Social Issues - A Fiscal Conservative's View

There are lots of social issues in the news irritate me because they are frustrating reminders of poor choices by our elected representatives; and, ultimately, of us for electing them.

I have thus far avoided social issues because the focus of this blog has been on institutional fiscal topics. However, some of these issues have the potential to or already have become big fiscal problems so I thought it relevant to discuss them as a preemptive move.


Poverty
Poverty is the direct result of the combination of liberty and free will. It is encouraged by our liberal political policy of subsidizing poor people. It is reinforced by the political power of the substantial population of poor people; they vote for politicians who promise the most free stuff.

The lower graph below shows how, since the civil rights movement and LBJ's Great Society program in the 60's, we have a near-permanent 13% poverty rate in the US; currently trending upward near 15%.

Compare this to anti-poverty spending; spending has tripled since 1965 but the poverty rate has remained constant, as I said, around 13%.

This is the classic case of good intentions gone wrong. With 9% of GDP ($1.36 trillion/year) going to 46 million people, we're talking about more than $29,500 per person! This is way beyond crazy; no wonder the population of poor people never seems to decrease.

When we combine government welfare with the $516 billion from individuals and private charities, the amounts increase to $40,600 per person! So a welfare mom with 5 kids is subsidized with $243,600?

I don't think it an overreaction to say this is nuts.

Eliminate the government subsidies and the poor population will decrease by at least 50% and overall taxes can drop by more than 20%.

Uninsured People and Obamacare
This one is really frustrating.

According to the AMA, uninsured and uncompensated health care cost about $54 billion in 2008 (the year in which Obamacare began). There are about 50 million uninsured so the cost is only a bit over $1,080 each. To fix this, the CBO estimates that Obamacare will spend $150 billion/year starting in 2017; $5,000 each.

If the current trend of half of the uninsured remaining so persists, does that put the cost at $10,000 each?

Such a deal!

Even better, it will increase by $30 billion/year in just a few years;  see graph below.

Those liberals are economic masterminds! I can't wait until Billary tries to invest more in 2016!

The liberals love to lambaste the (conservative) House of Representatives for trying and failing to repeal it 37 times (so far). However, given these facts and the facts that half of the states have rejected it and that the roll-out of the pre-existing condition trial is already running out of money lend credence to the House's efforts.

They also love to say it's a republican idea: modeled after Romneycare in Massachusetts. In 2012, the Blue Cross Foundation of Massachusetts funded and released in April research that showed that the 2006 law and its subsequent amendments – simply in terms of measuring the state-budget effect on the uncompensated care pool and funding subsidized insurance had cost approximately $2 billion in fiscal year 2011 versus approximately $1 billion in fiscal year 2006. Some of this doubling in cost was funded by temporary grants and waivers from the United States federal government (us again). The result doesn't include the $295 per employee cost to employers.

The net result is that 4% more of the state population is insured. With a population of 6.6 million, this is 264,000 people. The cost per person is $3,787 + $295 = $4,082. Still way more than the original $1,080. The beneficiaries are the health care providers, not the uninsured people or the taxpayers.

I'll not argue that republicans are incapable of dumb ideas too, but that's no reason to duplicate them on a large scale.


This may be stating the obvious but wouldn't we be better off to repeal and offer the hospitals insurance against uninsured people rather than doing stupid stuff like this?

Immigration
As I've said in a previous post, the issue here boils down to cost.

• Cost of amnesty.
• Cost of labor.
• Cost of keeping illegals out.
• Cost of deportation.

Taxpayers shell out more than $6 trillion/year for government when federal, state and local levels are added up. Subtracting out Social Security and Medicare, which  illegal, undocumented immigrants (hopefully) can’t get without a Social Security number, leaves over $4.4 trillion. $4.4 trillion divided among a population of 311 million is $14,148 per year each: that's over $155 billion/year for 11 million illegals.

Engineers and scientists command good wages and the ones from other countries with H-1B visas will work for a lot less. Our government should not penalize American engineers and scientists by reducing the market value of their skills with a flood of cheap foreign labor.

In a similar vein, the cost of housekeeping, landscaping, masonry, farm and fast-food wages are driven down by cheap illegal labor. Business says Americans won't do this work but the reality is that we won't do it for the crap wages businesses pay to illegals.

We have about 15,000 miles of unguarded borders, it's quite feasible to protect the whole thing. Imagine 15,000 guard towers manned 24/7. This would cost about $100 million for the towers and we could train 45,000 unemployed folks to man them for about $2.25 billion/year. Compare this to the taxpayer cost of the illegal immigrants above.

I've seen an estimate of $285 billion to apprehend, detain, process and transport them all. Although I think the apprehension cost is vastly overstated (as a scare tactic), it is still roughly equal to what the illegals cost us every year. This is well worth it.

Kick the illegals out, make them arrive legally and pay Americans decent wages for a good day's work. 

Of course, the $14,148/year cost increases to $19,292 for citizens and this figure should raise some eyebrows too; the cost of citizenship is too high!

Gay Marriage
Besides being puzzled by the concept of gayness and concerned about the political strength of this small group (3.8% of population), why should I care? I don't believe that gays cost me any more than straight people do.

Gays in the Military
This seems as though it should be a trivial issue since we already have both men and women in the military.

However, sexual assault in the military occurs at a rate of 1 in 16 versus 2 in 1,000 overall. Throwing openly gay people into this volatile environment seems like a recipe for disaster; a big distraction and huge litigation costs.

