Wednesday, February 4, 2009

The Pork Train

From the Desk of Joe Rollins

I don’t think many of us could argue that the economy needs some form of stimulation right now. However, the bill currently being debated in Congress is completely misplaced. First, it is way too big. It also isn’t concentrating on the areas it needs to be and, unfortunately, it’s loaded down with too much government pork.

We all had great hope that President Obama would bring a new accountability to government. He campaigned on the concept of transparency in government and would eliminate pork barrel projects and government favoritism. Unfortunately, this bill belies that campaign rhetoric.

Unlike many of the commentators in the press, I want President Obama to be the most successful president ever. Actually, that’s how I feel when every new president enters office, even those with whom I disagree. I was raised to respect the office and to support the cause. I believe the cause is greater than any petty feelings individuals may have.

You may have read Rush Limbaugh’s famous quotes from last week, when he exclaimed that he wanted President Obama to fail. When I first read those comments, I was outraged. How could any American, regardless of political leanings, want any sitting president to fail? In re-reading what Rush Limbaugh actually said, it became clear to me that the quote was taken out of context. In fact, Rush said that he wanted liberalism to fail. This is still a strong statement made by someone who is inarguably a jackass, but it certainly isn’t the same as wanting a president to fail.

I have often argued in these posts that the TARP was not an expense to the Treasury. I truly believe that the Treasury will get if not all a vast majority of the TARP money plus the income it earns. To characterize that $700 billion as an expenditure that will create future deficits is done solely for negative and uninformed emphasis. The reality is that in all likelihood, that expenditure of funds, when finally expended, will not create a negative to the budget. Remember that to date, only 27.9% of the TARP money has actually been turned over to the banks (view the list in PDF format).

However, the new stimulus act of close to $900 billion will be harmful to the budget. First and foremost, the real problem with this proposal is that it is untimely. In fact, some of these programs will not even be funded until the last year in President Obama’s first term. I suppose the questions all taxpayers need to pose is why we are approving on an emergency basis an expenditure of funds that will not occur for three years? We have years to debate and approve those expenditures. Why do we have to do it in three weeks?

I have no real problem with the $250 billion in immediate tax refunds to lower income taxpayers. These funds will enter taxpayer pockets relatively quickly, and since it is focused on lower income people, the money will be spent immediately. The problem we had with the last similar rebate in 2008 was that much of the money was saved or used to pay off debt. I think it’s fairly clear that this $250 billion will be immediately expended, creating commerce and jobs. I suppose no one could have any real disagreement with the disbursement of these funds.

I do have many concerns regarding the disbursement side of the stimulus act. First, there is the issue of selecting who or what receives the funds. By virtue of these funds being approved by Congress, you have the inevitable concern regarding whether there are special interest groups supporting the money. Clearly this has happened in this appropriation. Many estimate that the amount of pure selective pork in this bill borders on a quarter of a trillion dollars. That’s not to say that these projects wouldn’t provide some benefit to the counties where the money is spent, it’s just that it raises the question as to whether the money is being spent in the right place and if it provides the economic stimulus we seek.

There were two very interesting opinion articles posted in The Wall Street Journal last weekend. The first, “How About a Payroll Tax Stimulus?” was written by Lawrence B. Lindsay, former Director of the National Economics Council and the Assistant to President George W. Bush on Economic Policy. His idea is to immediately reduce payroll taxes by 3% for both the employee and the employer. By doing so, there would be an immediate increase in the take-home pay of the employee and of the company’s employing them. This simple proposal would immediately stimulate the economy without any selectivity and would help employees and employers alike. There would be no question that everyone would benefit, since everyone pays Social Security tax. It would help employers hire people and not lay off their existing employee base. I think it’s a brilliant proposal without all the politics that the current stimulus bill proposes.

There was also an opinion article in The Wall Street Journal from Rush Limbaugh entitled, “My Bipartisan Stimulus.” The point he makes regarding corporate taxation is particularly important, although the rest of the article is silly. The United States has become totally out of touch with corporate taxation in the world. Many companies and employers avoid the U.S. due to its high tax rates and regressive litigation for employers. A significant reduction of the corporate tax rate would easily encourage new employers to come to this country, employ people and create a new economic vitality that is needed.

If you want to read an interesting concept, I suggest you read Neil Boortz and John Linder’s book, The FairTax Book as it pertains to corporate taxation. Their theory is that corporations pay no taxes anyway, and by reducing them to zero, all Americans would benefit. If we had zero tax rates by corporations, there would be a flood of companies located outside the United States that would come here and employ people. Additionally, there would not be the billions spent trying to avoid taxes and the litigation that follows since there would be no taxes. This concept would work for all Americans.

