Search This Blog

Thursday, April 21, 2011

$2B or not $2B: That is the Question

The article title is a bit of an overstatement: however, like knowing you are going to be hung tomorrow, it does tend to focus one's attention.

The City of Virginia Beach is proposing that City Council adopt a $1.74B budget for 2011-2012, a $35M expenditure increase with a 2% increase in various taxes to cover these additional costs. The City  characterizes its budget proposal as necessary because “city employees have not received raises in two years, infrastructure and maintenance needs have been deferred, and the waiting list for city services is growing.”

While the City’s needs, from its perspective, are many, the City's needs are no different than those of the average Virginia Beach family. Using the City Council’s own budget proposal and publicly available data, a Virginia Beach family-of-four over the past two years has seen its annual disposable income decrease by $9,500 (14%) and its home’s value decline by up to 17%.

The majority of the City’s proposed $35M increased cost is driven by an increase in payroll ($20M), an increase in fringe benefits ($15M), and an increase in “Pay-as You-Go” capital projects ($6M). This is offset by an overall reduction in other operating expenditures and capital borrowing (-$6M). Payroll costs are driven by raises and not by an increase in overall headcount (a year-to-year reduction from 17,313 to 17,208 (-0.6%)).

So, it appears – just like the City – the citizens’ income is declining, our homes are in need of repair, and every government agency is lining up with its hand out. Maybe it is time for the City to make some tough choices: they work for us -- not the other way around -- and we are out of money.

Monday, April 18, 2011

Progressives Lament Lack of Holes in the Pockets of the “Super Rich”

The Virginian Pilot newspaper article “Super rich keeping more in their pockets” (April 18, 2011) is misleading and is an example of what is wrong with journalism today. The subtitle reads: “Federal Tax Rate has plunged for group with incomes averaging $345 million, and half of American households pay no income tax.” This article conflates several facts in an attempt to lead the reader to a specific conclusion: the so-called “rich” are not paying their fair share, when the opposite is true.


According to the article itself: (1) the top 10% of earners pay more than 50% of all tax revenue ; (2) the bottom 45% of earners pay nothing, even though they enjoy the same benefits as all other Americans; (3) the bottom 50%, on a absolute dollar basis, enjoy the majority of the tax break benefits (interest deduction on mortgages ($77B), earned income tax credits ($55B), child tax breaks ($54B), deducting state and local taxes ($61B)). In fact, the Federal Tax Rate – which is commonly understood to mean the rates at which we are taxed by the federal government — as well as “tax breaks” available have not changed for anyone, including the “rich.” However, because the “rich’s” income has dropped like everyone else's and their deductions have remained constant, their taxes to the Treasury have dropped as a percentage of their income.

I know Americans have a reputation for not being good at math, but this citizen can do simple arithmetic. Call it what you will, but the percentage decline in revenues to the Treasury from the “rich” is not the Federal Tax Rate ... at least not yet.

Sunday, April 17, 2011

Does Goosing the Tax Payer Lay More Golden Eggs?

In his article entitled, “It’s the spending, stupid,” Wesley Messamore (The Daily Caller, December 6, 2010) states, “ … annoyingly, tax cuts still seem to pervade our discussion of fiscal policy.” He argues “The real fiscal issue of our era is Washington’s spending, and whether or not Bush’s tax cuts expire is simply a negligible issue in the face of deficits that have now started to measure in the trillions of dollars for the first time in our nation’s history. It’s time to get serious about cutting spending, not taxes. Republicans should offer the Democrats this compromise: that they’ll let the tax cuts for the wealthy expire if the Democrats will help them to substantially reduce federal spending across the board.”

Interesting argument, but it misses the larger point: the average tax payer has no more money to spend on anything, especially taxes.

• Over the past two years, the average family-of-four’s disposable income in Virginia Beach has dropped 14%, house values have dropped 17%, and the city government wants to raise taxes 2%.

• 47% of all wage earners pay NO federal income tax.

• As the recent spending reduction battle in Washington shows, when all is said and done, more is said than done: of what was thought to be a $68B reduction, approximately $350M will be realized according to the CBO.

