Friday, March 11, 2011

The Democrats fiddle while our fiscal health burns

The Democrats seem to have taken the position that it is better to demagogue on spending and pretend that we have no problem than to actually do anything to address the huge liabilities we are piling up in our entitlement programs as well as the massive debt that we have been piling up.

Jonah Goldberg has some fun ridiculing the Democrats on the Hill as they whine about drastic cuts that the GOP are advocating.
According to earthly logic, if you got a raise of 10 percent last year, but this year you got a raise of only 8 percent, you still got a raise. On Planet Washington, that qualifies as an indefensible slashing.

So when the GOP actually cut $4 billion from the budget last week, the Democrats acted as if it was an involuntary amputation.

Now the GOP wants to cut $61 billion of discretionary non-defense spending from the total budget of $3.7 trillion, and Democrats are responding as if this will spell the end of Western civilization.

But given their terror of forcing a government shutdown in this tea-soaked climate, Democrats were forced to counteroffer with a cut of $10.5 billion, or 0.28 percent of the federal budget. Imagine you have a budget of $10,000 (about 40 percent of it borrowed on a credit card), then “slash” 28 bucks. That’s what it’s like to be a frugal Democrat.

Fox News Sunday host Chris Wallace repeatedly pressed Sen. Dick Durbin: Is $10.5 billion in cuts “really the best the Democrats can do?” The No. 2 Senate Democrat responded, eventually: “We’ve pushed this to the limit.” Any cuts beyond that would simply crater our economy and gut “investments” to make us competitive with China. Apparently, Durbin thinks trimming the staff at the Oregon National Laboratory will result in us all becoming busboys at a Beijing restaurant.

Meanwhile, Nancy Pelosi, the House minority leader, makes Durbin look stingier than the guy who invented copper wire by refusing to let go of a penny. Her solution to the deficit is — wait for it — to spend a whole bunch more. In October, Pelosi said that every dollar spent on unemployment benefits and food stamps puts another $1.79 into economy. “It is the biggest bang for the buck when you do food stamps and unemployment insurance.”

If that were true, why not drop bags of cash from C-130s over the unemployed and poor?
And of course, there is always President Obama and Harry Reid to kick around.
Why am I talking about Durbin and Pelosi? Well, Obama is in a fetal crouch under the Oval Office desk, muttering something about the need for courage and bipartisanship while quietly proposing $6.5 billion in cuts, which the Congressional Budget Office said is really only $4.7 billion. (That’s about $700 million more than the U.S. spends in borrowed money every day. Imagine someone in obscene debt going a little more than 24 hours without using his credit card. Problem solved!)

Oh, and Senate majority leader Harry Reid seems determined to keep talking until the men in the white coats escort him off the Senate floor. He was last heard saying the GOP has gone crazy because it had cut funding to a cowboy-poetry festival in Nevada. No, really. Stop laughing.
Think of it. When Harry Reid wanted to decry GOP cuts, the best he could come up with is the cowboy-poetry festival.

So what is behind all this? The Democrats simply don't give a flip about spending. They like big government and so every program ever created needs to stay and, they hope, expand.
In 2007, the budget was 19.6 percent of the GDP. In 2009, it went up to 25 percent of GDP. That’s where the Democrats would like it to stay.

What happened? The financial crisis, of course. But as many of us suggested at the time, one of the Democrats’ real motives behind the stimulus was to inflate the “baseline” budget so that huge increases would never be reversed thanks to the D.C. logic that a cut in growth is a cut.

Now, Democrats greet any attempt to restore the size of government to its pre-crisis size — when we were still living way above our means — as if America would be plunged into the Stone Age.

Look at it this way. Those heartless Republican bastards would cut 2011 non-defense discretionary spending from 3.6 percent to 3.2 percent of GDP. Under Bill Clinton, such spending averaged 3.1 percent of GDP.

