Category Archives: federal debt

Like a relentlessly advancing cancer, the news about the US fiscal deficit and the accumulated debt, which is its result, keeps getting worse.  Every week the press discloses some supposedly “new” information about either the federal budget, economic failure, projections of economic growth, the effects of the so-called “doc fix” (about which we have written several times), the sorry fiscal condition of state and municipal finances, or some further jobs stimulus proposal, all of which pile more costs on this nation that, if it were a private business, would be considered broke.

Before looking at the most recent spate of deficit and debt related news, let us start with the CBO’s updated March 2010 report which estimated that the cumulative effects of the Administration’s budget proposals would add $9.7 trillion to our current deficit of $14 trillion (an amount equal to approximately ninety percent of our annual GDP and clearly approaching the danger zone).  This amount does not include any spending for enacting climate legislation or the effect of rising interest rates to service our debt or spending for contingencies from unplanned events which will inevitably occur.

Moreover, it projects economic growth every year at four percent when we have had only two quarters of growth at four percent or higher in the past five years and, at least since 1982, have never had four consecutive years of growth as high as four percent per annum.  That overly optimistic CBO assumption if not realized will raise the deficit and the accumulated debt, perhaps by trillions of dollars.

In recent days we see once again the fantasy of the most recent budget the president presented.  After just a few months it is outdated.  Mr. Obama has just asked Congress for an additional $50 billion in aid to state governments.  It is uncontested that state and local governments are in terrible fiscal condition and, of course, they can’t print money to inflate away their accumulated debts.  Cumulative state shortfalls in 2009 and 2010 alone are approximately $310 billion and projections for 2011 and 2012 combined are for an additional $300 billion.

State governments have in the past few years either borrowed with abandon or resorted to accounting gimmickry to approach balancing their budgets.  They have consistently looked for new sources of tax revenue or raised taxes on existing sources, making a reality of Ronald Reagan’s statement about government: “if it moves, tax it.”

The figures are appalling.  California alone projects a $9 billion shortfall in 2011 but when the unsolved 2010 budget gap is added in, the total shortfall would be $19.1 billion (22.6 percent of the one year budget).  This hall of shame also includes Illinois where the shortfall projected for 2011 is a whopping 30.1 percent of the budget, New Jersey at 37.4 percent, Maine at 32.1 percent, Michigan at 26.4 percent, Vermont at 31.1 percent and Wisconsin at 25.3 percent.

How did we get to this state (no pun intended) where services now need to be drastically cut, employees laid off, contracts cancelled and previously negotiated benefit packages renegotiated?  Simple.  Politicians love to promise and spend and at the state and local level, unions have organized state employees and have demanded pay and benefit packages way beyond what is paid for like work in the private sector.  With union representatives sitting on pension boards or having its employee members negotiating on behalf of government, the unions are, in effect, on both sides of the table.  These devastating numbers are even more stark and depressing when we consider that over the past two years the federal government has provided $140 billion in state budgetary assistance…approximately thirty to forty percent of state shortfalls.  The effect of this assistance seems only to have postponed the day of reckoning and allowed states to increase hiring and avoid necessary fiscal discipline.  Since 2007 public payrolls have increased while the private sector went through the worst downturn since the Great Depression with unemployment, even with a nascent and fragile economic recovery underway, still hovering just below ten percent.

After that depressing digression, let us return to the president’s proposal for a new $50 billion aid package for the states.  The president has written Congressional leaders to say that the package is essential to avoid “massive layoffs of teachers, police and firefighters.”  As reported in the Washington Post the president calls this a request for “targeted investments.”  The president also wants to extend unemployment benefits which raises the cost of his package to $80 billion.  And while no one wants to be heartless to the jobless who are in great economic distress, these benefits have been extended several times already and cannot (nor should not) be extended indefinitely.

Wasn’t this all known in the White House when the president first sent his budget to Congress?  Why did this request dribble out later packaged as it always is in a wrapper of being necessary to avoid layoffs affecting our children or the public’s safety.  What about the swollen bureaucracies of other state agencies?  Why doesn’t the president mention the incredible cradle to grave benefit packages that allow some workers to retire at age 50 at high percentages of their final year’s salary, with health benefits for the rest of their lives.  Doesn’t this answer become more and more apparent with every additional request for money?  It is because that is the kind of America Mr. Obama wants…. an America that takes more and more resources out of the productive growth producing private sector and pays it over to the non-productive public sector.  Even France, the poster child for excessive public spending, seems to be getting the message that this kind of model doesn’t work but Mr. Obama is imposing, in step by step increments, France’s failed statist approach on the unwitting taxpayers of the United States.

We might also note, as we did in some detail in earlier essays, that the functions the federal government has been funding to defray these state costs have been, since the founding of our republic, the responsibility of the several states.  This raises the obvious question of why the citizens of those states who have lived within their means should have their federal tax dollars used to pay for the unbridled profligacy to which the spendthrift states listed above have obligated their own taxpayers.

The other bit of recent bad budget news which the president recently announced was the so-called doc fix to reverse the 21 percent pay cut scheduled to take place for doctors who treat Medicare patients.  Surprise, surprise.  This fix, as Mr. Obama noted, has passed Congress every year since 2003.  However, he is now complaining that Republicans are using budget austerity (demanding commensurate cuts in spending elsewhere in the bloated federal budget)  as an excuse to prevent a long-term solution to this problem.  How he dissembles.

Just a few short months ago the doc fix was part of the president’s healthcare reform legislation but Congressional leaders removed it from the bill so the CBO could certify that the legislation was revenue neutral and did not “add one dime to the deficit” as the president intoned daily.  So in a most disingenuous piece of fiscal trickery Speaker Pelosi and Majority Leader Reid separated the doc fix from the overall healthcare reform legislation and put it in a separate bill, claiming it was a totally separate issue.  Voila; the CBO could now certify the ten-year cost of the healthcare legislation as not increasing the deficit but the very same costs are now to be incurred in a separate law.

So there we have it; the costs of the annual fix which, if included in the healthcare reform bill, might have prevented its passage, is later acknowledged to cause an increase in the deficit by the same amount. This Pelosi-Reid grand-scale shell game, to which the President acquiesced, fooled no one except, seemingly, the CBO, which actually did know under which shell “the fix” was in. Yes, of course, the CBO knew, the White House knew, the Congressional Democrats knew, the compliant main-stream press knew, we knew (and loudly complained at the time), and now everyone knows.  How stupid do these politicians think the American people are?

Make no mistake about it; all of this is not an accident.  Every incremental piece of legislation involving further federal spending is designed to disguise the further centralization of power in Washington.  The inescapable conclusion is that the strategy of Mr. Obama and the Democratic left which holds majority power in Congress is to irreversibly and fundamentally change America by putting in place policies, programs and funding mechanisms that will be difficult, if not impossible, to reverse without devastating costs to the ties that bind us as a nation, and which raise the possibility of terrible social upheaval.

For far too long, Americans have watched as the Democrat Majority in Washington has made promise after promise that they would responsibly manage the taxpayer’s dollars – but one promise we haven’t seen many members keep is to take action to reduce our ever exploding deficit by actually cutting wasteful spending.

Many Americans have lost their jobs or have seen their pay and benefits reduced. Our nation’s families and small business job providers are all tightening their belts – all while they look at what’s happening in Washington in disbelief.

Spending is out-of-control. We have a national debt over $13 trillion; an annual budget deficit of nearly $1.6 trillion; and within the first eight months of our current fiscal year, the federal government has accumulated $935 billion in deficit spending. Currently, we are right on track to meet last year’s annual deficit record of $1.4 trillion. American taxpayers want spending reduced.

That is why Republican Whip Eric Cantor and the House Republicans have launched the YouCut project – where we go over the heads of Nancy Pelosi and her allies in Congress to engage the American people in the effort to reduce the deficit and cut wasteful spending now.

YouCut gives Americans the opportunity to vote each week for one of five wasteful spending programs and Republicans will force a vote on the one receiving the most votes. As of this week, Americans have casted over 850,000 votes on YouCut programs.

So far, Americans have asked House Republicans to push for a vote on a proposal to sell excess federal property, saving taxpayers up to $15 billion; a vote to reform Fannie Mae and Freddie Mac, which would generate over $30 billion in savings for taxpayers; a vote on a spending cut to eliminate the proposed federal employee pay raise that would have saved hard pressed American families $2 billion this year and nearly $30 billion over 10 years; and a spending cut that would have saved $2.5 billion a year and not undue reforms that will weaken our welfare program.

We can all agree that this is not too much to ask for our government to stop spending money that we do not have, while families across the nation are facing many financial challenges.

Since we started this effort the Democrat Majority has voted down each attempt to reduce spending, but we are forcing change. Democrat leaders in Congress are now scrambling to try and find cuts that they can support. If we force cuts, YouCut will have been a great success. But the Democrats will never cut spending if we don’t keep up the pressure.

I encourage every American citizen to go to the YouCut website and make your voice heard in Congress and help get some fiscal sanity back in Washington today.

We must focus on what we can do to cut spending today, because every day we wait billions of dollars in new debt are passed along to our children and grandchildren. YouCut gives the American people a chance to say enough is enough.

Speaking to CNBC in Las Vegas recently, Steve Wynn, the billionaire developer and operator of entertainment properties, said: “Washington is unpredictable these days. No one has any idea what’s next . . . the uncertainty of the business climate in America is frightening, frightening to everybody, and it’s delaying recovery.” Wynn complains of “wild, uncontrolled spending” and “unbelievable, unsustainable debt.”

Wynn also has operations in China, and he remarks that he “has no qualms about dealing with the Chinese government. Macau has been steady. The shocking, unexpected government is the one in Washington.” Not very long ago, such a statement would itself have been shocking.

The gambling and real estate magnate expresses concerns about inflation, Federal Housing Administration’s making the same mistakes Fannie and Freddie have made, and the business costs arising from the new health-care law. “We’re on our way to Greece,” he declares, “in the hands of a confused, foolish government.” Exasperated, he mutters, “It’s got to stop. It’s got to stop.”

These observations remind me of similar statements made by investor Lammot du Pont in 1937: “Uncertainty rules the tax situation, the labor situation, the monetary situation, and practically every legal condition under which industry must operate.” Even members of Franklin D. Roosevelt’s cabinet eventually appealed to him to clear the air in which private investors were finding it difficult to breathe, but he refused to do so, preferring to plunge ahead with the New Deal and to publicly blame “economic royalists” for his policies’ failures.

Du Pont was hardly the only one making such observations in 1937 about regime uncertainty’s negative effect on recovery, and Wynn is hardly the only one now making such observations.

In the vernacular of financial commentary, “PIGS” is the term recently coined by the financial markets to refer to sovereign countries whose economies are virtually bankrupt and whose bonds are virtually worthless. These are the basket cases of the international economic system — Portugal, Italy, Greece and Spain.  Recent evidence suggests that the fiscally irresponsible PIGS may soon have a new applicant for membership in their club.  Membership in this particular club is somewhat reminiscent of Groucho Marx’s famous remark that “I wouldn’t belong to any club that would have me for a member.” The new expanded club’s acronym is shaping up to be (you guessed it) USPIGS.  No, the United States is not about to go bankrupt.  Not yet, anyway. We are, however, pursuing the very same types of vast spending policies that brought the PIGS of Europe face to face with that real possibility.

