Curbing Runaway Spending In Washington

Investor’s Business Daily posted an article today about spending in Washington. The article included the following chart:

The chart shows the impact that the spending caps have had on the federal budget. The decline in spending is due to the Budget Control Act of 2011. The caps limit both domestic non-entitlement spending and national defense spending. However, it is becoming obvious that the President wants to be free of those restraints.

The article reports:

The White House plan would increase discretionary spending to $1.091 trillion from $1.017 trillion. This $74 billion increase would be split evenly between defense and domestic spending. The 7% hike in 2016 would dish out plums to unions, foreign aid groups, the education blob, government contractors, federal employees, the climate change lobby and other tax guzzlers.

Our Senate sources tell us that Minority Leader Harry Reid is threatening in private that if Republicans don’t give Democrats the raise they want, there will be fiscal paralysis in the Senate and another government shutdown Oct. 1 — which, of course, they will blame on the GOP.

Many Republicans are inclined to go along with the great fiscal escape plan. Some have legitimate concerns about more money needed for our military in times of growing national security threats. Already 60% of the cuts are in defense, even though military spending is less than 20% of the budget. But many GOP appropriators just want more domestic pork for their own districts.

I would like to remind every Republican Congressman now serving in Congress. You were elected to bring the spending under control. If you are not able to do that, we need to elect someone who can. End of story.

Trying To Make A Difference When You Really Don’t Have The Power

Admittedly there are some squishy Republicans who are part of the problem and not part of the solution in Washington, but there is also reality. Even if every Republican were on board, there would still be limits on what the House of Representatives could do to stop the runaway spending in Washington. Katie Pavlich posted an article at Townhall.com today outlining the current Republican strategy for dealing with the excessive spending of the Obama Administration.

The bottom line here is simple–as long as the 2009 budget is used as a baseline (because the Senate has not passed a budget since then), America will continue to have trillion dollar deficits every year. Logically, part of the solution is to change the baseline. The way to do that is to pass a new budget. Now for the strategy.

The article at Townhall.com reports:

House leaders on Monday unveiled legislation to permit the government to continue borrowing money through May 18 in order to stave off a first-ever default on U.S. obligations. It is slated for a vote on Wednesday.  

Although President Obama is getting a temporary break from the debt ceiling fight as a result of this latest move by Republicans, he’ll be anything but satisfied. After all, President Obama wants the debt ceiling completely eliminated and White House Press Secretary Jay Carney has repeatedly said a short term increase isn’t acceptable. On the other hand, Carney also refused last week to explain how much of an increase in the debt ceiling Obama is looking for.

There is a very interesting item in the Republican proposal:

The measure also contains a “no budget, no pay” provision that withholds pay for lawmakers if the chamber in which they serve fails to pass a congressional budget resolution by April 15. That’s a provision designed to press the Senate to pass a budget.

I cannot imagine the Senate agreeing to that, but it is an interesting proposal. The vote is expected tomorrow despite the fact that no one is saying how high the debt ceiling should be raised. Does anyone want to try to run their household finances this way?

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Why The Senate Keeps Passing Continuing Resolutions Instead of Passing A Budget

As a teenager (back in the age of dinosaurs), one of the things I remember is being asked to read the newspaper as a part of high school history class. I was not a news junkie back then, and reading a newspaper (the New York Times was the school’s paper of choice) was a very frustrating experience. When reading the articles, I often felt like someone who walks into the theater in the middle of the movie. Even if I understood the story, I had no clue to the events that had preceded the story. Some of the budget debates in Congress have given me that same feeling.

The Senate has not passed a budget since 2009. Why? Well, it seems that the answer is actually rather simple. About.com has an information page about the 2009 Budget. The page explains that the 2009 Budget created the largest deficit in the history of America ($1.413 trillion). The 2009 Budget was unusually large because of the extra spending needed in the recession. There are some valid questions as to whether that level of spending is still needed since we are supposedly in the midst of an economic recovery. However, by passing Continuing Resolutions rather than a budget, the Senate can continue the levels of spending in the 2009 Budget. Because of the concept of ‘baseline’ budgeting, government spending will be based on the numbers in the inflated 2009 Budget–without any debate on the validity of those numbers. That is the reason for continuing trillion dollar deficits, and it also explains why the Senate has not been willing to discuss or pass a budget since 2009.

We are about to enter a debate on raising the debt ceiling of America. I strongly suggest that the Republicans in Congress (I don’t expect the Democrats to do this, although it would be wonderful if they did.) should demand that the Senate pass a budget before they agree to raise the debt ceiling. If we are going to increase the amount of money given to Washington, we need to know ahead of time how they are planning to spend it. Just one more note on the budget. As Congress continues spend more than it takes in, the Treasury continues to either borrow money or print money. As more money is printed, the value of the money already in circulation decreases. That is one of many reasons the cost of gasoline at the pump is higher than the current cost of crude oil at the pump warrants (It should be noted that the state and federal government make more money on the sale of a gallon of gas than the oil companies that sell the gas). That is one way runaway spending by the government impacts all of us. It is time to take the charge card away from Congress and force them to live within their means.

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A Short Primer On The Debt Crisis

Last night Hugh Hewitt spent three hours with Representative John Campbell talking about the debt crisis.It was an amazingly educational show.