That said, the notion of armed gays parading around the Middle East is an entertaining prospect.

Abortion Rights
Women comprise roughly half of the population and abortions wouldn't be needed without the help of the other half. The only issue here is; who pays?

This is only an issue because the government camel has stuck its nose into the health care tent and some religiously-minded taxpayers object to their money being spent to commit what they view as murder.

Liberals will say that they object to tanks and bombs and don't want to pay for them with their tax dollars.

Here's the difference; the US Constitution (Article 1, Section 8) empowers congress to collect taxes to raise and support armies and a navy. Abortions (and health care) are not mentioned.

The solution so far is simple and that's why this one frustrates; get the government out of health care.

However, some states like Michigan are proposing laws to allow tax deductions for unborn children. I'm concerned that this incentive will lead to some bizarre tax evasion behavior that will cost me.

Domestic Terrorism
This, like poverty, is the direct result of the combination of liberty and free will, fueled by sub-standard education with a small dose of insanity thrown in. It's a sad statement on the state of affairs when people do this stuff but it's nothing new.

We've had Shay's Rebellion,  the Whiskey Rebellion, John Brown and the Abolitionists, the Civil War, the KKK, Haymarket Square, the Wall Street bombing of 1920, the Weather Underground, Oklahoma City, Aurora, Sandy Hook, Boston, etc.. In other words, since the country was founded.

Some of this is political, some religious but most is just plain crazy. It sucks but so does a lot of other stuff like having a bridge collapse beneath you. The good news is that the cops are getting smarter. The bad news is that some of us are willing to give up some liberty in the interests of safety (with the Patriot Act, for example); something Ben Franklin warned against.

Aside from the tragic loss of life, it's really expensive with no solutions in sight.

My main concerns are things like the Patriot Act, an emboldened government intruding into the press as well as profiling conservative groups.

Second Amendment
Any discussion of domestic terrorism always leads to a knee-jerk discussion of gun control and the 2nd Amendment. The issue of gun ownership outside a militia was resolved in DC v. Heller in 2008 but the liberals, like a dog with a bone, just won't let it go.

Background checks are fine but here's the rub; how do they help when the gunner goes nuts after the purchase? There's also the issue of doctor-patient privilege. There's also the roughly 270,000,000 guns currently in circulation in the US.

To me, this is what the 2nd Amendment is all about; a well-armed citizenry as a bulwark against government tyranny. Bring on the Howitzers!

Failing Schools
I've written on this subject extensively from a fiscal perspective.

Personally, I don't think schools fail. Parents fail their children by not stressing the importance of education and/or a sense of discipline. This apparently happens most often in places where poverty is high; is anyone surprised by this?

Let's try one of Einstein's thought experiments;

• Imagine the best and worst schools in the country. 
• Imagine transplanting the students of both schools, one to the other.
• What happens?

To my knowledge this experiment has never been tried for real but the probable result should not surprise anybody except for the fools who proclaim money to be the answer; the students who excelled will continue to excel and those who failed will continue to fail. Money is only involved to the extent that people who have it know it comes in large part from being educated and they instill this philosophy in their children.

It is not because money = education. The graph below illustrates this quite clearly.

Bring back corporal punishment, end advancement without achievement and end mainstreaming.

Failing Infrastructure
I remember hearing about the collapse of the Mianus River Bridge the day after I drove over it. I am convinced that it wouldn't have happened if the politicians had been budgeting to maintain the roads and bridges instead of doing the social engineering that gets them elected.

The failing power grid is the fault of the power company executives who favor profits over maintenance then go hat-in-hand to the politicians for maintenance costs and rate increases after every storm. The politicians happily provide it in exchange for campaign contributions.

The southwest is consuming water faster than nature can provide it; irrigating the desert in southern California was a colossally bad idea. The only solution on the horizon is if/when southern California falls into the Pacific in a massive earthquake. The same thing is happening in the Midwest but with no earthquake relief in sight.

This stuff costs us all dearly. The bridge that recently fell into a river in Washington (because a truck bumped into it) will be replaced with 90% paid for by the federal government (us). Isn't this rewarding bad fiscal behavior in Washington and encouraging it in other states?

Earthquakes, Hurricanes, Tornadoes and Floods
These Acts of God are generally foreseeable. If a calamity can be foreseen, it can be protected against either with insurance or by living somewhere else.

Reading about the aftermath of these tragedies is heart rending, especially when lives are lost. However, I can't help wondering why people choose to live below sea level yet close to the ocean, on a known fault line or in a place called Tornado Alley.

Not to be too cold about it, having had my share of tragedy (two house fires), but is this Darwinism?

A special note on flood insurance: I wrote an op-ed letter to express my outrage over the federal government's need to borrow the money to pay flood insurance claims. Most folks don't know that it's the government that provides flood insurance. We charge about $3.4 billion a year in premiums, but just Katrina and Sandy cost over $140 billion in eight years.

Worse, if the predictions made by the global warming crowd are right, it will only get worse. I think they're right, regardless of the causes.

Having grown up by the water, I can appreciate the desire to live by the water despite the risks. But insurance premiums need to go up by a factor of 10 or more to cover the damage. Taxpayers should not subsidize questionable decision making by homeowners, businesses and utilities.

Banks and car companies should not be bailed out from disasters and neither should people or businesses who choose to live in risky places without insurance.