What have we done recently to be considered for membership in this club of dubious distinction?  Last week, government budget personnel revised their estimate of when Social Security would begin running in the red from 2017 to, essentially, “right away.”  Yes, Social Security is broke…right now!  So much for government estimates.

The announcement of this distressing news was, it appears, kept well under wraps until Nancy Pelosi and Harry Reid along with a shamelessly compliant Democratic Congress safely ramrodded Obamacare, with its astonishing price tag, into law. The entitlement sinkhole just got an order of magnitude bigger.  “But,” one might ask,  “haven’t we been accumulating all the excess funds paid into Social Security all these years in a special trust fund.”  Well, not exactly.  In fact, not even almost exactly.  You see, the government has been vacuuming out the excess cash as soon as it comes in and spending the money (the money we all paid in) to pay the government’s current bills.  The trust-fund cash has been replaced all this time with IOU’s (that’s internal Treasury debt), which are now being called to meet current payment obligations.  These IOU’s are being replaced, of course, with even more IOU’s but this time there is no more cash to divert from payroll taxes to fund government operations. We have to borrow more.

The timing just couldn’t have been worse, with the multi-trillion-dollar Obamacare entitlement enacted into law by the Democrats, and Moody’s having just announced that our AAA credit rating could be in jeopardy if we don’t meet our economic growth projections. Those are the very same growth projections being compromised by our ever-spiraling deficits, our ever-growing national debt and by the federal and state tax collectors about to go on a government-mandated, national pick-pocketing binge.

We have, in a number of previous essays, cited the spending plans of the current Administration as irresponsible.  Not that there is anything inherently irresponsible with borrowing against future receipts to accomplish needed and worthwhile objectives so long as there is a credible repayment plan.  But when anyone, especially the government, spends borrowed money based on future expectations, then the principles upon which those expectations of future revenue are based have to be realistic and grounded in sound economic theory.  Sadly, the chickens have come home to roost on the past projections upon which Congress and the Administration have relied. And just as we have previously claimed they were doing (“cooking the books” with unrealistic forecasts to justify passage of the Obamacare legislation), the evidence is in that Congress has justified its profligate spending habits by basing expenditure decisions upon demonstrably unrealistic optimistic projections of economic growth while also understating the future costs of the laws they enact.

Entitlement costs, like those for greatly expanded health care, get baked into the annual budget (referred to in budget speak as non discretionary spending), even though the revenue going forward is quite variable.  As proof of that, the fact that Social Security is in the red seven years earlier than the government projections anticipated, is largely the result of the economic downturn.  The benefits are fixed while the economy, which produces the receipts from payroll taxes, is, extremely variable.  Picture a graph with two lines, moving from left to right, one to illustrate benefits (costs) and the other to illustrate income (social-security tax receipts). Obviously you would want the lines to move in tandem, ideally with the income line running ahead (above) the cost line.  When they run counter to one another, that is, when the cost line turns up and the income line turns down you have what we’ll call an insolvency gap.  Our current social-security insolvency gap is more than very troublesome. It has put us on the road to a fiscal train wreck. This is the type of wide-yawning gap that has driven Greece to its knees and threatens the other “PIGS” countries as well.

To be sure, this mess has been building for a long time and we can’t blame past irresponsibility on President Obama.  He, as the junior senator from Illinois, was still trying to find the way to his Senate office when the current crisis began to build during the Bush years. But now he is president and it is his responsibility to provide the leadership to resolve the mess, not to make it worse. Unfortunately, the president and his ill-timed redistributive policies are exacerbating, not alleviating our economic problems by rushing headlong to squeeze money out of the private sector and into the hands of a wide array of government programs essentially designed to redistribute private wealth. With fewer resources in the private sector it is almost axiomatic that government tax revenues from private economic activity will be constrained. Of course, at the same time  the government continues to spend at an accelerated rate, Congress and the Administration project steady economic growth with no further downturns. We have seen how reliable those projections have been in the past.  Our national priority should be to do everything we can to foster economic growth.  Instead, we are doing just the opposite.

Further complicating the matter is that Obamacare imposes very substantial new costs on the states, nearly all of which are struggling mightily with their own budgets.  As we write this essay, The Sunday New York Times reports on its front page how states are now seeking to tax services, “…From Head To Toe.”  The federal government and the state governments are embarking on a colossal revenue chase to squeeze more and more taxes from the nation’s taxpayers.

It has been demonstrated that when public debt reaches 90% of GDP economic growth begins to deteriorate.  Add non-public debt (when we borrow from our own “lock boxes or trust funds”) such as what we owe to Social Security and our other totally unfunded liabilities, and the picture really starts to become very troublesome.  CBO now estimates that our deficits over the next ten years will be $1.2 trillion more than the Obama administration projected (why do these type of corrections always seem to come out right after we legislate massive new entitlement commitments?); and that we will have reached that 90% public debt to GDP ratio within the next ten years.

This is not simply academic or esoteric chatter.  It matters and it matters a lot to every American family.   That $1.2 trillion miscalculation by the Obama Administration represents an additional debt of $10,000 per household above and beyond the federal debt each household is already carrying according to Heritage Foundation budget analyst Brian Riedl.  Keep in mind the federal public debt was a gaping $6.3 trillion or $56,000 per household when President Bush left office. Today, it stands at $8.2 trillion or $72,000 per household and, according to the CBO estimates, in less than ten years it looks like it could reach $20.3 trillion.  That would be $170,000 per household!  When we talk about the Administration or Congress passing debt onto our children that’s exactly what we are talking about.  Ultimately, our kids and their kids will pay to service that debt with additional taxes the government extracts from them or through vastly decreased value of their currency. Either way, their standard of living and their quality of life is certain to suffer.

James R Horney, a federal-budget analyst with the liberal Center on Budget and Policy Priorities acknowledges that lower tax revenue resulting from economic performance that is lower than government projections accounts for the biggest part of the deficit gap between the Administration’s estimates and the CBO’s. “The administration assumes GDP and incomes will be higher, and that translates into higher revenues than CBO expects. Relatively small differences in economic assumptions can add up to big differences over 10 years,” says Horney.

Budget analysts Riedl and Horney, one conservative and one liberal, both offer very worthwhile observations.  Their comments are also very instructive.  They illustrate how minor errors or miscalculations in projections can, over time, compound into major problems.  They also suggest the ease with which government staff can game the system to influence the score the CBO comes up with on any piece of legislation.  When constructing the assumptions that accompany a bill to the CBO for scoring, a little tinkering here and there can pretty much produce the score one wants.  The Administration’s Office of Management and Budget (OMB) can play the same game. Plug in a half percent more growth and more tax revenue here and there and PRESTO you can make a projected budget deficit neutral or even reduce a shortfall.

We, of course, don’t know if such chicanery was at work in the case of the healthcare bill.  We do, however, find it disheartening that the CBO didn’t discover, until two days after President Obama signed the healthcare bill into law, the disparity between the growth projections the Administration made and those that CBO considers to be realistic.  And as stated earlier in this essay, that turned out to be a $1.2 trillion late discovery.

The bad news is that in a little less than ten years our public debt will reach 90% of estimated GDP (sort of like the PIGS of Europe).  At the time Mr. Obama was elected President our public debt stood at 40% of GDP.  The good news is (well not exactly good news) we have time to do something about it.  The government can rethink the statist, redistributive course we are on and begin focusing on policies designed to grow the economy…to encourage private investment and sound risk taking…to leave as much wealth in the hands of the people as possible.

Based on his actions since he took office, President Obama is not of a mind to view the sudden insolvency of Social Security or the Administration’s $1.2 trillion miscalculation of the nation’s deficit over the next decade with alarm and rethink the course he is plotting. Rather, he and the Democratic Congress seem to be of a mind, instead, to think damn the torpedoes, full speed ahead. Their rhetoric and actions suggest that, given the current control they exercise, they see this as a once in a lifetime chance to vastly increase the role of government and to let the debt problem slide further down the road. It is far more satisfying to engage in expensive social engineering than in the hard choices necessary to cut spending.

We suspect, however, we do know what the mind of the voting public will be once the hard reality sinks in of where we are, where we are headed and the consequences to the nation of being a fiscal basket case where debt backed by the “full faith and credit” of the United States (our Treasury bonds), long viewed as the refuge of investor’s seeking safety, could be salable only if America paid much higher rates of interest.

What has happened to Portugal, Italy, Greece and Spain is not hard to fathom.  It is a mystery to no one who understands basic economics, unencumbered by partisan political philosophy.  The PIGS have borrowed to spend (and are committed to spend) more than they can ever hope to repay.  It’s that simple. In the case of Greece, they need some form of a bailout. The other three nations are not far behind unless they treat their current crisis as a wakeup call and quickly take painful remedial measures. It appears to us when we look at what Congress has just legislated and the president has signed into law, together with what the president’s other priorities seem to be, that we are about to follow the path well traveled by the basket cases of Europe.  Why in the world would we do that?

Hal Gershowitz and Stephen Porter

We have heard a lot lately about my comments relating Obamacare to the failed socialist policies of the Soviet Union. Liberals and a host of radical leftists have mocked my observation in their blogs and some mainstream news outlets have even poked fun at me. However, the transformation of America is no laughing matter.

The parallels between leftist policies today and those of failed socialist states are undeniable; so much so that even a Russian state-owned news commentator was forced to concede my point:

“Republican Devin Nunes accused the bill of continuing the failed Soviet experiment. He was overly emotional but there is a grain of truth in what he said… Apparently, the socialist experience has proved too tempting to be resisted.” (RIANOVOSTI News, March 22, 2010)

Thanks to increasing regulation, rising taxes and greater centralization of power in Washington America is slowly leaving behind the foundation of its economic strength; namely the entrepreneurial energy that comes from freedom. And while a full-fledged Marxist revolution may not be on the horizon, the transformation of America in the image of European socialism is real and it should be of great concern to us all.

The most obvious example of failed central planning remains the Soviet Union. However, failed socialist policies are not limited to the history books. Consider the economic decline and social unrest in Europe.

As a result of government dominance throughout the European economy, member states are facing the current global economic crisis with limited options. The direct pain confronting Europeans is therefore magnified, just as the prospects for economic recovery are limited. These limitations are practical, resulting from the patchwork of laws and regulations imposed on their economies, as well as political, the result of mass dependence on government programs—a dependence shared by all but a handful of wealthy elites.

Evidence of this fact is widely available today. For example, French leaders recently cut federal spending in an attempt to address their national debt crisis. The cuts, however, resulted in massive general strikes, as well as social unrest—riots, looting and mass demonstrations.

Throughout Europe political leaders have been burned in effigy by protestors. They are being forced to choose between social order and financial order. Pay cuts for government employees, for example, result in general strikes. More radical reforms, including those needed for long-term economic health, can’t even be discussed openly.

In the final analysis, without the support of the masses, EU governments are left without the ability to change course and are forced to preside over national decline. I refer to this condition as an economic death spiral.

