Category Archives: Spending

The cost of reality means sacrificing until it’s fixed

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One of the costs of putting one’s thoughts out in a public forum like a weblog is that one’s readers often expect both an opinion and a solution if the issue at hand is a problem that needs solving. The issue of budget deficits, most recently brought forward by the collective bargaining debates in Indiana, Ohio, Tennessee, and Wisconsin, is no exception.

Again, as I have stated several times now, I think the whole collective bargaining debacle is a tempest in a teacup that distracts everyone–legislators, governors, citizens, and union members alike–from the real and far more pressing issues our communities, states, and nation face.

And, chief among those issues is that we and our communities, states, and nation face a nearly insurmountable debt if we continue to spend the way we have until this point.

So, how do we solve this kind of a problem? From my point of view, not cleanly or easily. We have to face the fact that we cannot afford to continue to pay for the things we are doing the way we are doing them, even if we want to, because there’s simply not enough money to do it.

I know that many people will now shout a raft of ideas: tax the rich more, increase taxes in general, change the rules for how people access social programs, etc. And, I say, fine, do that, and it still won’t solve the problem. Increasing taxes beyond a certain point merely drives the rich away, puts those who can’t leave in greater need of social services, and decreases the amount of money in the economy creating tax revenue. Changing access to social services, especially in conjunction with increased taxes, only causes more people who need access because they can’t afford to do things on their own anymore not to have access to what they’re paying taxes to theoretically have. They’re all bad ideas if that’s all that’s going to be done.

In order to fix these problems, we have to start cutting: real, meaningful cuts that may very well force millions of people to change how they live their lives. Yes, this means cuts to Medicare, Medicaid, and Social Security. Yes, this means cuts to education and environment. Yes, this means cuts to the military and intelligence programs. It probably also means at least marginally higher taxes, at least at the local and state levels, until the issues at hand resolve themselves.

How these cuts and higher taxes come about is what this whole debate should really be focused on, not whether or not public employees have collective bargaining rights. We’re expending all of our effort as a nation around the edges without dealing directly with the heart of the problem. Until we reach the heart, we can’t kill the beast, and it still may just devour us.

DLH

The cost of reality: who do you believe in?

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I believe a significant part of the debate over everything from massive deficits to union bargaining rights centers around a question most people never consciously consider: who do they believe in?

In this case, I am not talking about belief or lack of belief in God, but rather whether they believe in themselves or the government.

I suspect that most people will immediately claim they believe in themselves and dismiss the question as irrelevant, yet in doing so, they will not have considered what the question really means.

For instance, do they believe that it is their responsibility or the government’s to pay down the national debt? Who do they believe is responsible for making sure they are provided for in their retirement? Who should be responsible for making sure they can afford health care? That they can afford gas? That they can afford food?

Too many people, even faced with those questions, will respond with something like, “Well, me, I guess,” even as they then say, “Someone should do something about…” without any sense of irony.

From my perspective, Americans have gone from a collection of people who depended on themselves to a collection of people who depends on the government. In transferring that dependence, only the surface of things has changed–that is, the government still depends on the people, but the people have given up the power to a proxy.

So, even as people depend on the government, what they depend on in a phantom parasite of their own creation, one they believe they can cleverly hide their excess in, yet one that progressively bleeds them dry as time goes on.

It has taken two generations–the Baby Boomers and Generation X–for the United States to go from the most prosperous and powerful nation that has ever existed to a teetering ruin built on ever expanding government and a debt a dozen generations will still not have paid off. That entire transition happened through the auspices of a single idea, that the people handed the government responsibility for aspects of their lives they no longer wanted to be responsible for themselves. The people stopped believing in themselves and started believing in their government, and their government started bleeding them dry.

This transition should be no surprise to anyone who has a decent view of history. Many of the world’s greatest civilizations broke and fell on the same premise. Reading the history of societies as diverse as the Roman Empire and the Middle Ages Chinese dynasties shows the effect of the same corrosive idea.

Our fate as Americans will be no different unless we somehow figure out how to do something that has never been done in history: reverse the trend. Until we, as a nation, return responsibility for the debt, our retirement, health care, our jobs, our well-being, and the well-beings of our most vulnerable citizens to ourselves, we have set ourselves on a path whose destiny is certain.