Global Warming
I mentioned this one in relation to flood insurance since, in general, the stormy weather conditions seem to have been getting more extreme lately and global warming is the odds on favorite for the cause.

It's hard to judge what's really happening since we've only witnessed a tiny portion of Earth's history.

Ice cores show that temperatures rise before carbon dioxide.

We pump 5 ppm of Earth's atmosphere full of carbon dioxide every year but the actual concentration only increases by 2 ppm/year.

Water vapor is a more potent greenhouse gas than carbon dioxide and there's a lot more of it.

Carbon dioxide does not appear to be the main culprit to anybody but the liberals; they even tried to reinterpret the ice core data to fit their theory. After all, pollution is a bad thing so why not blame the temperature rise on it too?

On the other hand, the storms seem stronger and more frequent. Who cares what the causes might be?

Solar and wind are the answer so what do we do? Impose punitive tariffs on cheap solar panels from China.

You can't make this stuff up.

Islamic Extremists
This is a totally crazy situation. These folks are blowing themselves and others up in increasing numbers. The number of suicide attacks has grown significantly, from an average of less than five a year in the 80's to 81 suicide attacks in 2001 to 460 in 2005.

The attack on the World Trade Center in 2001 was beyond belief; more than 3,000 killed. For what? Because we like sex, drugs and rock and roll?

Many of us wanted to strike back; but where? At whom?

We should have hunted the instigators down with a vengeance never before seen. Instead, we got two wars with 6,700 more dead Americans. We also got $1.4 trillion in wasted treasure. Twelve years later, it still goes on with no solution in sight.

Now, we're trying to restart the 'Peace Process' with Israel and the Palestinians again. This is the process by which we subsidize air traffic to the Middle East.

Seriously though, there are good intentions but come on, 40 years?

The whole Middle East are has become a quagmire that makes Vietnam in the 60's look like a picnic. Our efforts are not making it any better; Arab Spring, Islamic Fundamentalists in charge of Egypt, Libya (Benghazi), the Syrian Civil War, Iraq, Iran's centrifuges, the Taliban in Pakistan, Afghanistan and Lebanon again. This doesn't even cover the fact that al Qaeda sprang from Saudi Arabia, our supposed ally and long time trading partner?

I feel sorry for the Israelis, stuck with these crazies.

I think we should invoke something like the Prime Directive from Star Trek except that instead of avoiding contact with "pre-warp" civilizations, we avoid contact with pre-modern civilizations. I'll be the first to admit that we're not perfect but take a look at this and you'll see part of the problem.

No trade, no travel, no diplomacy, no immigrants, no occupation, no bases and absolutely no weapons until they figure it out for themselves. It's time for the Middle Eastern countries to step into the 21st century and clean up this mess themselves. Call us when they're done.

Meanwhile, hunt, try and kill all those who attack us.

Corporate Tax Evasion
I think that even though it exists, what gets reported is really the irritatingly legal maneuverings of companies like Apple. This is the direct result of an intentionally complicated tax code and the less than transparent actions of elected officials seeking reelection.

This has been going on for a very long time and it needs to end. Government gives free taxpayer money to corporations and individuals who did not contribute tax dollars to directly fund the handout. I call these things tax trickery to separate them categorically from traditional entitlements although I think that they even more abhorrent than traditional entitlements since they represent government selection of winners and losers.

I think the mortgage interest deduction is the biggest one (dollar-wise) but I think that all it really does is non-linearly inflate the cost of housing - thereby increasing the interest so only the banks really benefit.

This is the same old story; Medicare/Medicaid inflates the cost of health care; government funding inflates the cost of education; welfare makes poverty attractive, etc..

I have offered a solution:

• Cut all government back to Justice, State, Treasury and Defense.
• Finance Social Security, Medicare, Medicaid and Welfare for those 45 and older.
• Cut everyone else (but not employer's payroll tax) for 20 years while paying off debt.
• Start cutting tax trickery and reducing all taxes by a net 2%/year for the next 20 years.
• End with a surplus, no debt and an effective flat tax of 9.3%; everyone pays, no exceptions.
• Exquisitely fair and balanced.
• All inclusive, not divisive.

War on Drugs
Another total policy failure. We spend $15 billion/year to stop a $400 billion/year business. This is like bringing a knife to a gunfight.

This doesn't include the $14 billion cost of imprisonment of the 325,000 people convicted of drug crimes.

Legalize it, control the quality and tax it to pay for the quality control so that non-drug-users don't pay a cent. Also free all of the drug crime inmates except those guilty of worse crimes.

This strategy won't stop people from killing themselves by overdose but it should reduce the rate with the higher quality control. It will also reduce the incarceration rate and the killings associated with law enforcement. It will also save a ton of money on prisons. It will also give a boost to the economy of Afghanistan if they ever decide to join the 21st century.

Entitlements Defined

My old friend asked me what my definition of an entitlement is. He said that something you pay into over time and then get paid back later is not an entitlement. He went on to say that since he's been paying taxes all these years, if he were to fall on hard times and avail himself of welfare and medicaid, these would not be entitlements either.

As he correctly points out, the majority (if not all) of Americans contribute tax dollars to directly fund things like Social Security and Medicare (FICA) and, as a result, they feel ‘entitled’ to receive benefits. I think that’s the etymology of the moniker. In general, that's not true with welfare and medicaid so I'd say that he's confusing actual entitlements with what some might call the simple (and wrong) redistribution of wealth.