EU democracies face this threat because deficit spending cannot sustain an economy long-term. At some point, foreign lenders will resist additional financing—a problem already faced by a group of European countries known as the PIGS. The PIGS are Portugal, Ireland, Greece, and Spain. Together they have a combined debt of approximately $198 billion. Spain’s debt is highest, at $116 billion, followed by Greece at $37 billion, Ireland at $30 billion and Portugal at $15 billion.

Some have suggested these nations could be the first in the developed world to default on their credit obligations but the more likely scenario is that they will face long-term economic stagnation. This means high unemployment, high interest rates and little prospect for improvement.

Interestingly, you don’t have to look as far as Europe to find such as doomsday scenario. Leftists in California have driven the state to the brink of bankruptcy with a deficit of $20 billion. If major reforms are not enacted, California will join the PIGS of Europe as another failed social democracy. Perhaps worse, if Obamacare and other Democratic policies are allowed to continue unaltered, America itself will join in this fate.

Last week, I had the honor of speaking to a robust group of conservatives in New Hampshire — and I saw a level of energy within our movement that I haven’t seen in a long time. People are fired up. And not just in the Granite State. Everywhere I travel these days, Americans are standing up and declaring themselves ready to fight for the principles and values that made this the greatest country in history – principles and values that are under attack by the Democrats in Congress and the current administration.

Today, the federal government owns or controls the nation’s largest insurance company, two of the three American auto manufacturing companies, the two entities that hold a majority of our mortgages, the entire student loan industry, wide swaths of the banking industry and now a major portion of the American health care delivery system.

Think about it. With his individual mandate, President Barack Obama and the federal government are now forcing Americans to buy a good or service simply for no other reason than they are alive. Their reform will lead to higher taxes and higher premiums – and not reduce the exploding health care costs that are the underlying problem of America’s health care system.

Let me put it bluntly: America is headed in the wrong direction.

We need to help good people running for office who understand that the federal government is overreaching and are willing to stand up and say, “Enough!” I’ve set up my Freedom First PAC to help elect those sorts of candidates to Congress this year.

The folks I’m talking with around the country tell me they’re ready to fight back against this massive expansion of the federal government. If you agree with them, I invite you to join me during my Facebook Town Hall on Wednesday night at 7:15 PM Eastern. I’m going to talk for a few minutes about some of the great candidates I’m supporting in 2010 and then I’m going to ask to hear directly from you. You’re going to get a chance to nominate conservative candidates for federal office to be enrolled in the Freedom First PAC’s fundraising program. My hope is that this program will give the grassroots unprecedented influence over the 2010 election.

I hope you will join me on Facebook Wednesday night at 7:15 PM Eastern. Bring your energy and your best ideas.

The “Perfect Storm,” described by author Sebastian Junger in his 1997 best-selling novel by the same name, referred to a confluence of weather conditions that produced a monster hurricane off the coast of New England.  Today the term is commonly used to describe any combination of circumstances that drastically aggravate any given situation. For example, an exponential increase in the number of retired elderly Americans who require more health care being supported by a declining number of young Americans who provide the funds to cover those health care costs. With over 70 million baby boomers about to retire we, indeed, have the conditions for a perfect storm.

The President and Congress seem to have no trouble grasping the logic that the more people who share the cost of health care the less the cost per capita will be.  In fact, the very cornerstone of their health care program is that everyone be required to pay into the system with which we manage the nation’s health care.  That same logic, however, seems to elude them when it comes to sharing the growing cost of government.  They consistently propose that we compensate for the ever-diminishing number of American taxpayers by simply increasing the taxes on those who already pay the most.  Their mantra for every expansion of government programs is that the wealthy should pay their fair share. How can you argue with that? Shouldn’t everyone pay his or her fair share, whatever that is?

Unfortunately, the path we have traveled in the past half century in relentlessly increasing so-called “entitlement” expenditures has put us on the horns of a dilemma in which the number of Americans who pay absolutely no taxes is soaring at the very time government spending is producing a voracious federal appetite for tax revenue.  The good news is that 142 million tax returns were filed in 2008 (the last year for which data are available). The bad news is that nearly 52 million of those returns, utilizing a potpourri of deductions, exemptions and tax credits, reported zero taxes due.  What is even worse is that, in just the last ten years, the number of tax filers reporting zero taxes due has increased by 60 percent.  So just how did such a bizarre reality come to be?  The answer is simple: politics.

We doubt that anyone would argue with the notion that those who earn more should pay more in taxes. We certainly wouldn’t. But America has been sold on the idea that the rich should not only pay more in taxes (which is only fair) and that they should also be taxed at higher rates than anyone else, but also that they should pay their “fair share” of the taxes from which many of their fellow citizens have been excused.

Who is rich, of course, is in the eye of the beholder. How much of the bill (one’s fair share) for providing government services should be sent to those who are perceived to be rich depends largely on the motivation of those who write our nation’s tax legislation.  On one end of the spectrum we have those who are motivated by the politics of envy.  On the other end of the spectrum we have those who appreciate the economic need to maintain an environment encouraging risk taking and entrepreneurship.  Another motivating factor is, of course, the extent to which our citizens believe that government, in order to maintain a just and orderly society, must supply certain needs and desires that require income to be transferred from one set of citizens to support another set of citizens.

Government has grown tremendously over the last eighty years as politicians have embraced the idea that Washington should be a proxy for family…that we should look to government to provide more and more of what people need or desire rather than depend on our personal and family support systems and our own labor and intelligence. Thus, more and more of what we need or, perhaps, desire are not viewed as goals or objectives to be attained, but more as rights that are conferred upon us by the moral obligation one citizen owes to his or her neighbor …which morphs eventually, but assuredly, into a governmental obligation.

Before the New Deal, the role of government was more limited to services usually provided by states and cities such as police protection, firefighting, emergency ambulance services and public elementary and high schools.  The federal government provided for such services as the national defense, foreign relations between nation states, regulation of interstate commerce, national banks and postal service.  Basic day-to-day care, feeding and nurturing were individual and family responsibilities with strong support, when needed, from charitable organizations.

At the national level, ever since 1913 when the 16^th Amendment to the Constitution was ratified, federal expenditures have been funded largely by income and excise taxes.  From its inception our federal income tax system has called for a graduated rate of tax, which means that at each increase in certain stated marginal income levels, the next amount of income is taxed at a higher rate.  Although many believe the tax system would work better and fairer if all deductions and exemptions from tax were eliminated and only one rate were applied, there has been widespread support for the notion that those who make more money should pay tax at increasingly higher graduated rates.

At what level of income should the highest rate apply and what should that rate be?  President Obama campaigned on the promise that any tax increases proposed by his Administration would be imposed only on the highest five percent of the population and that taxes for the rest of the people would not go up by a dime.  His cutoff point is often said to be $250,000 per annum.

Given our annual deficit, now running close to $2 trillion, it is clear that annual income tax collections are not sufficient to support the level of government we have, nor the debt service on the accumulated debt, which we have already incurred.  Nor, even with confiscatory tax rates can we plug the gap.  (More on that later.)

As we have previously written, we can service our debt and provide government services either by rolling over and expanding the nation’s debt, printing money, thereby cheapening our currency and risking massive inflation, finding more and more sources to tax, thereby taking more money from the private sector, or cutting spending.  Sadly, so far the current Administration and Congress, not to mention the Bush Administration and the prior GOP Congresses have shown no signs of having any spending discipline.  Congress recently passed a program into law, which requires that each new expenditure be accompanied by a corresponding expenditure cut or a new source of revenue.  A step in the right direction, you might say.  Not more than three weeks later, however, they passed an $80 billion spending bill and waived the pay-as-you-go requirement.

Because the debt problems of the nation have reached such a critical stage, major new programs have become far more contentious.  Health care reform, a cap-and-trade environmental law, expansion of college scholarship programs, even if they all were to work as envisioned, will add to the deficit and all Americans know it.  The health care bill, which the president says is revenue and expense neutral, will cause a major increase in our deficit.  It is neutral only because it includes ten years of taxes and contains only six years of benefits…among other accounting tricks, such as burying the “doc fix” in separate legislation — an action that will add approximately $250 billion over the next ten years.

Since the left sees 2010 as a chance to transform America into a nation almost totally dependent on government, with more and more decision making and personal responsibility taken away from private citizens and managed by Washington, let us see if, as the Pelosi/Reid/Obama axis claims, new programs can be paid for if only the wealthy would pay their fair share.

The National Center for Policy Analysis reports as follows:

• According to data from the IRS, the bottom 50 percent of income earners pay approximately 4 percent of income taxes.
• The top 25 percent of income earners pay nearly 83 percent of the income tax burden, and the top 10 percent pay 65 percent.
• The top 1 percent of income earners pays almost 35 percent of all income taxes.
• The top 400 richest Americans [out of 320 million of us] paid 1.58 percent of total income taxes in 2000.

Empirical evidence also shows that the wealthiest citizens are also paying an ever-increasing proportion of all taxes collected by the federal government.  Data from the Congressional Budget Office show not only that taxes on the wealthy have risen over time, but also that the 2001 Bush tax cut barely kept their share of the tax burden from rising further.

• In 1984, after the Reagan tax cut had been fully phased in, the bottom 20 percent of income earners paid an average federal tax rate (individual, payroll, corporate and excise) of 10.2 percent.
• The top 20 percent of earners paid 24.5 percent and the top 1 percent paid 28.2 percent.
• In 2001, after the first Bush tax cut had taken effect, those in the bottom quintile paid average federal income taxes of 5.4 percent, about half of what they did 20 years ago.
• Those in the top five percent saw a slight decline in their federal tax rate (28.6 percent, down from 29.7 percent).
• The top 1 percent, however, saw their overall federal tax burden increase slightly, from 33 to 33.2 percent.

Despite the accusation that it was the very wealthiest who benefited the most from the 2001 tax cut, their federal tax burden stayed level at best and increased at worst.

Catherine Reynolds in the July 20, 2008 online edition of Economix updates those figures further reporting that in 2007 the top one percent of taxpayers paid 40-42 percent of total federal income taxes representing the second year in a row that the wealthiest one percent paid more income taxes than the bottom 95 percent.

What if we were to raise tax rates further?  Again there is interesting historical evidence reported by the National Center for Policy Analysis.  In the 1920s the top rate fell from 73 to 25 percent but the wealthy went from paying 44 percent of the tax burden to 78 percent during the decade.  A similar result occurred when President Kennedy cut the tax rate during his administration.  And in the 1980s after the Reagan tax cuts the top one percent saw their share of the income tax burden increase from 17.6 percent to 27.5 percent.  Clearly, time and again, raising the marginal tax rate cuts rather than increases the federal “take.”

Conversely, tax increases reduce incentives, drive business to cut costs (read “jobs”), move outside the United States and reduce research and development expenses and innovative risk taking.  This country evolved from a standing start in the 18^th century with a puny population, to an international economic engine, which lifted millions of people worldwide out of poverty as a result of private effort, private capital and private risk taking.  We created industry after industry and millions of jobs, yet the left focuses on anecdotes of the profligate life style of a relatively few wealthy people who publicly flaunt their opulent life style.  But truthfully, do we really care if in the course of creating jobs and economic security for the “many” there are a “few” who become very rich?