Yet, even if the destiny of our nation is certain because of our dependence on government, those of us who see this reality for what it is can take heart: something will come next and we can be prepared for it. Hope for the present and plan for the future, but do so knowing this could get ugly before its over.

DLH

The cost of reality: taxing ourselves out of debt?

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A comment on a previous post suggested that, rather than attack unions or cut spending, we should just raise taxes. My gut response was “raise taxes on what exactly?”

I’m pretty sure that most Americans have no idea who is paying taxes, how much taxes they are paying, and what effect those taxes have on the economy as a whole.

Before I go into more detail, let’s get one thing straight: you do not pay taxes if you get more money back from the government than you paid in. If you paid, say, $1000 in and get $1500 back because of credits and whatnot, you did not pay taxes. If your income is exempt from taxation, you did not pay taxes. If you can claim sales tax credits, you did not pay taxes.

Now, because of the fact that so many Americans get more back in taxes than they pay in, only about 53 percent of taxable Americans actually pay federal income taxes. And, since most states base a payer’s taxable income on what income was taxable, large numbers of people do not pay state taxes either. The issue is a little more muddled at the local level, but it is safe to say that there are tens of millions of Americans paying no or very little taxes.

That brings us to the 53 percent who are paying taxes. One of the battle cries of the progressive movement is to tax the rich, yet most reliable estimates place the amount of revenue gained from those taxes at around $90 billion per year, or about 7 percent of the projected deficit in 2011. Even if all of the tax cuts were eliminated, it would only gain around $500 billion a year, or about 38 percent of 2011′s deficit.

So, what about raising those taxes even higher? I can speak to that issue personally. I already pay about 40 percent of my income in total taxation–sales taxes, excise taxes (as on gas), income taxes, etc. Ending the current tax cuts would represent a 50 percent increase in my federal taxes (because the 10 percent tax rate would cease to exist, meaning the bulk of my income would be taxed at the 15 percent rate). Further, the expiration of current tax breaks would increase my taxable income, thereby exposing more of my income to state and local taxes. In the end, this method alone could increase my tax burden to as much as 50 percent of my income, and for most Americans the effect would be similar.

What would you do if you took a 10 percent pay cut, because that’s what those increased taxes would represent. What would you have to cut? What would you stop doing? What would you stop paying?

Now, imagine what would happen if the government actually raised those rates even higher.

And, keep in mind that 65 cents of every dollar you are paying in taxes already goes into someone else’s pocket, very likely someone else who is not paying taxes, at least at the federal level.

With that picture in mind, explain how raising taxes helps us get out of debt.

DLH

More on the cost of reality

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I love that the debate over stripping public unions of the collective bargaining rights has degenerated into an argument, essentially, about protecting union negotiated entitlements. In embracing this debate, both sides have distracted themselves from reality again–that is, the thing that is going to happen whether unions can bargain for entitlements or not.

I will focus on Ohio because I am far more familiar with its finances than I am with Wisconsin’s, but I believe the problems are similar in each state.

Various researchers, including the states own Office of Budget and Management, project that Ohio budgeted to spend somewhere between $5 and $10 billion more than it will collect in tax revenue in 2011. This reality is part of a general trend around the country that has states spending more than they tax even as they find their ability to borrow more and more limited by declining credit ratings due to the immense amount of money they have already borrowed.

This state of affairs threatens to become a crisis for Ohio because the state could have no capacity to fund the programs and services it has obligated itself to fund at the levels it promised to fund them as soon as this year. Nowhere is this potential crisis more evident than in public schools.

There is also a hard place for this state financial crisis to land: many school districts are already broke or are so close to being broke that the difference is irrelevant if funding gets cut by the state. According to the Ohio Auditor of State (.pdf), 15 districts are currently under fiscal watch or emergency, while 60 more just emerged from such a status on 1 January 2011. Around the state, districts are warning that, even if new levies pass this year, the districts will be forced to make cuts and lay off teachers.