Traditional entitlements are outside the proper role of government as defined by the US Constitution. Social Security was born in the cradle of a worldwide depression and while it may have made sense then it no longer does. Medicare was born in the 60’s out of selfishness; young people not wanting to bear the expense of caring for their parents; this was also the camel’s nose in the tent of nationalized health care.

There are serious problems with Social Security. One is that congress misappropriates the revenue ($2.7 trillion so far) and spends it on unrelated stuff. Another is that any of what you pay in that would be left after death does not necessarily go to survivors. Another is that the interest accrued is pathetic. Another is that it is essentially a Ponzi scheme that relies on having more payers than beneficiaries; again, true in the 30’s but not now. The most harmful is that it is destructive to society in that it diminishes the notion of self-reliance.

There are problems with Medicare too. It is also a Ponzi scheme. It takes in far less revenue than it spends; we’d have to pay at least the 13% commanded by Social Security to fund it since the expenses are about the same (we current fund it at 2.9%); but jacking up taxes by 10% would push the middle class over the 50% mark for overall taxation. Another problem is that it drives up medical costs since government money is easy money. Congress used to misappropriate this money too. As with Social Security, the most harmful is that it is destructive to society in that it also diminishes the notion of self-reliance.


My friend also correctly points out that government also gives free money to corporations and individuals who did not contribute tax dollars to directly fund the handout. I call these things tax trickery to separate them categorically although I think that they even more abhorrent than traditional entitlements since they represent government selection of winners and losers. I think the mortgage deduction is the biggest one (dollar-wise) but I think that all it really does is non-linearly inflate the cost of housing; like Medicare inflates the cost of health care; like government funding inflates the cost of education; etc..

Medicaid and welfare are like corporate handouts except these are favored by liberals; but they are equally wrong. Instead of government picking winners and losers, this is government incentive to remain unproductive; they also diminish the notion of self-reliance. I think these programs have been lumped together with actual entitlements because some recipients now feel entitled to them instead of being grateful for the (enforced) charity of their fellow citizens and actively trying to get off the dole. A study by the University of California (Davis) suggests that welfare dependence is inter-generational.

So I told my friend that while I have no doubt that he has paid enough taxes to earn a free ride on this bus, I was certain he'd agree that the vast majority of those who do ride this bus did not. However, if all of us who’d paid also rode, we’d all be looking up at broke; because that’s where this bus goes.


In my admittedly conservative view, all wealth redistribution by government would be classified as an entitlement, including actual entitlements.


I’m opposed to all of this stuff because the cost of being an American is simply too high to make for an inclusive society. We pay more than $6 trillion for our government. This puts the annual cost at $19,292 for every man, woman and child. Shedding these programs (and fixing public education) would bring that figure down to under $5,000; low enough to be covered by an inclusive flat tax of about 10% on everyone as I describe in another post.

No more "47 Percent" crap from the right, no more cries of unfair from the left; a far better environment for working together on common problems. In addition, it puts 30% of everyone’s gross income back in their pockets so folks can fund the charitable institutions they want, not have it dictated by a government under threat of imprisonment.

In addition, we'd be spared the sometimes daily headlines about our government as purveyor of condoms and abortions or cheerleader for homosexual behavior. I am socially ambivalent with regard to condoms, abortions and homosexuals as but some folks are distressed by one or more of them and I don't think that they should be forced to pay for such things with tax dollars.

It probably sounds like I'm a heartless conservative but I'm not. We give to charity although not at the roughly 23% rate enforced by government; 40% in total tax minus 7.65% for actual entitlements and 9.3% for optimized government. I might give more if the government hadn't already taken it but, and this is the point, it should be my choice.

College Education Costs

In the process of writing my post on A Grand Bargain, I tripped over the taxpayer subsidy to the state university system here in Connecticut.

The state University system costs Connecticut taxpayers $2.8 billion and has a current enrollment of 30,000 at UCONN and about 36,000 at the other four regional facilities.

This means that taxpayers are paying a subsidy of $42,420 per student! This much on top of the $11,000 to $40,000 paid by students at UCONN or $4,000 to $11,000 at the regional campuses. This seems absurd so I suggested in my post a reduction of the subsidy to $1 billion and holding the feet of the administrators to the fire. Now I think it should be reduced even further.

I checked Minnesota too, as I did for K-12 and found a state subsidy of $2.7 billion for 93,000 students or $29,032 per student.

California: $9.7 billion for 437,000 students; $22,196 per student.


Hawaii: $1.1 billion for 50,317 students; $22,000 per student.


Texas, notorious low tax state: $11.7 billion for 577,000 students; $20,277 per student.

Once again, Connecticut leads the pack for worst-managed.

Be that as it is, the fact is that college tuition cost are growing even faster than medical costs. UCONN just jacked up tuition by more than 25%.

Interestingly, the graph above roughly correlates with the graph below for K-12 costs where even after inflation adjustment, costs outpace inflation (inflation is 3.2:1 since 1978) by a huge margin (2.3:1 more) not including the hidden costs I describe in my post on bloat. The big difference is that the slope of college tuition costs is fairly mild in the early 80's and steeper later whereas the slope of the K-12 cost curve is fairly uniform over 40 years. Why is that?

Some argue that since government is reducing it's investment, more falls on the students but that seems specious to me since overall costs are increasing at both public and private institutions.