There is another disincentive, which every now and then gets the public’s attention:  the estate tax (or as conservatives call it “the death tax”). Prior to the Bush tax cuts the government taxed (confiscated some might say) 55 percent of a decedent’s taxable estate over $1 million.  Under the Bush program the estate tax was to be phased out until there was no such tax in 2010 … only to spring back to life, just like the Bush income tax cuts, in 2011 at the 2001 rate.  Everyone believed at the time that over the following ten years a compromise would be reached by Congress, not only to prevent the expiration of the tax in 2010, but also to have a lower rate and a higher exemption amount thereafter. Since Congress rarely misses an opportunity to be irresponsible, that hasn’t happened.  This clumsy handling of tax policy regarding residual wealth, net of all taxes paid during someone’s working life, has cost the public billions of dollars in legal fees trying to adjust wills, trusts and marital deductions to this unresolved matter.

But let us return to the disincentive of the death tax.  After having one’s income taxed at rates up to 39.6 percent, paying Social Security tax of 6.2% if you are an employee (or 12.4% if you are self employed) on the first $106,800 of earnings, state income taxes of up to 12 percent in some states, Medicare tax of 1.45 percent on total taxable income (2.9% if you are self employed going up to 3.8% on ALL income, including interest, dividends and capital gains, which the left refers to as “unearned income,” under Obamacare), sales taxes up to ten percent in some cities and states, the government under this most hideous of taxes would take 55% of anything you might have left over for the children or grandchildren.

Essentially the United States is heading toward what might be called a tipping point.  Increased government takeover of historically private personal obligations initiates a vicious cycle.  The more we have a society where substantial numbers of people pay no taxes (now close to 40%), the more we create a voting bloc of citizens who will inevitably support new programs for which they don’t have to pay.  Business people have a term for this.  They dislike investing money with partners who do not invest even a minimal amount with them.  It is called having “skin in the game” another way of saying that we all need to have common incentives.

We have now gone full circle in this essay.  Who is wealthy?  Is it someone who has any disposable money?  How much should they pay?  If you are a married couple raising children in Washington, D.C., New York, Los Angeles, Boston or San Francisco, to mention a few costly places, does earning $300,000 make you wealthy so that close to 40% (more if taxes are raised by the Congressional leadership) of every additional dollar earned should go to Uncle Sam?  Are you a morally bad person if you do not want to shoulder an ever-increasing government appetite to provide more and more benefits to a segment of the population who view these benefits as if they are birthrights?

In our view the questions answer themselves but as we said earlier in this essay it is all in the mind of the beholder.

Hal Gershowitz and Stephen Porter

One of the main selling points of health care reform was that it would cut the federal deficit by a supposed $143 billion over the next decade and a trillion-plus dollars in the one after that.

But not only will the legislation not cut one thin dime from the deficit, it will also certainly cost far more than the $940 billion in new spending already on the table for at least three reasons.

These include:

1. Legislative Trickery. Congressional Democrats have pledged support for “the doc fix,” a permanent upward adjustment to the rates at which Medicare providers are reimbursed. As Speaker Nancy Pelosi has said, “We have made a commitment to do this. This is very important.” The cost of the “doc fix”? Some $247 billion over the next 10 years, wiping out any deficit reduction from health care reform.

2. Higher Premiums. In 2006, Massachusetts passed health care reform very similar to what President Obama just signed. The result? The Bay State now has the highest premiums in the country and cost about 33 percent more than expected.

3. Bad Accounting. The government is terrible at predicting how much programs will cost, especially when it comes to medical care. Initial 1960s’ projections of Medicare’s costs in 1990 had the program costing about $12 billion; the actual result was almost 10 times that amount. As a Joint Economic Committee report notes, “Major health care proposals have almost always cost more…than the highest cost estimates published while the legislation was pending.”

Approximately 2.19 minutes. Written and produced by Meredith Bragg, Dan Hayes, and Nick Gillespie, who also hosts.

Read more about health care reform and its costs here.

Sunday, the House passed Speaker Pelosi’s vision of healthcare in America. Here is why I voted “no” and why the American people should re-examine the Democratic leadership of our nation.

First, I do not accept the premise that it is necessary to upend the health coverage currently available to all Americans for the sake of covering those who are uninsured. Expanding access to insurance is far less complex and far less costly than Democrats would have you believe. It does not involve a government takeover of 1/6th of the American economy. It involves insurance market reform but it also and more significantly involves providing choice and competition. The bill I support, the Patients’ Choice Act, provides the framework for such an effort. However, my views were not considered nor were the views of other lawmakers who sought to improve the system we have today. That’s because Nancy Pelosi and her liberal associates intend to destroy private healthcare with the ultimate goal of a Washington centered government healthcare monopoly.

Even before this monopoly takes its final form, the Democratic bill will speed our nation into financial crisis. Simply put, we can’t afford a new government healthcare program—a fact acknowledged by the President and Congressional Democrats. This is why they claim their reforms cost nothing; that it will actually reduce the debt. In truth, the bill conservatively spends a trillion dollars and the final toll on our budget will be many times greater than the initial cost. In their urgency to enact their plan, Democratic leaders papered over the financial problems we face with new government agencies and creative accounting gimmicks. Ultimately, the mechanisms created by this new law will force federal bureaucrats to ration benefits to control spending—a practice that is already common in government programs such as Medicaid.

Unchecked federal spending and the new entitlement just created should concern every American.

Our nation’s long-term financial outlook is worse than at any point in American history. Spending by the federal government outpaced revenues by $1.4 trillion last year and the red ink continues as far forward as we can see. In the real world, this financial condition would result in bankruptcy. Washington, however, can print money and borrow from foreign governments as long as those foreign powers are willing to keep us afloat. Any bets on when the Chinese will cut up the U.S.A. credit card?

The logic behind Speaker Pelosi’s health bill math defies common sense. Indeed, anyone claiming to make things cheaper by having the government provide it would do well to delegate financial decisions to someone else. A quick glance at the Treasury Secretary’s annual financial statement is all the proof we need. The United States is in a financial freefall and a new government healthcare entitlement will only make things worse. Existing entitlement programs like Medicare have unfunded liabilities amounting to $43 trillion—a figure that grows by nearly $2 trillion per year.

If all of these facts were not enough, the Democrats enacted their new law as a result of bribery. The American people have heard about many of the deals made prior to the vote. The Cornhusker Kickback, Florida Gatorade, and Louisiana Purchase are but a few examples. It is a national disgrace that our Congress has become an institution dependent on extortion to enact major legislation. And while the process is not easily discussed or understood, we cannot ignore the historic level of oppression implemented by Speaker Pelosi’s Rules Committee in her effort to gain passage of the bill. As much as the content of the bill itself, the manner in which it passed Congress provides clear evidence that the bill was about government power not the health of America.

The Debt Sea, that ocean of red ink that threatens to overflow its banks and inundate every nook and cranny in America from Main Street to Wall street, is bordered on the south by the Potomac River, to the east-southeast by the Anacostia River, to the north-northeast by Prince Georges County, Maryland, to the north-northwest by Montgomery County, Maryland and to the immediate west by Georgetown and the historic 175-year-old Chesapeake-and-Ohio Canal.

The Debt-Sea Scrolls tell a story of evolving fiscal folly that could represent one of the greatest man-made disasters ever — the destruction of mankind’s most successful experiment in governance and the crippling of an economic system that produced the greatest sustained prosperity the world has ever known.  The first of the Debt-Sea Scrolls was written around 80-years ago when the government believed it could spend its way out of the Great Depression with money it didn’t have…with money it didn’t even almost have.  The programs (known as the “New Deal”) described in the first of the Debt-Sea Scrolls didn’t succeed in revitalizing American industry.  It was The Second World War and the massive Lend-Lease program with which we became the “Arsenal for Democracy” that finally succeeded in revitalizing American Industry. By the time the war was over, so was the Great Depression. Unemployment had plummeted to below 2.0% by the time the war ended in 1945 from 14.6% in 1940, which was essentially the rate of unemployment during the early years of the depression and seven years of New Deal Keynesian prime-the-pump policies.  Following the war, American industry converted from wartime to peacetime production and the rate of unemployment remained below 6.0% for over a decade and for most of the half century that followed.

We learn from the Debt-Sea Scrolls that unsustainable national debt, fueled by easy credit that required borrowers to have very little skin in the game (sound familiar?) was, more than any other factor, generally credited with igniting the economic conflagration we now know as the Great Depression.  Ironically we are now, seventy years later, adding unsustainable debt (to already unsustainable debt) at a level many economists believe will seriously impede our recovery and may end any hope of returning to robust prosperity.  We are, systematically, mortgaging the future of our children, their children and their children’s children as well.

Let us pause to consider the debt-spawning spending spree on which the government has embarked and proposes further to accelerate.

We recognize, of course, that ours is an enormous economy, $14.25 trillion of GDP to be exact. In fact, we would wager that there are few people who can fully comprehend the marvel of such national commerce and industrial output. Similarly, we doubt that very many people (if any at all) can fully comprehend the magnitude and complexity of the attendant potential burden, risk and consequence of a national debt of approximately the same size.  In fact, as we have previously reported, President Obama recently signed legislation that elevates our debt ceiling to $14.3 trillion.  The debt ceiling is there (or, we should say, was there) for a reason.  It is there (was there) to place a limit on the Congresses ability to spend money that the Treasury doesn’t have.  Congress, however, has a long history of simply raising the statutory limit on debt whenever its spending makes that limit obsolete. For example, it seems clear that, barring an economic miracle, we’ll have to borrow an additional $1.3 trillion next year (on top of the $1.6 trillion we have to borrow in the current fiscal year) which would necessitate yet another increase in our so-called debt limit to at least $15.6 trillion.  At that point, our debt will exceed the value of our entire projected economic output or GDP.

And it gets worse when we consider the full enormity of our debt burden, which also includes our unfunded liabilities, (including future Social Security, and Medicare benefits) estimated to be over $106 trillion as well as the debt of the many states and municipalities throughout the land (estimated to be slightly over $2.0 trillion). It also doesn’t include the guarantees we have made to Fannie Mae and Freddie Mac or any other federal guarantees of debt from all sources, all of which are off-balance sheet and therefore not included on the federal balance sheet. Not a pretty picture.

The Debt-Sea Scrolls remind us that the economy is in trouble now, as it was in 1929, because America has been spending much, much more than it can afford.  When the banking system’s liquidity became stretched way beyond what the collective equity or collateral of the borrowing public could even remotely justify, the system broke down.  Thus came the infamous bailouts and the non-stop spending that has gone unabated ever since. We had to raise the debt limit last month or the United States of America would not have been able to pay its bills. You can mark our words; Congress will not hesitate to raise our debt limit again whenever that limit interferes with its determination to spend money we don’t have.  We believe the new stratospheric debt limit will be raised to even higher limits by this time next year.

