bush tax cuts would expire Dec. 31st, 2010 since without Congressional action the tax rates would have went back to their levels PRIOR to the Bush tax cuts. The second is the estate tax compromise. The CBO assumed the estate tax would revert to 2009 levels because without Congressional action the estate tax rates and exemptions would have returned to the 2009 levels on 12/31/10. This same pattern is true for all of the extended lower tax rates and the various tax credits. Since the Federal Government will receive less revenues than the CBO projected back in August of 2010 the Federal Budget deficits will increase and in turn the National Debt will increase.

Another item to consider is that the CBO projections were updated in the last few days to reflect the fact that they expect MORE economic growth in the next year due to the tax cut compromise. In fact they estimate it will increase GDP by about 1.1% in 2011. The additional Federal revenue this economic growth will create was figured into the projected 900 billion dollars increase in the National Debt.

There is another factor involved that few Democrats or Republicans in the media seem to grasp. That factor is what happens to Federal revenues when tax rates are decreased.

Republicans hold the view that when tax rates are cut Federal revenues will increase. Democrats hold the view that if you cut taxes by 10% then revenues will drop by 10% as well. In my opinion neither viewpoint is true. There are countless studies that I have read from both conservatives and liberals. I have read about 12 different studies; at least five from each “side.” Amazingly enough each and every time the liberal “think tanks” and economists claim the same thing and on the other side of the aisle all of the conservative “think tanks” and economists hold the exact opposite view.

This is because both “sides” utilize only those statistics that support their viewpoint.

I truly think the truth is somewhere in the middle. I do not know the exact numbers however I think that if taxes are cut by 10% across the board that revenues will only decrease by maybe about 5% across the board.

Let the “hate” comments begin…

Mike

National Democrats blow it…

It is official; the House Democrats and Senate Democrats completely and utterly failed to govern in the last four years. They repeatedly violated their campaign promises and angered a great many Americans. Back in 2007 and 2008 they blamed their failure to govern on a Republican President. They constantly whined and claimed that if there was just a Democratic President they would be able to govern.

For the last two years the Democrats have had strong majorities in the House, Senate, and of course a very liberal Democratic President.

In the last two years the Democrats were able to pass a bill that will make massive changes to the health care system in the US if these items are not repealed. This was a heavy lift and they spend almost all of their energy on this one item.

There are several items that the Democrats should be embarrassed about:

1. They broke their promise to be more transparent.
2. They broke their promise to “drain the swamp” and root out corruption in DC.
3. They broke their promise to start bringing a significant number of our troops home from the Middle East.
4. They broke their promise to protect Social Security; they kept spending the excess Social Security funds on unrelated items and kept dropping IOU’s in the fund.
5. They broke their promise to allow taxes to increase on the wealthy.
6. They broke their promise to lower our annual budget deficits.
7. As of today they have failed to pass any of the 12 Federal Budgets that took effect on October 1st, 2010.

I used to think the Democrats were smarter politically than the Republicans. Over the past twenty years I have felt that the Democrats have often out maneuvered the Republicans. That has NOT been the case in the last two years. The Democrats have been completely inept and were badly outmaneuvered themselves.

Nancy Pelosi and the House passed a lot of legislation in the last two years that was progressive. This legislation then died in the Democratic Senate. Harry Reid is a joke and it is hard to believe that he is still in charge of the Senate because he is utterly incompetent!

The lame duck session has been a joke to date as well. They are getting nothing accomplished and it is unbelievable that the Democrats purposefully waited until the lame duck session to deal with so many issues.

Mike

President Obama surrenders to the Republicans!

It appears that President Obama has brokered a compromise with some of the Republican Congressional leadership; interestingly enough he did not involve Democratic Congressional leadership in these negotiations.

It is hard to say what exactly will be proposed; however, the supposed basics are listed below:

The entire plan will add between 700 and 900 billion to the National Debt over the next couple of years. (This the main reason I oppose this bill)

The “Bush tax cuts” for all taxpayers will be temporarily extended through the end of 2012. (I oppose extending any of the Bush tax cuts; all should be allowed to expire)

Extended unemployment benefits (up to 99 weeks in many states) will be extended through the end of 2011. (I oppose this as well; no one should draw unemployment for two years)

The estate tax will be back on 1/1/11. Estates will get to exempt the first five million of income and will pay 35% on the balance. (I actually think this is a reasonable compromise.)