Others say that it's simple supply and demand and there is some merit to this since enrollment is increasing except that it bucks the notion that with volume comes lower costs.

College professors make good money but, over time, their salary increases look to be in line with inflation after a short burst in the early 80's following unionization.

Yet others say it's because of administrative bloat, a contributor I don't doubt. Private university presidents are certainly raking in multi-million dollar paychecks. Public university presidents, including UCONN's Susan Herbst also do quite well.

Other candidates are the big endowment losses from the 2001 & 2008 crashes, a bidding war for faculty and a quest to offer state-of-the-art facilities (in a bidding war for students). None of these pass the common sense test of the graphs.

It's more likely that cost started to spiral out of control when President Carter elevated education to a cabinet-level agency. K-12 has been a government-driven bloat factory for over a century but with Carter's move, colleges could now belly up to the trough with increased federal funding for college. Education funding was $17 billion in 1975 and was $103 billion last year. Overall, education spending increased from $96 billion to $899 billion from 1975 to 2010, again excluding the hidden costs. That's mighty damned close to the 10:1 observation in the graphs compared with the 3:1 growth in the cost of living. Unfortunately for Carter, educators were probably the only ones who voted for him in 1980.

The tuition and cost-of-living curves start to diverge soon after Carter's term. You can see the first upward inflection in the college tuition curve when Stafford Loans became available in 1988. Then the rise slows in 1993 as the Stafford interest rates increased. The curve tilts upward again in 2001 as interest rates dropped. By the time rates went back up in 2008, the higher educators were firmly entrenched at the public trough. It is as I said in my Peter Principle post, when government interferes with  market, prices skyrocket because government subsidies mean easy money.


This also got me thinking about the whole student loan crisis I keep reading about in the papers. $85 billion in bad debt among 6.8 million borrowers represents an average debt load of $12,500.

Wait a minute. I had about $10,000 in loan debt (principal plus interest) when I graduated my four-year degree in 1979 (I borrowed for my last two years when tuition at Marquette was about $3,000; it is now over $30,000, following the national trend of 10:1 over 35 years). According to a web-based inflation calculator, my debt was worth over $31,000 in today's dollars and interest rates back then were the highest ever. This agrees with the above cost-of-living graph but what's the deal; why is the average default worth so little compared to the skyrocketing tuition rates?

Clearly, with today's over-inflated tuition costs, the folks defaulting on loans are not four-year graduates or else the average debt load would be much higher. It appears as though the highest loan default rates correlate to art schools, schools in tropical locales and community colleges suggesting that defaults correlate with a lack of seriousness regarding higher education. This lack of seriousness finds fertile ground when awash in free government money; it's no stretch to imagine that young people not wanting to enter the workforce might want to party for a few years at taxpayer expense.

My view is that the cost to deliver a quality college education should not be not much higher than the cost to deliver at the K-12 level. The cost should be driven by the instructor's salaries since the paid delivery of an education happens in the classroom, just like K-12. The instructors need a higher level of education and so they must receive higher incomes to compensate for their greater investments and time. College faculty earn a bit less than twice as much as K-12 teachers so tuition should be no more than twice as high; say $10,000/year for an average (one third of the going average of $30,000 to be in line with the cost of living), maybe twice as much for technical school. This fits well with the cost of living curve and also with the starting salaries graduates can expect to receive.

The sum of government subsidies should never exceed, say, half of this amount to make sure the students have skin in the game. Loans should not be forgiven except for hardship; tack the balance onto tax bills.

Government spending leads to bloat leads to unaffordable institutions; a recurring theme.

Immigration Reform

I just received a newsletter from my Congressman about the new immigration Reform Package.

The letter states “Undocumented adults would pay a $2,000 fine, pass a background check, and wait thirteen years to become citizens, all while paying back taxes and studying English.”

Here’s the thing: taxpayers shell out more than $6 trillion/year for government when federal, state and local levels are added up. Subtracting out Social Security and Medicare, which  illegal, undocumented immigrants (hopefully) can’t get without a Social Security number, leaves over $4.4 trillion.

A government costing $4.4 trillion divided among a population of 311 million is $14,148 per year each: that's over $155 billion/year.

Is the intent to hand a 20-year old illegal immigrant a bill for $283,958 (20 times $14,148) plus a $2,000 fine? After all, undocumented means that we don’t know how long they’ve been here, right? In fact, how do we even know how old they might be?

If we don’t bill them this way, we’re getting ripped off. In fact, we’ve already been ripped off and a $2,000 fine doesn’t even begin to cover the magnitude of the theft.

If they agree to pay (highly doubtful), they’ll fit right in with the rest of us sheep.

This is a bad idea that could only be dreamed up by free-spending liberals that have no concept of ‘other people’s money’.


Compared to the cost of deporting them all makes the cost of deportation look good even with these inflated figures. I say inflated since we needn't hunt them down, just deport them as they are found. A quick visit to most fast food restaurants and southwestern farms will ferret out a high percentage.

As Margaret Thatcher said, “the problem with socialism is that, eventually you run out of other people’s money”.

Please write to your congressman as I have and tell him this is a bad idea. Tell your senators too.

A Grand Bargain

Fellow Taxpayers,

We've covered a lot of ground these past few months. Discussions with some of you suggest it's time to put it all together and show what a real Grand Bargain looks like.

The most important discussion has focused on government spending which, at 40% of GDP, is way too high.