Representative Campbell’s House of Representatives web page lists some of his committee assignments:

As a member of the House Committee on Financial Services, he has taken an active part in addressing the country’s top economic issues, including mortgage lending, corporate governance, banking reform, and insurance regulation. Through the recent economic crisis, he was influential in the responses to the crisis that averted a collapse in our markets and economy. Currently, he serves on the Capital Markets and International Monetary Policy subcommittees.

John also serves on the House Committee on the Budget, where he has had a hand in crafting portions of The Roadmap for America’s Future.  This plan championed by Congressman Paul Ryan contains a comprehensive proposal to ensure health and retirement security for all Americans, to lift the debt burdens that are mounting due to reckless spending, to reform and simplify the tax code, and to promote jobs and competitiveness in the 21st century global economy.  John is also a leading author of the Taxpayer Choice Act, which would make America’s tax system simpler and fairer by providing the opportunity to take advantage of an optional flat tax, in addition to repealing the Alternative Minimum Tax (AMT).

As a Certified Public Accountant and a former small business owner, Representative Campbell provided a lot of insight into where we are in terms of our current financial crisis.

America crossed over its debt ceiling of $16.4 trillion on December 31st. What that means is that the government cannot issue any new debt. The government is required, at least temporarily, to live within their means.

There were three main points to the discussion:

1. The debt crisis is coming and it could occur at any moment.

2. The debt crisis is caused by a spending problem–not a tax problem.

3. There are immediate spending reforms that would address the problem.

One of the things that I learned from the program is how Washington spends money. There is discretionary spending and mandatory spending. Discretionary spending includes defense, government agencies, etc. Mandatory spending includes all entitlement programs. The three main entitlement programs are Social Security, Medicare, and Medicaid. Other entitlement programs include food stamps, student loans, etc. These two types of spending are funded in different ways–discretionary spending has to be approved by Congress every year and signed into law by the President. Mandatory spending is already law, and unless Congress acts to change it, the spending automatically occurs.  Therefore, when President Obama says that raising the debt ceiling is only paying the bills that Congress has voted for, he is not being entirely accurate.

We are in financial crisis. Unless the spending is slowed, we will continue to see high unemployment and slow economic growth. Until more Americans begin to pay attention and vote for economic growth, rather than against it, America will continue to decline.

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Changing The Subject To Win The Debate

America is safe now–all the politicians have gone home for Christmas. They can do no further damage.

We are headed for the fiscal cliff. That will be at least a short-term problem, but let’s back up a bit and look at what has happened to the discussion. Two years ago we were talking about cutting spending. Government spending is running close to 25 percent of Gross Domestic Product (GDP). Traditionally, it runs about 18 or 19 percent. That is a major reason for the rapid growth of the federal deficit. Plan B, as submitted by the Speaker of the House, was about taxes. The debate has been almost entirely about taxes–raising them–not cutting spending. Somehow, when taxes are raised, spending increases–it very rarely goes down.

Dick Morris points out the change in the debate in an article he posted at DickMorris.com yesterday. The thing that we need to remember here is that President Obama is a very gifted politician. He knows how to play the game without taking any responsibility for the results. I have the feeling that about twenty years from now the generation that will have to pay for all this foolishness is going to look around and say, “How did our parents let this happen? How did this man get re-elected?” Unfortunately, the current voters are not there yet.

Dick Morris’ article concludes:

Take the tax issue off the table and Americans will see the real game going on here: Obama’s commitment to deficit spending which is driving the economy into ruin. No longer will he be able to avoid the blame for the coming economic collapse because he will have had his way on taxes.

Politically, if the Republicans agree on a tax increase but demand spending cuts in return — and Obama refuses to come across with spending reductions (which he will) — then the blame will fall squarely on the president for the ensuing economic breakdown.

Call Obama’s bluff! Make him face up to the need to cut spending and show Americans how he won’t do it.

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We Are Definitely Not Headed In The Right Direction

Yesterday CNSNews reported that according to the the Budget and Economic Outlook published January 31, 2012,  by the the Congressional Budget Office (CBO), the amount of taxes collected by the government will increase 30 percent between 2012 and 2014. That increase is not due to a growing economy, which automatically increases the amount of revenue flowing into the treasury, but due to an increased tax burden placed on every American.

The article reports:

The anticipated percentage increase in federal tax revenue is not only large when calculated in dollar terms but also when calculated as a share of GDP. The jump from 15.4 percent of GDP in fiscal 2011 to 20.0 percent of GDP in fiscal 2014 equals an increase of 29.8 percent. The jump from 16.3 percent in fiscal 2012 to 20.0 percent in fiscal 2014 equals an increase over two years of 22.7 percent.

Federal tax revenues have averaged “about 18 percent of GDP for the past 40 years,” according to CBO. So, in the next two years federal tax revenues will rise from a level that is below the modern historical average to a level that is above it.

A revenue increase that was due to an expanding economy would help us deal with our deficit problem (although the spending–not the revenue–is at the root of the problem). As long as the government spending is out of control, the economy will not grow. Right now our economy is the equivalent of a hamster on an exercise wheel–until the hamster gets off the wheel, he is not going anywhere.

The American economy cannot survive this kind of a tax increase. It is time for everyone to take a good look at their Senators and Representatives and examine their voting record over the past ten years. If they have consistently voted to increase government spending, they need to be voted out of office in November–this cannot wait any longer. Americans will get the government they deserve (the government they vote into office). If you would like to see America survive, you need to be part of the solution–not part of the problem.

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