The main problem concerning today’s economy is the lack of consumers. The answer to that problem is putting people to work. By virtue of bringing new employers to the country, we could get people employed. This would increase consumer spending and correspondingly increase the economy.

The other major issue regarding the proposed stimulus act is the funding of state and local governments. I have always believed that there needs to be a separation between State and Federal funding. This proposed bill essentially rewards counties and states that have run their municipalities poorly. Why should Georgia suffer when the economy is run well while California benefits when their economy has been run into bankruptcy by their totally irresponsible social spending. I understand that it would be great for the Federal government to fund a building project in Gwinnett County, but that’s not the Federal government’s responsibility. That is the responsibility of the taxpayers who benefit from the school.

Secondly, I question whether any school could be built in the period of time that would benefit us now and would help employ people. More importantly, why should the Federal government fund a project that would have been funded anyway? There are many Americans who no longer have children in the education system, but as taxpayers to the Federal government, they are funding a high school project in a city or town that is far removed from their local community. Frankly, I think this entire part of the stimulus bill is misplaced.

There is no question that a stimulus bill of some size and description will be approved shortly. The worst thing that could possibly happen would be that the stimulus bill takes on a life of its own. If the economy improves in the second half of 2009, will we even need this extra expenditure of money in 2010 and 2011? There is an infinite risk that this money will come into the system when the system is already robust. This increase in flow of funds will create inflation and negative economic aspects. The stimulus bill needs to encompass a short period of time and be highly correlated to giving people extra spending money. The bureaucracy that will be created to disburse this gigantic sum of money over many years is misplaced in its economic effect.

Since the beginning of former President Jimmy Carter’s administration in 1976, the number of federal and state employees has exploded. Please see the chart below entitled, “Government’s Productivity Problem.” Even though the rest of America has used computers, state-of-the-art technology and other resources to increase productivity, the local, state and federal governments have no incentive to be even remotely productive. In fact, due to the bureaucracy, hiring policies and an inability to terminate for incompetence, most governmental agencies thrive on their lack of productivity and only add more staff. If the government was truly interested in reducing costs, they would stop this disgraceful climb in governmental employees.

The solution to the government’s problems is very simple. Virtually every division of government could be privatized. There is absolutely no reason why we have 22.5 million people working for the government and being paid by taxpayer dollars. If these bureaus and divisions were privatized, then there would be accountability to the taxpayers and productivity would rise dramatically. Except for our military, there is a high likelihood that well over half of these government employees could be privatized tomorrow. If any politician really wanted to address the issue of bloated costs, they could attack this problem tomorrow.

Isn’t it interesting that as more and more workers are laid off in the private sector during the economic downturn that the government continues to add more and more jobs, which are dependent upon higher and higher taxes? Additionally, each of those jobs is irrefutably destined to become non-productive and a drain on American resources.

I am not a fan of commentary where the writer only criticizes but never offers solutions. It is relatively simple to see that the government should return to the taxpayers their money for them to spend however they want. Yes, the economy needs a quick burst of funds, and the tax refunds will accomplish that immediately. The last thing it needs is a creation of a governmental bureaucracy to disburse funds in a political way to recipients who probably don’t need it, and certainly not in a relevant timeframe.

There is plenty of time to properly debate and discuss the spending appropriations in the coming months. Approve the tax refunds now for a quarter of a billion dollars and let the rest wait three, six or nine months to see whether they’re actually needed. I am highly uncertain as to whether, come September or October of 2009, we will need this type of spending to stimulate the economy. Notwithstanding whatever the economy is doing at that time, I am positive that paying off the debts created by this misplaced bill will affect all of us for generations to come.

It is now time for all of us to remember the advice given by President John F. Kennedy. As he said in his inaugural speech, “Ask not what your country can do for you – ask what you can do for your country.” It seems that our current financial situation has that phrase in reverse. The entire country is lined up for governmental handouts and bailouts. Now is the time for us to correct the problems of the past rather than look to the government for assistance.

Spending by the government will certainly stimulate the economy, but it will do so in a biased and political way, causing waste to the taxpayers to the tune of literally billions of dollars. In my opinion, a much smaller and simpler stimulus bill will accomplish the goal of stimulating the economy without these forms of political abuse.

Hopefully once the Senate takes up the bill this week improvements will be made and our taxes will not be increased to fund a bill that will go on for years after it is needed.

Of course, these are just my thoughts. I could be wrong.

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