The second-most important discussion has focused on the national debt which, when including the money we owe ourselves, is more than 110% of GDP.

The third-most important discussion is the measure of GDP itself; a tainted measure since it includes government spending making our Nanny-State programs look good.

The fourth-most important discussion is entitlements since they lead federal government spending at 62%. These are the well-known federal Social Security ($773 billion), Medicare/Medicaid ($732 billion) and Welfare ($411 billion) programs. They also include pensions for government and military employees.

Overall, Medicaid ($390 billion) and Welfare ($700 billion) costs include state expenditures. While these shouldn't really be called entitlements since they aren't funded directly like Social Security, Medicare and government pensions, I label them as such out of convention. Obamacare will add another $150 billion/year according to the CBO.

The fifth-most important discussion is public education since it leads state and local government spending at 26%. This number grows to more than 70% when teacher pensions, teacher retirement health benefits, state/local board of education, state/local school construction bonds, retirement bonds and federal education spending are rolled in to what the local school districts spend.

The next most important discussion is the notion of a General Fund approach to government finance.

Part of the problem here is that as some of us have forgotten the proper role of government, politicians are able to freely pander for votes; they promise wonderful new programs that won't cost a dime because they'll be paid for by someone else. This fallacy of fiscally liberal thought, of course, is that we do pay for these things but we pay with a different check. 

Another problem is that it leads to bizarre and never-ending taxation schemes; sin taxes, fuel taxes, payroll taxes, corporate taxes, estate taxes, income taxes, tolls, capital gains taxes, fuel taxes, sales taxes, fees (for licenses, registrations, travel, hotel occupancy, energy, communication, etc.) and property taxes. In short, we're taxed when we earn, we're taxed when we spend and we're taxed just for owning stuff. Oh yeah, we're also taxed when we die with an inheritance tax.

Yet another problem is that this leaves to door open for yet more political pandering in the form of taxation trickery; tax deductions, tax credits, tax deferrals, tax loopholes, tax abatement, tax amnesties and a personal favorite, government investment of tax revenue in private industry; a trap I nearly fell in with my posts on Regulation and Solar Power. I have repented.

Then, the ultimate in pandering, the government bailout of private industry because legislators are afraid to truly regulate their benefactors.

The Republicans say they want to cut spending and taxes to grow the economy but the Republican-led house budget does neither. The Democrats want to increase spending without bound and give our money away to those who have been programmed (by the Democrats; FDR & LBJ) to expect a free ride. I give the Democrats credit for being more honest about it but I still object. They haven't passed a budget in years and they appear to like it; sucking us dry as we move from one crisis to the next.

The final important discussion is government employee giveaways: public employee pensions and retiree health benefits. These happen at all three levels of government; federal, state and local. We already have Social Security and Medicare, why would we need to duplicate these programs? It's because Social Security and Medicare, while good enough for us are not good enough for the government elite.

OK, so those are the big issues. How do we fix them?

The solution is not easy if it is to be fair. It will take time to implement without causing chaos and ruining people's lives by taking away the government teats too abruptly. It has to have something for both the liberals and the conservatives to like so they'll make it happen. It has to make sense.

Right-Sizing Government
First, we cut the roles of government back to Justice, State/Intelligence, Defense and Treasury; pretty much what Lincoln had. The education, interior/parks, transportation (with targeted funding) and local functions are assumed by Treasury except for air traffic control and the FAA going to Defense (with targeted funding).

At the federal level, by also reducing defense spending back to the levels of 2001, and ending the ground wars in the middle east and closing bases in Japan and Germany, this reduces the cost of government to about 3.5% ($600 billion of $15.1 trillion GDP) of GDP from 23% ($3.5 trillion). This also increases the unemployment rate back to about 10%; a fair trade.

At the state level, this reduces the cost of government to about 1.6% of state GDP ($3.96 billion of $250 billion Connecticut GDP) from 8.8% ($21.5 billion). This will also increase unemployment by a small amount (nationally).

At the town level, by also restructuring public education as I describe in my post on the subject, this reduces the cost of government to about 4.2% of city GDP ($51 million of $1.2 billion Shelton GDP) from 9.4% ($111 million). This will also increase unemployment by a small amount (nationally).

The result is that government spending drops from 40% to 9.3% of GDP with taxpayers pocketing the difference. This puts about $4.5 trillion back in the hands of taxpayers...every year.

Targeted Funding
As I discussed in my post on this subject, we fund some services by taxing those who use them. If the users are unwilling to foot the bill, the service goes away. Simple.

This applies most readily to transportation of all sorts but it also infers a flat tax structure for services enjoyed equally by all.

Cut up the Credit Cards
Now that we've reduced government to the essentials and streamlined the funding, we have much more income than needed so we take the scissors to the credit cards; no more deficit spending.

If it absolutely makes sense and there's a return to be had and, say, 90% of the electorate votes for it, fine. Otherwise, no. This makes it possible to rebuild after disaster strikes, for example; a purpose-defined tax can be levied to repay the debt incurred to rebuild an airport or a road (with user fees increased to pay back the loan from government). It also makes it possible but difficult to wage war, if attacked.

On disasters, private insurance is assumed to cover private property; no more government-backed flood or other insurance except for FDIC. FDIC must be offered but only with strict regulation of commercial banks as I suggest in my post on regulations.