Employees currently pay 6.2% FICA taxes on their first $106,800 in wages each year. This plan means they will pay 4.2% FICA taxes (Note their employer will still pay 6.2%) in all of 2011. This will increase the amount of paychecks since less FICA is being with-held. The Federal Government will borrow enough money to pay this back to the Social Security Fund. (I oppose a payroll tax holiday; however, the good thing about it is that it only goes to people who actually work.)

The Earned Income Tax Credit is a program that allows the working poor to get subsidized by the Federal Government through income tax refunds. Basically the EIC is an income redistribution plan in which the IRS pays the working poor MORE money in refunds than the taxpayer paid in Federal income taxes. In fact it can be several thousand dollars per year. The EIC was expanded in the last couple of years and this plan expands it for 2011 and 2012. (I oppose the EIC, it should be eliminated)

The American Opportunity Credit is a college credit that was passed two years ago. It is an expanded college credit to help pay for college costs. This plan extends it for 2011 and 2012. (I oppose this as well, college tuition is already too high and tax credits like this increase it even more)

The plan also expands the immediate expensing of equipment purchases. This has been done in one way or another for the last ten years. It is meant to “encourage” businesses to purchase new equipment now. Basically it allows companies to write off the expense now rather than over time. This does not change Federal revenues; it just changes the timing of them. Businesses write off more expense today and pay less tax today; however, they will have fewer write offs in the future and hence pay more tax in the future. (I 100% oppose this. All this does is push demand forward)

This will be interesting to watch. We will see which Party shows themselves to be the bigger hypocrites on this issue.

I think both Parties will show themselves to be hypocrites on this issue. In my honest opinion all liberals should oppose this compromise and all conservatives should oppose it as well. I tend to think Obama will try to appeal to conservative Democrats and liberal Republicans. For example I expect Senator Lugar to support this compromise…

It is obvious why conservatives should oppose this compaomise; it adds about as much to the Federal debt as the failed stimuls package added.

There are many reasons why liberals should oppose it.

The liberals have campaigned against lowering the estate tax for years.
The liberals have campaigned against all of the Bush tax cuts for ten years.
The liberals have campaigned heavily and loudly in the last two years against extending the Bush tax cuts on incomes over $250,000.
This compromise keeps the Bush tax cuts all together. So next time they come up they will be looked at together.
The liberals keep saying they are in favor of deficit reduction; this adds almost a trillion dollars to the national debt.

Mike Sylvester

We are so screwed as a nation

We are on a completely unsustainable fiscal path. If you want to know what will happen here in a few years just look over at Europe. The EU and the IMF have recently “bailed out” Greece and Ireland. All around Europe countries are implementing austerity measures in a desperate attempt to lower their annual budget deficits. Cutting spending is necessary; however, in a weak economy it means their economy will stay weak. Since the European economies are going to struggle for the next few years this will effect the rest of the world.

I think that Illinois and California will be our equivalent of Greece and Ireland. I think both Illinois and California will collapse under their poor fiscal choices in the next few years andour Federal Government will unfortunately bail those two states out. New York and New Jersey are not far behind Illinois and California fiscally.

The United States can be saved; however, it is getting harder each year that passes. Our national debt is already over 90% of GDP. This is a problem because each year more and more of the Federal budget is spent on interest on the Federal debt rather than on needed programs. The United States has not had a balanced budget since 1957.

We absolutely have to cut spending. We need to cut spending on EVERYTHING. The problem CANNOT be fixed without cutting spending on Medicare. Medicare is the program that will bankrupt the United States. Spending on Social Security and our Military both also need to be significantly cut.