Four times in history, the US government has lowered federal tax rates and in each case actual tax revenues to the Treasury increased (in dollars, not percentage of GDP). Unfortunately, progressive government continues to spend more money than it raises in revenue. In other words, the goose can no longer lay its golden eggs fast enough, so the government wants to kill it.

The best path forward is to curb our appetite for the things the goose’s gold buys, feed the goose, and encourage it to breed. This is best done by setting annual spending caps, with automatic triggers; lowering tax rates, especially corporate tax rates; and increasing the tax base to include more of those individuals who enjoy America’s freedoms and fleeting prosperity but pay nothing to the Treasury.

Saturday, April 9, 2011

A Blazing Trail of Destruction or Political Theatre: You Decide 2012

In the April 8, 2011 Virginian Pilot (Letters to the Editor, “Devastating Cuts,” April 8, 2011), Joe Cook (Hampton Roads Coordinator, MoveOn.org) asserts that Rep. Scott Rigell’s (R-2VA) support of Congressional Bill HR 1 to cut $100 billion from the budget was a “blazing trail of destruction” leading to a loss of 19,500 jobs in Virginia. He further asserts “This is a moral issue; the budget is a moral document.” In between these two statements, he inserts his favorite social programs, which may face cuts, and then sounds the clarion alarm to eliminate corporate subsidies and cut defense. While this is great political theatre, it misses two points.


First, whether the cuts are “moral” or not, stealing money from the next generation by spending money that we do not have is clearly immoral. Because the government borrows forty-three cents on each dollar of its $3.8T budget, Mr. Cook’s argument over the $100B cut is similar (in rough numbers) to our family having a monthly credit card bill of $10,000, but we can only pay $6,000 so my wife and I argue heatedly and incessantly about how to cut $26 of spending.

Second, I agree with Mr. Cook that all cost should be on the table; however, the determination of what should be cut is not just a moral decision, it is also a Constitutional decision. It is not clear to me that all of his priorities (i.e., job training grants) are Constitutional, whereas defense, for example, is clearly a Constitutional priority.

So let’s agree on this: we need to find a way to cut another $3,974 from our “home” budget. If we can’t agree, then let’s carve out those things that are clearly Constitutional expenditures and reduce everything else on a pro rata basis. That will force us to discuss what this political battle is really about: what is the purpose and scope of government and where does government’s responsibility end and the individual’s begin. In this regard, Rep. Rigell is on the right track.

Wednesday, April 6, 2011

Brother Can You Spare 43 Cents on the Dollar?

Over the next several weeks, Congress faces a tough debate over the 2012 budget. My back of the envelope calculation indicates that the country must cut $500 billion per year out of the budget if it has any hope of remaining solvent in the long term. I do not think that Congress is up to the challenge – they have been unable to cut $60 billion out of last year's budget, which is yet to be approved. And now, according to the Wall Street Journal, groups facing funding cuts are re-defining their marketing message to pander to the concerns of the conservative right. Specifically, Legal Services Corporation, a nonprofit that provides legal assistance to the poor, has been emphasizing that its programs exist to carry out the Founding Fathers’ desire to create fair courts. They cite the preamble to the Constitution. The House voted to reduce the corporation's $394 million appropriation for 2011 by $70 million dollars, but 68 Republicans joined with 191 Democrats to vote down a proposal to cut all funding. More community action programs are lined up behind them.


No matter how empathetic one is to social causes, the money does not exist to fund them. We are currently borrowing 43 cents of every dollar Congress spends. Second, in many cases I do not think that some of these activities are even constitutional. That said, Congress should eliminate funding that the country cannot afford, provides no return on investment, and / or is clearly unconstitutional. For example, included in this category (by way of example, but by no means inclusive) are: (1) elimination of foreign aid to countries who consistently vote against us at the UN and want to kill us, (2) funding that goes to the World Bank / IMF, (3) funding to National Public Radio, and (4) funding that goes to the National Endowment of The Arts. For me these would be straight forward decisions, but apparently not for Senator Thad Cochran of Mississippi, the top Republican on the Senate Appropriations Committee, who keeps a grand piano in his office. Perhaps instead of having the public support NEA, he should simply give concerts in his office. And if he supports NPR, I suggest that he help the public out by personally giving more money to this endeavor.