No more bailouts; break up the too-big-to-fail banks, disband Fannie Mae & Freddie Mac and let the car companies fend for themselves. Investors and workers have to start paying attention and head off these disasters before they get out of control.

Divide and Conquer
The tall pole in the tent is entitlement spending. Into this group falls Social Security, Medicare, Medicaid and Welfare programs as well as public employee benefits (including teachers, police, firemen, etc.).

To start, we'll divide the entitlements by payer;

• The federal government takes Social Security, Medicare and federal employee benefits.
• The states take Medicaid, Welfare and state employee benefits and teachers benefits.
• The cities/towns take town employee benefits.

Slowly Throw Off the Nanny State
We have to take advantage of the birthrate lull that arrives in 20 years to fix this thing. These entitlement schemes were born when we allowed population to grow boundlessly; always more payers than beneficiaries. That all changed in the 60's and exposed the design flaw the social engineers had made.

The graph below shows the rates through 2005 (add 65 years to the baseline to see where we are now and why this is so scary).

US Birthrates 1930-2005

And the graph below shows more recent data.

US Birthrates 2005-2012

I propose that we use the excess revenue gained by reducing the scope of government to finance entitlements for the next 20 years then slowly cut the safety net, tax rates and all taxation trickery over the following 20 years. Nobody gets hurt, people get a 20-year warning of what's coming and the country regains sound financial footing for our grandchildren.

Here's how we can do it.

Federal
Both the White House and the House of Representatives project revenue this year (2013) of $2.7 trillion.

Here is how the President's 2013 budget would change for the Grand Bargain. The asterisks show the items that must change to reflect the new paradigm.

Grand Bargain Federal Budget

Congress costs about $4.5 billion and the Supreme Court costs are a great deal smaller (not in budget) so the grand total is about $600 billion.

So, after subtracting the $600 billion cost (in today's dollars) of the optimized government, we have $2.1 trillion to pay entitlements and also to pay off the tremendous debt.

Federal Spending through 2052

In 2032, we start reducing taxes and tax tricks (current value of $1.1 trillion) by an overall 2% per year. This means reducing tricks by about $22 billion/year (to increase federal revenue) and taxes by about $44 billion (to reduce federal revenue by twice as much). This way taxpayers gain twice what they lose by eliminating tax trickery so nobody gets screwed.

We also shell out $1.6 trillion for Social Security and Medicare for 20 years then slowly drop what we pay as dictated by the birthrate demographic as we nearly finish paying off the debt.

Bringing the debt down to $1 trillion actually means a $4 trillion surplus since, of the $16 trillion debt, we owe ourselves $5 trillion (by congressional appropriation from the entitlement trust funds which now contain only IOU's). This will finance entitlements for any of the folks who are now 45 or older who live beyond 85 years. It also smooths the (average 15%) bump in the demographic over the first 20 years by paying ourselves back first.

The idea is to keep the promise of these programs for those 45 and up. Those folks will continue to pay FICA as will their employers (7.65% each to fund Social Security and Medicare...aka Payroll Tax); these are the maximum earning years for most of us. For those below 45, they will no longer pay FICA although their employers will so the net program loss of revenue will be small since these are the lesser earning years. The average 44-year old earner (salary average in US is $62,000) can save well over $300,000 in 20 years starting with 7.65% of pay in a safe 3% government bond along with another 10% of wages; and congress can't (mis)appropriate it for wealth redistribution purposes.

Saving 17.65% of $62,000 in a 3% Bond for 20 Years

The point is that this will pay the same as the current Social Security payout ($1,250/month including $50/month for a catastrophic health insurance policy) over 20 years (optimistic length of retirement) and still have $119,000 left; and it doesn't count what that person may have already saved.

A catastrophic health insurance can be had to prevent financial ruin (private alternative to Medicare). Using this link, I got a plan for $50/month.

A 22-year old has much more potential; starting at minimum wage and working up to a $62,000 salary (or more with college degree) will net more than a half-million dollars toward retirement.

So, by 2052, the debt is gone, entitlements are done and we are taking care of ourselves.

After 2052, taxes and tax trickery can start dropping even faster until they are gone after just a few more years. We could also build a small surplus in this time.

No chaos, no pain, optimum government, no debt. All federal taxes and tax tricks can be replaced with a flat tax of 3.5%; everyone pays, no exceptions. Fair as fair can be. Balanced too ;-)

State
Since Connecticut is one of the worst-managed states in the union, it serves as a good example of how my plan works at the state level.

Connecticut's state revenue is expected to be $23.1 billion in 2013. However, the state receives about $3.5 billion in federal grants and that will not happen with my plan so the net revenue is really $19.6 billion.

The cost of the streamlined government of Justice, State, Defense and Treasury is $3.96 billion including targeted funding of transportation and the $2.8 billion cost of the state university and research system. I have removed all funding for K-12 (shown as the General Fund on page A44 of the state budget) as this would be paid for locally with no state or federal money needed by using my Public Education plan.


So here's the revised state budget:

State Budget Before & After Plan

This leaves $15.64 billion to pay for Medicaid, Welfare, state employee and teachers retirement and health benefits. Same deal as for the federal version; everyone 45 and up is covered and will still pay their current share into the retirement 'fund'. The rest of the state's employees and teachers will save for themselves as described and shown under the federal (self-serve) plan above.