So, while so many people seem to be focusing on the question of whether teachers–and other public workers–have the right to bargain contracts, most people seem to be ignoring the fact there may be nothing for them to bargain those contracts with.

This reality is because of the fact that Ohio is broke. It’s not just in 2011 either. Some budget estimates show Ohio running deficits of $5 to $8 billion for the next 10 years, deficits the state has no funds to cover and which it may not be able to borrow to make up for.

It is from these conditions that the anti-bargaining law originated. Republican lawmakers in Ohio–and Wisconsin, Indiana, and Tennessee–see public unions as a target of opportunity in what is going to prove to be a decade long budget battle to somehow preserve the financial sovereignty of their state. There are, in my opinion, all kinds of problems with the law and with the approach the Republicans have used, yet no one can deny that part of the problem faced by states, municipalities, and school districts right now is the cost of union negotiated compensation packages those entities simply do not have the capacity to pay.

If these entities do not have the capacity to pay, it does not matter if the unions have the right to collectively bargain or not. I suspect that, within the next few years, entire school districts and smaller municipalities are simply going to fold–disincorporate, which is essentially bankruptcy–because they no longer have the capacity to maintain even a fundamental level of the services they are supposed to provide. At that point, even if teachers, police, and firefighters have contracts, it will not matter because the entity they have a contract with has ceased to exist.

From my point of view, if legislators and unions alike want to prove they have their constituents best interests in mind, it is a resolution to this disastrous state of affairs that they would be debating instead of whether unions can collectively bargain contracts with failing entities. Yet, instead they debate about the fringes while the core is collapsing, and when it is done, all of their effort will have been expended for nothing.

DLH

The cost of reality

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I’ve been watching the progress of the collective bargaining revocation bills in Wisconsin and Ohio with great curiosity and not a small amount of amusement. What I see on all sides of this debate is a failure to deal with reality.

Teacher’s unions fail to understand that there is no more money. Wisconsin is in the hole $2.2 billion. Ohio is in the hole $7 billion. Those deficits are only the ones for 2011. Sure, they are just trying to protect their own, but at what cost? What else has to get cut to protect them? Who else has to pay?

On the other hand, you have the conservative law makers and those who elected them. They claim union busting–because that’s what revoking state collective bargaining agreements really is–will save the tax payers millions. That’s true, but so would cutting state programs, especially the costly social welfare programs even conservatives are addicted to.

The problem, as I see it, is that nobody wants to admit the truth: we’re not going to get out of these problems with selective, politically motivated cuts. Instead, we’re going to have to make far-reaching, across the board cuts at all levels of government that will last decades, and those cuts will only serve to allow us to tread water.

Unfortunately, no one is listening. Liberals and progressives want to tax more and spend more. Conservatives want to attack their political opponents’ pet programs without doing anything real to face the problems. Libertarians are too wild-eyed and disorganized to do anything other than make incoherent noises.

In the midst of all of this, our nation is failing. Our currency is devaluing. Our economy is not creating jobs. More than half our citizens effectively do not pay taxes, and the other half are paying so much they can’t make anything happen. Our tax system penalizes success. Our laws make starting and maintaining businesses unnecessarily complex. This year, local, state, and federal governments will spend between $2.5 and $3 trillion more dollars than they collect in taxes. The total US debt burden carried by all levels of governments could exceed $25 trillion–or twice the entire GDP of the US in 2011.

If we really want to fix the problems that got us here, we have to end–no, destroy–the disincentive to perform, succeed, and innovate on the strengths of our own merits. We have to wipe out the notion that we can somehow treat every individual and situation as some kind of an average and deal with reality in all its uniqueness and complexity. For the first time in decades, we have to think, act, and react in accordance with the situation we have, not the one we are convinced we should have. We have to return the bulk of control to the individual and stop expecting governments to take care of us.

And all of these solutions are going to happen whether we want them to or not. We cannot continue what we are doing because what we are doing is failing. The question that remains is whether we participate in the process by which the next thing comes into being or whether we stand and watch as the terms are dictated to us.

I suspect most will do the latter, which is why I’m pretty sure you should be getting ready for some really tough times ahead.

DLH