Neither Party has a plan to deal with Medicare spending; and no the Democrats current health care does NOTHING to cut Medicare spending in the long run. Currently neither party is willing to cut military spending. This surprises me because the Democrats used to want to cut military spending; however, that no longer seems to be the case. The Republicans seem to want to cut social security spending and the liberals are violently opposed to it.

The truth of the matter is we need to cut spending on EVERYTHING. The least that we should do is freeze Federal spending at current levels for the next ten years.

I read some frightening facts about Social Security. Please understand that Social Security is a major problem; however, it is a minor problem when compared to Medicare.

First off please understand that Social Security is supposed to “supplement” your retirement income. It was NEVER designed to provide a majority of the income needed during retirement.

The IRS gathers information on the income reported on their tax returns by Americans. This income is broken down by quintile. The 1st quintile is the 20% of Americans who report the least income; the fifth quintile is the 20% of Americans who report the most income. You should check out this chart. This chart breaks down the sources of income for the elderly in 2008. It is absolutely frightening.

The 1st quintile (Least income): They get 83% of their income from social security and another 9% from welfare and other government assistance programs. These Americans get only 8% of their money from wages, interest, pensions, dividends, and capital gains.

The 2nd quintile: They get 82% of their income from social security and another maybe 2% from welfare and other public assistance. They only get 16% of their income from other sources; almost half of this 16% is from pensions.

The 3rd quintile: These are the elderly in the middle of the income distribution and are most representative of the average elderly American. They get 64% from social security and another 16% from pensions. They get maybe 11% from wages, 7% from assets (Interest, dividends, capital gains), and then 2% from other sources.

The 4th quintile: 44% from social security, 25% from pensions, 8% from assets (Interest, dividends, capital gains), 21% from wages, and 2% from other sources.

The 5th quintile, the dreaded rich: 18% from social security, 19% from pensions, 17% from assets (Interest, dividends, capital gains), 44% from wages, and 2% from other sources.

As most of you know I prepare taxes for a living. I prepare a lot of individual tax returns and these numbers seem right to me.

The current elderly are age 65 and over. So most of them were born between 1920 and 1945. From 1945 - 1990 the United States had a booming economy the likes of which I doubt will be produced again in the United States. The earning power of the current elderly was massive and they worked and earned money in a time period of historic economic growth. Even with that being said; the elderly are relatively poor in retirement.

Please understand that people are currently saving LESS than their parents and grandparents saved for retirement. So as bad as the elderly are doing today; future generations will have less income.

When you look at the above chart the bottom 40% of the elderly rely on social security and welfare (And other such programs) for 88% of their income. This is unsustainable.

The next two quintiles are likely those we would consider the middle class. When averaged together their income breakdown is:

54% provided by social security
21% from pensions
16% from wages
7% from assets (Interest, dividends, capital gains
2% from other sources

This distribution for the 3rd and 4th quintiles is closer to what was intended; however, even these quintiles rely more on social security than the program was designed for. Note that 16% of their income comes from wages. In some cases this is earnings rather than wages. For example they may own a business or be an independent contractor. The 3rd and 4th quintiles earn significantly more in wages that the 1st and 2nd quintiles.

Last lets look at the dread rich, the 5th quintile. This is the elderly that are in the top 20% as far as earnings go. Their income breakdown is interesting:

44% from wages and earnings
19% from pensions
18% from social security
17% from assets (Interest, dividends, capital gains)
2% from other sources

So the fifth quintile are in the top quintile largely because they are still working and generating wages and earnings. They have not really retired yet.

We need to make changes to social security to protect the program in the long run. I think we need to do all of the following:

Stop allowing the Federal Government to spend the Social Security surplus. This has been done since inception and it is criminal. This money should be invested and dedicated towards paying future benefits.

We need to educate the public. People need to understand that social security is only designed to provide part of the money you need upon retirement. People should rely on social security to cover 1/3 to 1/2 of their income needs in retirement.

We need to NOT lower current benefits; people rely on them too much. That being said we need to limit the annual increase in social security payments. That way the program will gradually pay out less money in benefits.

Unfortunately we need to increase the social security wage base. I hate that it has to be done; however, it just has to happen.

Let the hate comments begin…

Mike