The state debt is about $42 billion but that includes unfunded pension liabilities of $23 billion. To me, this whole idea of unfunded liabilities is an overly polite misnomer. What it really means is that our state government has spent or otherwise mismanaged the money that should have been socked away on a pay-as-you-go basis; much like Congress' raiding of the federal trust funds. The real debt is more like $20 billion and I'll treat the unfunded liabilities of the pension funds the same as the other state entitlements.

Nationally, Medicaid cost $390 billion in 2010 and Welfare cost $700 billion in 2012. Connecticut should pay it's share by population. Since Connecticut has 3.5 million people, we get 3.5/311 or 1.125% of the burden. This amounts to $12.26 billion/year, more than the $10.9 billion we actually spend on welfare and healthcare but that is our lot in life as one of the richest states. I suppose we'd have to give the difference of $1.36 billion to the poorer states to keep the socialist promise alive for the duration of this plan. It sounds like a lot but left unchecked, it would be a lot worse; we currently pay about $50 billion/year in federal taxes but only get $3.5 billion back. The spending in Washington will double that in 10 years if we don't change course.

We also pay out $3.2 billion/year in state employee benefits but the good news is that we have $20.5 billion in the retirement and health funds for teachers and state employees (see pages A-26 and A-26). This money can be used to wipe away the state's debt and $2 billion yearly debt payments in a single stroke! By this measure at least, Connecticut is better-managed than the federal government.

So, our total entitlement nut is $15.46 billion ($12.26 billion+$3.2 billion) and the cost of government is $3.96 billion for a total of $19.42 billion. This means we can be living within our means and debt-free with a $180 million annual surplus right out of the gate!

Connecticut State Spending through 2052

As with the case of federal spending, tax trickery and taxes (of all kinds) start reducing after 20 years by 2% overall every year for 20 more years until the 45-and-up crowd has been laid to rest.  Again, the idea is that taxpayers reap more reward from tax reduction than they lose from curtailing tax tricks that had worked in their favor.

After that, they can reduce much more quickly until the $13 billion in revenue equals the cost of optimized government; $3.96 billion in today's dollars. At that point, we should have a surplus of more than a few billion dollars and an open door to a scheme of targeted funding and a flat tax.

Post-Plan Welfare
The prison system costs $750 million for 17,000 inmates with a workforce of 7,000. This seems exorbitantly high to me in terms of both manpower and cost. It seems to me that 1 worker per 10 inmates is plenty and this would reduce the cost by $108 million. I live a comfortable, middle-class life on about $120/day. We're paying more than $93/day for inmates? I should think that $30/day would suffice. This would reduce cost by another $96 million for a total of $649 million. That's what I put in the budget.

The state University system costs $2.8 billion and has a current enrollment of 30,000 at UCONN and about 36,000 at the other four regional facilities. This means that taxpayers are paying a subsidy of $42,420 per student! This much on top of the $11,000 to $40,000 paid by students at UCONN or $4,000 to $11,000 at the regional campuses. This seems absurd so I suggest reducing the subsidy to $1 billion and holding the feet of the administrators to the fire.  That's what I put in the budget.


Poor people get two more generations to get their acts together; after that, they're on their own like us.

Hopefully, we kick the illegal immigrants out because I have allocated exactly zero for them. Here’s the thing: taxpayers shell out more than $6 trillion/year for government when federal, state and local levels are added up. Subtracting out Social Security and Medicare, which  illegal, undocumented immigrants (hopefully) can’t get without a Social Security number, leaves over $4.4 trillion.

A government costing $4.4 trillion divided among a population of 311 million is $14,148 per year each. The 11 million illegal immigrants are costing us $155.6 billion/year.

No chaos, no pain, optimum government, no debt. All state taxes and tax tricks can be replaced with a flat tax of 1.6%; everyone pays, no exceptions. Fair as fair can be.


Local
Since I used poorly-managed examples for the federal and state government reforms, I've decided it would be best to use a well-managed example for local government since, in a practical world, local government should have the highest cost as a percentage of GDP (because of education). I'll use my city of Shelton, CT.

The city takes in about $111 million in revenue but gets about $7 million from the state which won't happen with this plan. So, the net revenue is $104 million.

The city's biggest expense, by far, is education at $63.7 million for 5,137 students. Using my plan for Public Education reform, this becomes $26 million.

The rest of town government, excluding debt service (which the Mayor called to tell me will be gone in 10 years) and revenue from local (non-property tax) sources costs $35 million.

The grand total is $51 million for a population of roughly 40,000 with 15,382 taxpayers and a city GDP of $1.2 billion. A flat tax of 4.2% should cover it nicely; this works out to an average tax of $3,315.

Summary
As Washington and the states continue to apply band-aids and political posturing to the problems and solving nothing, this is a real solution. They constantly seek to expand government when we really need to redefine its role for our society.


Roles defined; Justice, State, Treasury and Defense.

Government spending reduced from 40% to 9.3% of GDP but still serving their required roles.

Entitlements fulfilled for all those aged 45 and up. Self-entitlement for everyone else and a plan to do it.

Publicly funded education at a price we can afford that still delivers the goods in the classroom.

Targeted funding of services by those who use them. A flat tax for services that benefit all equally. In the vernacular: a fair and balanced approach. No more us versus them, just us.

No debt, no deficit spending, no elite treatment for government workers.

No pain, no chaos and a steady path to a government the founding fathers would approve.

Political pandering put in check by raising the threshold for incurring new debt.

Comments welcome!

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