We owe $14 trillion we don’t have. Our total liabilities — i.e., Social Security and other entitlements — dwarf that. Obviously, we can’t just cut discretionary spending alone. But if it’s this hard to ask rough-rider poets to cowboy up, how are we going to deal with what everyone agrees is the much harder stuff?
And even if we came to some sort of agreement on discretionary spending, we still have to do something about entitlements. As Charles Krauthammer writes today, the easier problem to fix will be Social Security. Everyone agrees that we need some combination of raising the retirement age, changing the indexing formula, and some sort of means testing so that the wealthier seniors would not receive as much as the poorer ones.

But the Obama administration is so very dishonest that it is now pretending that there is no problem. And the guy they've sent out to make that claim is OMB director Jack Lew, a man who worked in Clinton's OMB in the 1990s. Strikingly, Obama OMB Lew is claiming that there is a solvent Social Security trust fund, a claim that the Clinton OMB Lew knew to be absolutely false. Krauthammer explains the dishonesty involved here.
The new line from the White House is: no need to fix it because there is no problem. As Office of Management and Budget Director Jack Lew wrote in USA Today just a few weeks ago, the trust fund is solvent until 2037. Therefore, Social Security is now off the table in debt-reduction talks.

This claim is a breathtaking fraud.

The pretense is that a flush trust fund will pay retirees for the next 26 years. Lovely, except for one thing: The Social Security trust fund is a fiction.

If you don't believe me, listen to the OMB's own explanation (in the Clinton administration budget for fiscal 2000 under then-Director Jack Lew, the very same). The OMB explained that these trust fund "balances" are nothing more than a "bookkeeping" device. "They do not consist of real economic assets that can be drawn down in the future to fund benefits."

In other words, the Social Security trust fund contains - nothing.

Here's why. When your FICA tax is taken out of your paycheck, it does not get squirreled away in some lockbox in West Virginia where it's kept until you and your contemporaries retire. Most goes out immediately to pay current retirees, and the rest (say, $100) goes to the U.S. Treasury - and is spent. On roads, bridges, national defense, public television, whatever - spent, gone.

In return for that $100, the Treasury sends the Social Security Administration a piece of paper that says: IOU $100. There are countless such pieces of paper in the lockbox. They are called "special issue" bonds.

Special they are: They are worthless. As the OMB explained, they are nothing more than "claims on the Treasury [i.e., promises] that, when redeemed [when you retire and are awaiting your check], will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures." That's what it means to have a so-called trust fund with no "real economic assets." When you retire, the "trust fund" will have to go to the Treasury for the money for your Social Security check.

Bottom line? The OMB again: "The existence of large trust fund balances, therefore, does not, by itself, have any impact on the government's ability to pay benefits." No impact: The lockbox, the balances, the little pieces of paper, amount to nothing.

So that when Jack Lew tells you that there are trillions in this lockbox that keep the system solvent until 2037, he is perpetrating a fiction certified as such by his own OMB. What happens when you retire? Your Social Security will come out of the taxes and borrowing of that fiscal year.

Why is this a problem? Because as of 2010, the pay-as-you-go Social Security system is in the red. For decades it had been in the black, taking in more in FICA taxes than it sent out in Social Security benefits. The surplus, scooped up by the Treasury, reduced the federal debt by tens of billions. But demography is destiny. The ratio of workers to retirees is shrinking year by year. Instead of Social Security producing annual surpluses that reduce the federal deficit, it is now producing shortfalls that increase the federal deficit - $37 billion in 2010. It will only get worse as the baby boomers retire.
So why perpetrate this lie? The answer is clear: election 2012. Obama would rather run a campaign of demagoguery against Republicans for talking responsibly about our fiscal health than actually be a leader on one of the most serious problems facing our country today. He'll do the feel-good small stuff like hold White House meetings on school bullying, but when it comes to making sure that our fiscal health doesn't implode in the future, he's leading the way in demagoguery and dishonesty. He'll fiddle and figure that he'd be long gone from the White House when the bad stuff hits the fan. That's just the type of leader these guys are.