We have committed over a trillion dollars to so-called stimulus programs between the first stimulus package and the new “jobs bill” (a rose by any other name), seventy percent of which will simply pump up public sector payrolls in the name of economic stimulus.  Of course, with unemployment stubbornly hovering around 10% it seems pretty clear that we aren’t stimulating much of anything, and certainly next to nothing in the private sector.  As we reported last week, one prominent Harvard economist has determined that over the next five years we will trade about $900 billion in private investment for around $600 billion in public investment.  One can also be sure that the amount of money used to pad public payrolls will never diminish. Government-sector jobs are stubbornly resistant to productivity cuts.

President George W. Bush was not a good steward of the national fisc, but he was an absolute piker compared to the unbridled spending of President Obama and the Democratic controlled congress.  Given that we know the role our national debt played in precipitating the Great Depression, a reasonable man or woman might assume that our elected officials would be ever vigilant in seeking out ways to bring the government’s profligate spending under control. Instead, it seems our elected officials are ever vigilant in identifying new opportunities to spend money we don’t have.  And if our generation doesn’t have the means to bear this enormous debt, who does?  It’s a rhetorical question.  We know the answer. Our plan, if you can dignify what Congress and the president are doing by calling it that is to kick the proverbial can down the road and ask our descendants to solve the problem out of the weakened economy we hand over to them, not least of which is the problem of servicing the debt we are piling up.  We hear that all the time…that we are leaving an enormous tab for our children, but what exactly does that mean?  Well, for one thing, it means that the next several generations are almost certain to experience a much lower standard of living than we have enjoyed.  They may well be the first generation in the history of the country that will not do as well as did their parents.

Why would we risk doing that to them? Why would we insist on a new massive expansion of the federal role in health care when virtually every poll (and every state-wide election) screams that the people do not want the government to do that? Why would we even flirt with a highly speculative tax on carbon emissions in the name of climate control that would transfer tens of trillions of dollars out of the American economy at a time like this?  Why in the world would our government propose borrowing an additional $1.3 trillion in order to spend a record $3.8 trillion during the coming fiscal year? And as we have previously warned, the increasing debt service costs and the rates our lenders will demand from a country whose currency is likely to be under severe pressure… and the percentage of our annual budget devoted to servicing that debt … risks our ability to maintain our influence as the leading (maybe even a leading) world power.

Since President Obama was sworn into office, he and the Democratic Congress have increased discretionary spending by $1.4 trillion.  This is money that is simply sucked out of the private economy and redistributed through the government.  This is not an efficient way to stimulate the economy. It grows the deficit and, hence, the nation’s debt.

The government says it will fund this inefficiency over the next decade, in part, by wringing over a trillion dollars from the nation’s taxpayers through increased taxes. Of course, the government also projects fairly robust economic growth during this same period of time. If those growth projections prove to be overly optimistic the government will have only three alternatives to stay afloat: slash spending; wring even more out of the nation’s taxpayers or borrow even more.  So far, we see no evidence by this Administration or this Congress of any real interest in slashing spending. That leaves higher taxes and increased borrowing to prop up the government’s cost of doing business. And, as most economists will attest, as our debt continues to increase beyond the size of our economy, economic growth will diminish, thus, accelerating a vicious and dangerous cycle.

Given that nearly half of the nation’s tax filers pay NO income taxes, the White House seems to be following a game plan that is certain to prove very divisive in the months and years ahead. Indeed, the early signs of a tax revolt are already quite apparent, and the President’s assurances that only the wealthy (assuming there are any left) will see any increase in taxes rings with a very dull thud.

The Debt-Sea Scrolls will be here long after the current Administration and the current Congress are gone.  They will comprise the indelible record of the road America traveled during a critical time in its history.  Perhaps the audacity of hope will be enough to steer the nation back to prosperity.  The audacity of wishful thinking is, however, almost certain to steer us to ruin.

On the path to 9/11, many of us National Security wonks were intensely studying and tracking China and its activities before the al-Qaeda attacks of 9/11. Just as so many had our eyes too focused on a single ball then, it is a necessary exercise of experience and wisdom to ensure the same mistake is not made again, simply in the reverse.

We cannot afford to be – neither as a National Security community nor as a society – so critically focused on our terrorist enemies as to lose sight of an equally determined if even more patient strategic competitor. Though the Chinese are much less overt than our terrorist enemies, their grand strategies and ambitions are hardly invisible. One need simply look for them and recognize them when seen.

In a Reuters article, “China PLA officer urges challenging U.S. dominance,” there is a wake-up call for those perhaps needing it.

From the Reuters article:

The call for China to abandon modesty about its global goals and “sprint to become world number one” comes from a People’s Liberation Army (PLA) Senior Colonel, Liu Mingfu, who warns that his nation’s ascent will alarm Washington, risking war despite Beijing’s hopes for a “peaceful rise.”

“China’s big goal in the 21st century is to become world number one, the top power,” Liu writes in his newly published Chinese-language book, “The China Dream.”

“If China in the 21st century cannot become world number one, cannot become the top power, then inevitably it will become a straggler that is cast aside,” writes Liu, a professor at the elite National Defense University, which trains rising officers.

His 303-page book stands out for its boldness even in a recent chorus of strident Chinese voices demanding a hard shove back against Washington over trade, Tibet, human rights, and arms sales to Taiwan, the self-ruled island Beijing claims as its own.

“As long as China seeks to rise to become world number one … then even if China is even more capitalist than the U.S., the U.S. will still be determined to contain it,” writes Liu.

This new book, written by a Peoples Liberation Army senior colonel, is the next logical progression (and strategic expression) from an earlier book from PLA colonels, Unrestricted Warfare, from the early 1990’s. It was written by two officers in China’s People’s Liberation Army and was the Chinese strategic reaction to the effortless and highly technical American obliteration of the world’s fourth largest standing army, Saddam’s Iraqi army in the Gulf War. The world – even including most Americans – was stunned at the alacrity with which America swatted a massive but technologically inferior foe. In many respects, the Iraqi army resembled China’s own PLA: Massive yet inferior. American dominance was undeniable.

For the terrorist enemies we are focused on today, their reaction then was similar to China’s.  Terrorist groups and their state sponsors reacted to the humiliation of the world’s largest Arab and Muslim army by convening emergency meetings in Sudan, hosted by Sudanese President Hassan al-Turabi. Good friend Tom Joscelyn aptly called al-Turabi “The Pope of Terrorism,” as the Sudanese leader urged attendees following Saddam’s American drubbing to lay down their Islamic ideological differences and unite to fight the greater common enemy: America.

In attendance to these regular strategy sessions were both Sunni and Shi’a terrorist groups – and their state sponsors. Hizballah, Hamas, Osama bin Laden (who resided in Sudan at the time) and what would eventually become al-Qaeda, Iran, Iraq, Syria and others. They recognized that they must adjust in order to defeat a dominant America. And defeating America was the primary shared mission. Disparate groups with their own internal rivalries and differences determined to cooperate and focus on America. With 9/11 less than a decade away, the cooperation among terrorist rivals commenced.

Likewise, China’s Unrestricted Warfare explained to Chinese military and civilian leadership after the shock of the Gulf War that in order to compete and defeat the unrivaled American military machine, it must defeat America on all fronts – including economic, legal, social and international relations. It must do all things necessary to blunt the American edge, including corporate espionage and stealing American technology (especially nuclear) through exploiting military and technological exchange & cooperation programs.

The PLA officer’s book laid the path to Chinese parity with and eventual dominance over America: Warfare on all fronts with a level of patience and foresight foreign to most Americans.

This latest book, The China Dream, is the next logical strategic progression. It appears to put attainable goals and means directly ahead for China – affirming the long term strategic vision while targeting immediate gains and victories that can and must be attained from and against America in the shorter term. Meaning now.

America would do well to pay attention to this strategic expression of “the Dragon,” which supports our enemies (ie, Iran and many others) while holding massive, critical amounts of influence-wielding American debt in the form of bonds. It’s expansion of international influence into areas largely ceded by America in comparison (Africa, South America and anywhere energy can be found) must be challenged. We also must not be diverted away from a dominant conventional force while counterinsurgency dominates the immediate needs and landscape of American military needs and structure.

To recover losses ceded to an ever-patient China, as it grows with a goal of rivaling and then defeating America, requires a robust economy. Investments must be made on all fronts. Whether convenient to recognize or not, war has been both declared and prosecuted on all fronts – except for the front America currently dominates: militarily. A floundering and shrinking economy cripples the ability for an already pre-occupied America to react effectively. And the Chinese can be counted on to make economic moves in the future to ensure America’s economic distress is at a level that best serves China’s long-term strategic vision. It holds enough of our debt to do that in many ways.

It is time to pay closer attention to China’s actions – and do so through the Chinese lens of Unrestricted Warfare, not a lens most comfortable for American eyes. It serves no American security purpose to view China and her actions in a light other than the light she herself uses to guide her own path.  Colonel Liu’s The Chinese Dream is itself the logical progression of the Unrestricted Warfare view.

Many were asleep to al-Qaeda while focusing almost singularly on the very real rising threat of China on 9/11. That was a mistake then, and the inverse is a mistake now. While we prosecute our war against international terrorism on all possible fronts, we must not become so singularly focused as to miss the warning signs now coming from China as we likewise did with al-Qaeda and others on the path to 9/11.

Controlling obesity is all the rage now in America as, indeed, it should be. Feeding the American appetite with too many of the wrong kinds of calories is exacting a terrible toll on the health of Americans of all ages. Obesity, like cigarettes, kills. In recent years, Congress, along with a compliant President Bush and now with an enthusiastic President Obama, has been appeasing another kind of appetite with reckless abandon. The toll this fiscal obesity will exact from America and our people is incalculable and Jenny Craig will be of no help.

Clearly, most Americans do not want to be force fed programs they haven’t asked for and that they know neither they, their children nor their grandchildren can possibly afford. People throughout the country are beginning to dig in their heels and a growing number of congressmen and senators know it. Seventy years ago, Japanese Admiral Isoroku Yamamoto is quoted, following his successful and deadly attack on Pearl Harbor, “I fear all we have done is to awaken a sleeping giant and fill him with a terrible resolve.” It appears that the American electorate, long apathetic and used to acquiescing by default to reckless government spending may be awakening from its long slumber. Let’s hope so, for it is the last best hope we have to rein in the destructive behavior of so many of our elected representatives of both parties in Washington and the White House strategists who lead them on.

As we noted in this column two weeks ago, Moody’s has fired the first warning shot over the bow of our ship of state. The international credit-rating agency warned that America’s AAA credit rating would be in jeopardy (given our spiraling debt) if economic growth does not keep pace with the projections made by the Obama Administration. China and Japan, our largest sovereign creditors, fired two more warning shots at last week’s treasury auction when they decreased their purchases of U.S. debt. But is anyone in Washington listening?

Let us stipulate that our concern is not that America is in danger of defaulting on its ever-mounting debt as Greece and, perhaps, Spain, Italy, Ireland and Portugal might very well be. We will always pay our bills: even if we have to print the money with which to meet our obligations when they come due. Should our creditors here in America and those abroad, however, begin to worry that they will be paid back with dollars that are worth a lot less than the dollars they loaned us, they will demand a higher rate of interest to offset that risk. If our creditors, to whom we are more beholden than ever before, were to decide they want a substantially higher rate of return on their money than we currently pay (approximately 3.6% for 10 year maturities and 4.6% for 30 year maturities) every segment of our society could be drastically affected.