Last, I do not think any Congressional Republican should entertain visits from George Schultz, who has been asked by the United States Institute of Peace, a federally-funded think tank, to ask Congress to restore its $42.7 million funding in 2011, all of which was eliminated by the House in February. Apparently the group's charter does not allow it to raise private funds: perhaps it should.

Meanderings about Gerrymandering: A Stake in the Grass Roots

Community leaders and concerned citizens turned out Monday to protest proposed redistricting maps at the Virginia General Assembly’s final public hearing. The hearing was held by the House and Senate elections committees as the General Assembly convened for a special session on redistricting. Sen. Janet Howell (D-32) presented Senate Bill 5001, the plan expected to be voted upon and approved by the full Virginia Senate, which has a 22-18 Democratic majority. In Howell’s proposed plan, the Senate Democrats grouped Republican Sens. Frank Wagner and Jeff McWaters, both of Virginia Beach, into the one district, and shoehorned Sens. Ralph Smith of Roanoke and Lynchburg's Steve Newman into another one. Sen. Frank W. Wagner, R-Virginia Beach, spoke out against the proposed redistricting plan: "They [Virginia Beach citizens] deserve — as a community of over 435,000 people — they deserve, they warrant, they earn two senators," said Wagner. “You want a yardstick for gerrymandering?” Carl Wright, a Virginia Beach resident asked the committee. “Come to our city! It’s been gerrymandered, gerrymandered, re-gerrymandered, and gerrymandered again ... “I’m asking you all today, when you look at the city of Virginia Beach, please consider all of the citizens with a fair and true representation. That’s all I ask.”


In the run-up to these hearings, Governor McDonnell appointed a bipartisan commission to make redistricting recommendations. The commission published maps that look more sensible. Three students from George Mason University showed the committee their map, which won the Virginia Redistricting Competition. Nicholas O’Boyle, one of the map’s designers, said the students’ map reduced the splits of counties to 161 from more than 300 in Howell’s map. The students’ map does not pay much attention to incumbents or political partitioning. Neither the Senate nor the House paid any attention to their inputs. Then again, since when do progressive elected officials listen to citizens when they can re-district them and thereby discount their vote.

Howell said she anticipates changes will be made to the legislation, but said her bill meets all federal and state requirements including the federal Voting Rights Act, which requires, among other things a percentage of voting districts in which minorities are a majority of the population. Not everyone agrees. In a letter to Senator Howell , Clarke County Board of Supervisors chairman Michael Hobert (Berryville) said “Clarke County strongly objects to being divided as part of the Virginia General Assembly redistricting process.” Hobert, an attorney, said that the plan also violates numerous legal precedents regarding election district creation. Citing the Guide to Local Redistricting for 2011, Hobert said that election districts are required to be “reasonably compact with irregular district shapes justified because the district line follows a political subdivision boundary or significant geographic feature” and must “represent communities of interest.” Hobert told Howell that her redistricting proposal achieves neither requirement and will divide Clarke County, a jurisdiction of less than 15,000 people and less than 10,000 registered voters, and violates the principles stated in the Guide to Local Redistricting for 2011 published by the Virginia Division of Legislative Services.

Robin Lind of the Virginia Electoral Board Association and Chesterfield County General Registrar Larry Haake said the new plans could create a substantial financial burden on Virginia's 134 counties and cities because of the number of voting precincts that would be split. Haake said that in Chesterfield alone, the plans could cost the county $600,000 to $1 million in the creation of precincts. State-wide cost is estimated at $6.2 to $6.7 million.

The governor can still fix this mess. McDonnell will get a shot at the final map. Then again, it must be approved by Obama's Department of Justice.   Wonder how that will work out for the citizens of Virginia, especially Virginia Beach?

Remember ...

"You're entitled to your own opinion, but you're not entitled to your own facts," Sen. Daniel Patrick Moynihan.

"Against public stupidity, the gods themselves are powerless." Schiller.

“Who controls the past controls the future. Who controls the present controls the past.” – George Orwell, 1984

"Statistics are no substitute for judgement," Henry Clay

"The problem with socialism is that you eventually run out of other peoples' money," Margaret Thatcher