Of equal if not greater concern, however, is that the dollar’s continued position as the world’s reserve currency is no longer certain. As our deficit widens and our debt grows nations on whom we depend are beginning to explore alternatives to the dollar as the world’s reserve currency. This should be causing many sleepless nights for those in Washington who are responsible for the health of our economy. The loss of the dollar as the world’s reserve currency would not merely be a loss of prestige. Such an occurrence would cause the dollar’s purchasing power to plunge and affect the standard of living of nearly everyone. A reserve currency is the currency nearly all nations hold in order to transact all international business (such as for commodities) that are priced in the reserve currency of the day. Think oil, gold, copper, etc. In many instances it is the currency nations use to settle their debts as well, and it is also the currency nation’s hold for the proverbial rainy day. A transfer of the world’s reserve currency status from the dollar to, say, the Chinese renminbi would cause a run on the dollar as sovereigns began trading their collective trillions in dollars for renminbis. Loss of reserve currency status could represent a crisis of unimaginable proportions causing a sudden and precipitous drop in the value of the dollar. Far fetched? No, not at all. In fact, there is a serious move among a number of nations, including China, which during this century will become the world’s largest economy, to begin preparing for such a development. Nations on whom we depend for trade, loans and investment are eyeing developments in Washington with alarm. Again, we ask, is anyone in Washington listening?

While few people can really predict when and if such an adverse event might occur, there is no question that the odds go up as our national indebtedness goes up. And it is going up exponentially.

Our total debt is now as large as our entire economy, if we include what we owe here in America (to domestic holders of treasury obligations) and what we owe to China, Japan, the Saudis and an assortment of oil-supported sheikdoms and other smaller foreign creditors as well as what we owe to our own Social Security and Medicare trust funds and our collective state and municipal obligations. Greece, the basket case of Europe, has total debt of 108% of its economy. Our total debt stands at just a fraction under 100% (98.2% to be exact) of our entire economy ($14 trillion of total debt vs. $14.25 trillion of total economic output. While we suppose we can always cancel some (or all) of that portion of our debt that is the result of what our government has borrowed from the so-called Social Security and Medicare trust funds, this is not a pretty picture.

Carmen Reinhart and Kenneth Rogoff, economists at the University of Maryland and Harvard, respectively, in their recent book with the tongue-in-cheek title, “This Time is Different: A Panoramic view of Eight Centuries of Financial Crises,” sound an ominous alarm. They note that every time an economy begins precipitously to run up debt, various, so-called, experts are always there to provide comforting advice that “things are different” and we needn’t be concerned about the debt “this time.” The authors then go on to demonstrate, convincingly we think, that this invariably has been, and continues to be, just plain wrong. They found that, even in a developed economy, once public debt reaches 90 percent of economic output, it begins seriously to stifle economic growth. While we make no pretense of being qualified to attest to the findings of these accomplished economists, we get little comfort from the reassurances of the Obama Administration’s economists that, “this time it’s different.” We fear that it is not. We are spending with abandon and exaggerating (outrageously, we think) what this spending is accomplishing. “Hail Mary” passes rarely work in football and certainly never work as economic policy.

We have now spent (or committed to spend) nearly a trillion dollars to “stimulate” the economy (exclusive of the TARP bailouts and new stimulus proposals) and all we really have to show for it is the fastest increase in our deficit in history. Claims of jobs saved are fatuous. How do we even begin to assess the cost of a trillion dollars being vacuumed out of the capital markets by the government instead of being available for private investment and job creation in the private sector?

Harvard economics professor Robert Barro, writing in the Wall Street Journal last week took serious issue with Christina Romer’s (Chair of President Obama’s Council of Economic Advisors) estimates of the multiplier effect of government stimulus dollars. Professor Barro’s analysis indicates that, over five years, the President’s stimulus package trades $600 billion of public spending for $900 billion of private expenditure. It is, he notes, a bad deal.

Given that 77% of the stimulus money was still sitting in Washington at the end of last year, the notion that the stimulus program was putting people to work (net of jobs that otherwise would emerge in the private sector) in any significant way was patently absurd. As Democratic Senator Evan Bayh, one of the more respected and analytical members of the Senate, said when announcing his decision not to seek re-election, “if I could create one new job by working in the private sector, that would be one more job than Congress has created in the past six months.” Notice how no one mentions, “shovel-ready jobs” anymore. It was an empty sales line a year ago, and it’s an empty sales line now. But this time everyone knows it. We know that roughly 50% of the stimulus money will be directed to existing government agencies such as Health and Human Services and the Department of Education. Again, a tremendous increase in spending to existing government agencies disguised as economic stimulus. Worse yet this added spending will become the baseline for future budgeting.

It would be wrong and unfair to lay this gathering storm at the feet of President Obama. The storm clouds began gathering long before President Obama became president, indeed, long before President Obama was even old enough to vote. But President Obama came to office promising change and has governed, instead, by greatly compounding the errors of his immediate predecessor and most other democratic and republican administrations of recent decades.

It would take a courageous and masterful leader and a magical moment to say to the American people, “the government has made entitlement promises to you that we can’t keep…that we can’t afford, and that we can’t place on the shoulders of our children. We’re going to have to establish a “means test” for Social Security and Medicare and even the age at which our people will be eligible to begin receiving benefits. We’re also going to have to eliminate hundreds, maybe thousands, of programs that are wasteful or redundant or that we can do without. Henceforth, there can be no programs that are ‘untouchable.’”

It seems we will have to wait for such a leader and such a magical moment. We can only hope he or she arrives in time.

We will never control our government until we control the federal tax system.

It is corrupted and unfair and feeds unchecked government growth. It has made the federal government far more powerful than what was supposed to be its equal—our state governments. The income tax hides the cost of the government from plain sight and provides endless amounts of our money for the advancement of politician’s personal ambitions. It is very good for those in Washington and very destructive for the rest of us.

We’re being treated as if our only value as citizens is how much more money we can be made to give up from our paychecks. When it comes to more and more spending and more and more taxes, it is a one-way conversation. I’m ready to talk back and I don’t think I’m alone. That’s why I’m calling on every patriot to join me in a tax revolt march on Washington , D.C.

I’m leading a Tea Party Patriot team in a growing on-line tax revolt which arrives in Washington , D.C. on April 15^th to merge with the huge physical rallies that are already planned for that day. It’s a new technology that allows people to choose a graphic “avatar” to digitally march on-line to Washington with hundreds of thousands of other Americans. Even the homebound, recovering veterans and the elderly can add their voice to this new American chorus.

I’m seeing a lot of people remembering that politicians are supposed to follow the will of the people—not trample it. Like Boston Harbor , this is where we again make our stand.

First you choose an avatar at: www.onlinetaxrevolt.com. Then you choose a team. Michael Reagan has a team, Neal Boortz has a team, Ken Hoagland of FairTax.org has a team and I have a team, among a growing number of others. Every day after you join the march, you can check your progress toward Washington , D.C. on a Google Earth map of the United States . You can see other marchers from your hometown, read blogs from the leaders and count the growing number of citizens willing to make a stand.

The on-line tax revolt is open to all whether they favor the Flat Tax, the FairTax or the kind of simplification that President Reagan promoted and achieved. What this march is really about is shifting public policy back to favor the public instead of the political elite. Right now, the on-line revolt has 100,000 marchers and is growing by 1,000 people per hour. It’s wake up call to those in the halls of power.

This nation began in a tax protest against the rule of royalty, indifference to what were once loyal citizens of the crown and the arrogance of power. A brand new form of government began here that held that government power could only be granted with the consent of the governed. Well guess what? The aristocrats are back, the arrogance of power is back and even taxation without representation is back as our government pledges the earnings of future, unborn, generations of American citizens to secure mind-numbing levels of national debt today. It will ruin the country if we don’t stop it.

This is not the government we learned about in our civics class and not the liberty for which our forefathers shed blood. It’s time for the next great American tax revolt and I hope you join me.

Glenn Reynolds in Saturday’s WSJ:

There were promises of transparency and of a new kind of collaborative politics where establishment figures listened to ordinary Americans. We were going to see net spending cuts, tax cuts for nearly all Americans, an end to earmarks, legislation posted online for the public to review before it is signed into law, and a line-by-line review of the federal budget to remove wasteful programs.

These weren’t the tea-party platforms I heard discussed in Nashville last weekend. They were the campaign promises of Barack Obama in 2008.

Mr. Obama made those promises because the ideas they represented were popular with average Americans. So popular, it turns out, that average Americans are organizing themselves in pursuit of the kind of good government Mr. Obama promised, but has not delivered. And that, in a nutshell, was the feel of the National Tea Party Convention. The political elites have failed, and citizens are stepping in to pick up the slack.

This response has brought millions of Americans to the streets over the past year, and brought quite a few people to the posh Opryland Resort (with its indoor waterfalls and boat rides, it’s like a casino without the gambling) for the convention.

Pundits claim the tea partiers are angry—and they are—but the most striking thing about the atmosphere in Nashville was how cheerful everyone seemed to be. I spoke with dozens of people, and the responses were surprisingly similar. Hardly any had ever been involved in politics before. Having gotten started, they were finding it to be not just worthwhile, but actually fun. Laughter rang out frequently, and when ne w-media mogul Andrew Breitbart held forth on a TV interview, a crowd gathered and broke into spontaneous applause.

A year ago, many told me, they were depressed about the future of America. Watching television pundits talk about President Obama’s transformative plans for big government, they felt alone, isolated and helpless. That changed when protests, organized by bloggers, met Mr. Obama a year ago in Denver, Colo., Mesa, Ariz., and Seattle, Wash. Then came CNBC talker Rick Santelli’s famous on-air rant on Feb. 19, 2009, which gave the tea-party movement its name.

Read the whole article here.

The White House has just announced its proposed budget for fiscal year 2011, with a projected deficit of a staggering $1.27 trillion.  Last year’s budget estimated a $1.17 trillion deficit, but the actual number now appears to be $1.60 trillion. Applying that same likely growth from projection to actual deficit, we are looking at a federal budget deficit closer to $1.74 trillion this year.

The size of the deficit is unconscionable and unsustainable. As a nation, we now owe more than $12 trillion, a number almost as large as the entire GDP of the United States.  Even worse, we are adding to this deficit at a rate of more than 10 percent of the GDP—an alarming rate that most economists consider dangerous for any economy.

To finance our deficit, we print money and spend it—or we borrow money and spend it.  When we print the money, we set the stage for massive inflation, which will occur as soon as the economy revives. When we borrow the money, we place a lever in the hands of citizens and governments of China and other nations, now our largest creditors (surpassing the 50 percent mark two years ago). It is morally wrong to spend money now and expect our children to pay the price—and it is hazardous to give to foreign sovereigns the tools to destroy our economy if they decide to “call in” their loans.

It is our responsibility and duty to stop this. We must not condemn the next generation to economic ruin because we lack the courage to do what must be done now. As President Reagan famously said, “If not us, who?  If not now, when?”  If we didn’t borrow another dollar, it will still take more than 300 years just to pay back what our country already owes.

We can stop the debt from growing by lowering the federal budget deficit to zero. We’ve done it before and there’s no reason that we cannot do it again. The last time we had a balanced federal budget was in 2000. The mechanism that helped achieve this was the Gramm-Rudman-Hollings Act, a law that has now been allowed to expire. Gramm-Rudman-Hollings required across-the-board cuts if the President and Congress did not reach agreement on set deficit reduction goals. In effect, it supplied the backbone needed to control spending when backbone was lacking. We need to restore Gramm-Rudman-Hollings at once.

We also need leaders in the House, Senate, and White House who agree that the time is now, and the responsibility is ours. I propose that we not only restore Gramm-Rudman-Hollings, but that we dramatically cut the federal budget deficit proposed by the President by more than half.  We not only can achieve this, we must.

Here’s how we can achieve this:

First, cap non-defense discretionary spending to fiscal year 2009 levels for a savings of $101 billion. The White House Budget caps this item at fiscal year 2010 levels of $690 billion, but this category already grew from $589 billion in fiscal year 2009—a 30 percent increase.  They let it rise by 30 percent before deciding to cap it. We should cap it at once.

To achieve this overall cap, many specific budget items in this category could be eliminated entirely including the $3 billion annual expenditure in subsidies for corn ethanol. And we should sell the portfolio of Freddie Mac and Fannie Mae, and end any future government subsidies for them.

There is no evidence that the stimulus bill has produced the 2 million new jobs the President claims, over what the private sector would have produced if the same funds had been allowed to stay with the private sector.  Yet the White House proposes increasing the amount spent from $202 billion in [delete FY] fiscal year 2009 to $353 billion in fiscal year 2010 and $232 billion in fiscal year 2011.  I propose cutting this increase in spending over fiscal year 2009 in half for a savings of $292 billion.

This savings could be used to forgive the FICA tax for businesses that hire employees who have been out of work for at least two moths.  Add this amount to the $33 billion the President has already proposed for tax relief to small business hiring, and we will have increased targeted assistance for new jobs ten-fold

Use the TARP money the banks are returning to pay down the debt for a savings of $200 billion.  The money was approved for a specific purpose: to buy the bad mortgages from banks. Since the banks are now returning the money, it should be used to reduce our federal borrowing. It’s not “free money,” available for other uses, as the White House has proposed.

Medicaid and SCHIP are 7 percent of the federal budget and spending in this category rose nearly 30 percent from fiscal year 2009 to fiscal year 2010. We need to approach Medicaid and SCHIP the way we did welfare in 1996: don’t trim at the edges but announce that there will be a cap and stick with it.  Doing so would save $45 billion.

Taken together, these proposals would save an estimated $750 billion in fiscal year 2010 alone, well more than half of the entire projected deficit.  The time to act is now. The clock is running — for our children, our national security and America’s greatness.

If there’s anything that should convince China to become more capitalist, and put less faith in socialism, it is American progressives.

Yesterday Matthew Yglesias’ head shook violently and he barked out like Paul Krugman with Tourette’s :

…you could start musing allowed about how many we just won’t pay the Chinese the money we owe them. Or you could reflect on the fact that if the People Bank of China is determined to buy bonds and prevent the dollar from falling at all costs, then we may as well totally forget about the short-term deficit and just not collect any taxes at all for the rest of FY 2010.

Ladies and Gentlemen, I believe this marks the first time in modern history a liberal has suggested we stop collecting taxes.

Welcome to the naked liberal mind.  Technically, it shouldn’t shock us, Matt is just riffing off the subtext of Paul Krugman’s prescription for what ails us – massive inflation.  Liberal economics springs forth from this assumption: We just keep printing money to payoff Dem voters until our debts aren’t so big any more.

This is not economics, this is an agenda.

In December, progressive economists were arguing for a  “target” of 3% inflation.   If  they’ll say 3% now, they’ll say 5%, and then 7% soon after.  Because when the mask is ripped off, it is really Chavez under there.  To wit, it is February and Obama’s serious economists are screaming that Chinese peasants have too much money saved.  Those ungrateful job stealing bastards simply refuse to let us devalue their savings – they keep buying our bonds with their ill-gotten gains.

This is legendary social planning economist Steven Cohen story boarding the last decades of the International economy:

As other nations began to develop, moving from agriculture to industry, they needed someone to buy their end products. Peasants in developing countries have little purchasing power, so the United States stepped in and bought “stuff” from all over the world, said Cohen. “We got the government out of the economy” and bought half of China’s GDP. “We imported so much more than we exported that now we cannot pay it off.”

In this cretin’s world view, little yellow foreigners can’t afford the Nikes and iPods they’ve been stupidly making, so to pull them out of the dirt we bought a bunch of stuff we didn’t need or want.  And now that they’ve amassed a small fortune of $2 Trillion of our bonds, we shouldn’t feel bad about making it worthless.  He goes on:

Ninety-eight percent of economists think a weaker dollar will help the economy, but it is a difficult sentiment to express without being seen as treasonous

The idea is perfectly true if the only economists you know are treasonous and none of them live in China.  Here are the editors of The People’s Daily Online:

By January 2010, RMB had appreciated by 21.2 percent against the U.S. dollar and 4.6 percent against the euro, compared to July 21, 2005 when the RMB exchange rate formation mechanism reform was adopted.

(I urge you to read the whole article to get the Chinese perspective on the current state of affairs.)

At least one lefty economist is wiling to admit that we at least wanted to buy those Chinese goods.  Here’s Brad DeLong explaining why:

Seventy percent of our current debt happened since 2000. Rising income inequality created a negative cultural pattern where people “overleveraged” themselves to financially compete with one another,

To DeLong the culprit isn’t easy credit brought about by a crappy government monetary policy;the problem is all of us stupidly wanting new Nikes and iPods in the first place.    This is a re-occurring theme with liberal economists: people all make stupid decisions, and we need these market intrusions to aid them.

But what of Krugman? In my darkest heart, I suspect, The Conscience of the Liberal really doesn’t care about high unemployment numbers any more than he cares about inflation…  I think he just cares about his Nobel Prize.

I think in 2009, Krugman had his little poodle jaws locked on covering 30M uninsured, and there was literally NO economic news that would make him say, “well we can’t afford health care.”  Canada could have presented itself in moral surrender and ask to become a state.   And Krugman would have insist we adopt their health insurance system to make them feel welcome.

But now, as the people have wised up in 2010, his policy prescription has changed… he still wants to print money, and he says he wants to do it subsidizing jobs.

And in my next post, I’m going to argue Republicans should take him up on the second part of that offer.

Congress is out of control.  The public overwhelming opposes a government takedover of our health care. But Congressional leaders are telling us they don’t care – that they know best, and they’re going to pass it anyway.

We are getting the same attitude on other issues, from global warming regulation, to taxes, government spending, deficits, federal debt, energy policy, welfare, corporate bailouts, and beyond.  Too many of our elected Members of Congress are making behind-closed-door deals and ignoring their constituents, calling them “yahoos,” “Nazis”,“and “tea-baggers.”

This isn’t American democracy — this is a shop-worn, elitist, authoritarianism closer to abuses we see in countries like Venezuela.

So, what would happen if the people could change this rotten situation?

Actually, there may just well be a mechanism within our political system to do so — the Right of Recall.  Nine states already have laws on the books providing for Recall of members of Congress: Colorado, Louisiana, Michigan, Montana, New Jersey, North Dakota, Oregon, Washington, and Wisconsin.  These 9 states suffer 12 incumbent Senators who are members of the runaway Congressional majority, who are not already standing for reelection in 2010, but potentially could be.

For example, the New Jersey state constitution provides, “The people reserve unto themselves the power to recall, after at least one year of service, any elected official in this State or representing this State in the United States Congress.”

Tea party activists in New Jersey have already filed to circulate recall petitions regarding Sen. Robert Menendez.  Their recent Secretary of State took the position that such recall of members of Congress is not authorized under the U.S. Constitution.

Grassroots activists in Louisiana have similarly already filed for recall of Senator Mary Landrieu, and the circulation of recall petitions there has been authorized.

Exercising this existing statutory right of recall in these 9 states could potentially reverse the control in the Senate this year by placing 12 Senators not currently up for re-eectionion this year on their state ballots.  (For more information on this Right of Recall, see www.RecallCongressNow.org).

We have seen the recall process work in California in 2003 when citizens in that state, disgusted with recently reelected Democrat Governor, Gray Davis, voted overwhelmingly to remove him from office in a recall election.

Another nine states provide language in their constitutions to recall only state officials. The other states without recall provisions for members of Congress can change their laws to adopt it.  In states with the right to initiative, this can be done by a vote of the people after circulating petitions to put the change on the ballot.

Too many in Congress today are showing us that our representatives can no longer be trusted with 2-6 years in office without ongoing popular accountability.  Today’s Congressional majority is threatening to dump a load of bad legislation on the country despite the public’s opposition, daring us to try to “clean it up” later.  Only a Right of Recall can prevent such abuses in the future.

The Right of Recall would also help counter the growing problem of voter fraud.  If voters felt that an election were subject to too many irregularities in its conduct or in how the votes were counted, they could circulate Recall petitions for a new election.

Every state should adopt the Right of Recall to protect its voters.  The constitutionality of recalling members of Congress adopted under state law would ultimately have to be decided in the courts.  Or the people could definitively decide the issue themselves through voting to adopt a constitutional amendment, or by electing a Congress that would adopt a federal statute authorizing each state to adopt such a Right of Recall.

The struggles of the Democrats and the Republicans are making news.  The Democrats are learning that it is far easier to make campaign promises than it is to govern. As for Republicans, the party that loses the Presidential election often spends the off-year attempting to refine its message if not find a new message and new messengers. In the watchful eye of 24/7 cable news channels and the Internet, however, such political soul searching can appear rather untidy.  As the calendar turns, the process remains unresolved for Republicans to say the least.  Worse than mere overexposure, according to Rasmussen polling, despite Obama’s falling polls and Democrat divisions, the Republican Party would fare worse in an upcoming election than the Tea Party – a “Third Party” that, as of yet, does not exist.  It is no minor issue because with the help of Tea Party activists, Republicans certainly can beat Democrats next year – without them they may not.

It would seem evident to many that the Tea Party movement should be the natural ally of the Republican Party.  After all, the issues that inspire most Tea Party activists should not be inimical to Republican Party leaders.  However, the fact that the Tea Party movement is at odds with certain aspects of the Republican establishment belies the greater issue as to why the Tea Party movement – and its potential to be a 3^rd Party movement – arose at all.

It is worthy, as part of this discussion, to note that the rise and fall of third party movements and candidates is directly tied to whether voters perceive the existing parties as being successful.  In this context, successful means providing effective leadership on the major issues of the day.

The Republicans should well know this lesson.  After all, the Republican Party came into being because the Whig Party of the 1850’s and 1860’s was perceived as not willing to provide effective leadership on the most divisive issue of the day – if not the most divisive issue ever: slavery.   Appearing too accomodationist to many voters, a third major party came into being under the leadership of Lincoln and others: the Republican Party – a party that, in time, took a decisive stand against slavery.

More recently, Ross Perot ran twice for President and gave life to the Reform Party.  It is more than arguable that Perot handed Bill Clinton the Presidency by drawing so many votes away from President Bush in 1992.  But did he?  As a matter of history, Perot was more of a symptom of failed leadership by Republicans than cause of Clinton’s victory.  The errors of the Bush Administration gave rise to a perception that the Republican Party was the party of higher spending and higher tax rates – a policy that led to burgeoning deficits.   Bush 41 was not perceived as a leader in the wake of breaking his “no new tax pledge” and the Democrats were not exactly considered leaders on how to handle the deficit either.  It is on such political battlefields that disgruntled voters take interest in a third voice – in that case, Ross Perot and his Reform Party.

Of course, the John Anderson presidential run should be noted as well.  There was little doubt that in 1979 and in the beginning of 1980, the public’s view of both the Democrat Party and the Republican Party had dimmed considerably.  Amidst double-digit inflation and unemployment, 20+% interest rates, and little in the way of Republican Congressional leadership to contrast Jimmy Carter failings, John Anderson ran as an Independent candidate for President.  He came out of the gate with 25% in the polls – 6% higher than Perot’s highest ever finish.

Yet Anderson wound up not winning a single precinct.  Why?  Because Ronald Reagan ran a stirring campaign behind the theme that “Government is not the solution to our problems.  Government is the problem.”  And with that, Reagan and his strong leadership and policies won two terms  (three if you count Bush 41s’ first term) and there was no third party challenge until Bush Sr. ceded Reagan’s high ground of leadership as referenced above.

All of which brings us to the Tea Party movement.

The numbers of Independents voters is on the rise again.  Voters everywhere believe the Democrat Party and the Republican Party are more partisan than effective.  The Tea Party movement is an out-growth of that perception.

At its core, the Tea Party movement is a pro-liberty – limited government movement.  Its activists continue to believe in Reagan’s cogent message about government.  Beneath that over-arching theme, Tea Partiers by-in-large are motivated by four major issues. (1) excessive taxation, (2) out-of-control spending, (3) out of control Legislators who pass bills without reading them, and (4) the apparent lack of adherence/respect for our Constitution.  None of those issues should be troublesome for the Republican establishment – yet there is anything but an easy alliance between the Tea Party movement and the Republican establishment.  It is a wonder why that is so.

Excessive Taxation.  The issue of burdensome taxation has motivated Americans from the time of the Boston Tea Party to today.  Always a potent issue, many activists wonder why the Republican Establishment has lost their voice on this important issue.  Keep in mind that the issue is not just that people don’t want to pay taxes because they are stingy.  The issue is why aren’t Republican leaders making the case to the American people (1) that high tax rates defeat their own purpose (Keynes), (2) that “that our present tax system … exerts too heavy a drag on growth … siphons out of the private economy too large a share of personal and business purchasing power, [and] reduces the financial incentives for personal effort, investment, and risk-taking.” (Kennedy), or (3) that through tax relief we can grow the American economy (Reagan).   Surely taking up that mantle – with clarity – is not a request that is too much for Tea Partiers to ask of Republican leaders.

Out-of-Control Spending.  The issue of government waste and spending is of major concern to many activists around the country.  Keep in mind that in 1964, the entire federal budget was roughly $130 billion and poverty was approximately 14%.  The federal budget is nearly $4 trillion a year now.  We currently make social welfare transfers of over $1 trillion per year.  Yet the federal poverty rate remains around 14%.  Disgruntled Tea Partiers (and Ron Paul supporters) know that intuitively even if they do not always know the statistics.  Should not Republican leaders be exposing the stunning level of federal waste (including $1 in every $10 of Medicare spending) at every turn – even filibustering ever growing budgets which provide little return on investment?  Is that request too much to ask? – let alone insisting they refrain from pork barreling themselves?

Reading the Bills.  Federal legislation now exceeds 1,000 pages at a time.  It is well beyond common knowledge that most politicians do not even read the bills upon which they vote. Given that so many congressmen and women are lawyers who would never expect their clients not to read the contracts they sign, is it really an exorbitant request of those same politicians to read bills before they bind us to legislation from which, incredibly, they often exempt themselves?

The Constitution.  There can be little doubt that our Constitution is not interpreted as our Founders intended.  Jefferson and Madison opined that the Constitution did not permit the Congress to tax people to build roads. Now, without so much as an amendment, we tax people to subsidize the purchase of cars that run on those roads built with tax dollars.  In that light, many activists well understand Justice Scalia’s commentary that “The Constitution is not a living organism, it is a legal document. It says something and doesn’t say other things.”  The question is whether Republican leaders believe the same or are willing to defend the same.

The reality of today is that the Tea Party movement is more than skeptical of whether the Republican establishment is willing to take a stand on those issues or whether they are more interested in playing Let’s Make a Deal with American principles.  In other words, they do not believe that they are providing effective leadership on those important issues.  Instead, they do things such as offering a Presidential candidate who wanted to buy up all the bad mortgages that government encouraged in the first place.  A government response to a government problem – Reagan would not be pleased – and neither are Tea Partiers.  If Republicans were providing effective leadership on those important issues, I would hazard a guess that there would not be a Tea Party movement today.

In the final analysis, Republicans never do so well as to defend freedom and the expense of government – when they run against City Hall instead of defending it.  Not coincidentally, Americans never do so well as when freedom is protected from government.  Reagan understood that and that is why he ran against the Washington establishment instead of encouraging it.

Unless Republicans regain that understanding, rather than winning next year with Tea Party support amidst the troubles of the Democrats, Republicans may well be alone wearing the Whigs of long ago.

On November 11, David N. Farr, Chairman, CEO and President of Emerson Electric Co., announced at the Baird 2009 Industrial Conference in Chicago that President Obama has succeeded in chasing his multi-billion dollar industry right out of the U.S.A. Why? Onerous regulation, high taxes, and the over $1 trillion Obama debt should be reason enough for any business to consider shutting down U.S. facilities and seeking greener pastures overseas says Farr.

The federal government is “doing everything in [its] manpower [and] capability to destroy U.S. manufacturing,” says David Farr, chairman and CEO of Emerson Electric Co., in a presentation at the Baird 2009 Industrial Conference in Chicago Ill., on Nov. 11. In comments reported by Bloomberg, Farr added that companies will continue adding jobs in China and India because they are “places where people want the products and where the governments welcome you to actually do something. I am not going to hire anybody in the United States. I’m moving. They are doing everything possible to destroy jobs.”

During his slide show on the state of Emerson’s business, Farr noted that the “unprecedented job loss experienced in this recession will result in a much slower U.S. recovery” and the federal government is making matters worse. The slide reports that the job loss this time is by many magnitudes worse than previous recessions. Noted are job losses from several recessions: 1980 with 1 million jobs lost; 1982 with 2.8 million; 1990 with 1.5 million; 2001 with 2.7 million. Finally Farr notes that we’ve seen a whopping 7.3 million jobs lost thus far (and climbing) in this 2008-2009-2010 recession.

And the culprit? Obama’s government interference. Farr’s presentation noted the following:

Our Government at Work to Help the U.S. Economy Grow:

• $1.41T Deficit 10% of GDP
• $12T of Government Debt Going to $20+T in 10 yrs
• Print more money – “Quantitative Easing”
• Non-Targeted $800B Stimulus
• Wall Street & Car Bailouts
• Cap & Tax Legislation?
• Government Healthcare takeover: $1+T
• Taxes and Regulations (increasing)
• Lack of U.S. $ Support

Emerson reported that sales for the 2009 fiscal year fell to $21 billion, down from $25 billion in 2008. An operating profit of $3.2 billion was earned in 2009.

Another key to Emerson’s decision to continue its overseas development is the rapid growth of its emerging markets. 2009 sales to emerging markets rose at a quick pace reaching $6.7 billion and is projected to reach $12 billion by 2014.

Between 1999 and 2009 “73 percent of growth is from emerging markets!” Farr exclaims. “More than 60 percent of our growth is expected to come from emerging markets over the next five years so Emerson will continue to invest in these key markets.”

Obama’s government with its discouraging interference in the market and the deleterious effects that has had on the national business climate all tends to make foreign shores seem very attractive for American business. At a time when the U.S. is losing almost as many jobs as the last four recessions combined Obama is making the business climate much worse with his policies. But, this shouldn’t surprise anyone. Barack Obama is a good ol’ Illinois pol, after all. And Illinois ranks among the worst business climates in the country.

For more information on Emerson:
www.emerson.com/
Baird 2009 Industrial Conference
November 11, 2009
Chicago, Illinois
Presenter: David N. Farr, Chairman, CEO and President
View Mr. Farr’s presentation (PDF)

Last week, as the national debt topped $12 trillion for the first time in U.S. history, one influential policymaker said, “I think it is important, though, to recognize if we keep on adding to the debt … that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession.”

This analysis was delivered by President Barack Obama, on whose watch “red ink as far as the eye can see” has become the status quo.

While mostly accurate, President Obama’s comments actually miss the fact that our rapidly decaying fiscal situation has already undermined confidence in the U.S. economy.  Washington Democrats saw to that with a trillion-dollar ‘stimulus’ that was supposed to be about creating jobs, but has instead produced countless examples of wasteful government spending while more than three million more Americans have lost their jobs.

It’s no wonder, then, that the Chinese government, which controls about one out of every four foreign dollars invested in our debt, has been asking detailed questions about the long-term fiscal impact of a government takeover of health care.

The Chinese have every right to be concerned.  The head of the Concord Coalition, an independent fiscal watchdog, recently described the Senate’s 2,074-page government takeover of health care as “basically, a big entitlement expansion, plus tax increases.”

Much more is at stake here than the short-term status of our economy. The federal government is currently operating on a budget that doubles the national debt in the next five years and triples it in the next 10.

By the time the next decade is out, interest payments to sustain the national debt will exceed $700 billion. That is more than what our nation will spend this year on education, energy, homeland security and the wars in Iraq and Afghanistan – combined.

Out-of-control spending has been a problem for years in Washington, but instead of hitting the brakes on spending as they promised they would, President Obama and Washington Democrats have stepped on the accelerator.  Now, instead of working with Republicans to impose real fiscal discipline, Washington Democrats believe the answer is more of the same unsustainable spending and borrowing. Our kids and grandkids should not have to foot the bill because out-of-touch Washington Democrats will not make the same tough choices required of every family struggling to make ends meet.

Our government is out of money and Washington Democrats are out of ideas. At every turn this year, Republicans have offered better, fiscally-responsible solutions to tackle the immediate challenges facing the American people, including an economic recovery plan that would have created twice the jobs at half the cost, a budget that would impose strict caps to limit federal spending on an annual basis, and the only health care bill that would cut the deficit and consistently reduce federal spending on health care over the next two decades.

Families are asking ‘where are the jobs?’ but all they are getting from out-of-touch Washington Democrats is more spending and more debt piled on our kids and grandkids. The American people deserve a government that lives within its means and fully commits itself to creating good-paying jobs, and only Republicans have proposed solutions to give them exactly what they want.  Now more than ever, America needs more jobs, not more debt.