Where Two Paths Diverge...

Here is the truth about the future: We are living on borrowed money and borrowed time. These deficits hike interest rates, clobber exports, stunt investment, kill jobs, undermine growth, cheat our kids, and shrink our future. 

- Walter Mondale, Democratic Presidential nominee, July 19, 1984 Democratic National Convention

Today, President Obama acknowledged reality.  Just two months ago, he submitted a 10 year budget that said and did nothing to lower our deficit in the near term.  Unusual as it is for a President to scrap his own plan, Obama was forced to present a new plan due to the reasoned response to Paul Ryan's The Path to Prosperity and it's acceptance as a serious proposal.  His choice was to either allow the Republicans to direct the narrative or attempt to offer a competing vision on how to accomplish the same goals.

 

Despite acknowledging reality today, the President chose to offer a 12 year plan that will do little other than make it seem he is doing something.  Talk of commissions, defense cuts and future year triggers means that he has no intention of changing his current spending plans.  Instead, he offered numerous tax increases as his planned "spending cuts".  His new approach sounds like his old approach and brings to mind another failed liberal politician.  

“If Dukakis is elected, he would act next year as he acted last week: trim here and there, but then take a frequent flyer to the last resort [new taxes]. He would accelerate rather than break the spending urge in Congress.”

- William Safire
New York Times
6/29/88

Americans have come to the realization that the status quo is not sustainable.  In Ryan's plan, the Republicans have offered a real plan that will seek to balance the budget over the long term by overhauling our taxcode to make it fairer and making changes to Medicare and Medicaid now in order to make these programs sustainable.  In responding to the Republicans 2012 budget proposal, Obama has chosen to champion a course that would make Michael Dukakis proud by pledging to tax our way to prosperity. 

For all the faults with the President's plan, the greatest is that he attempts to hijack the narrative with a falsehood.  The only real spending cuts he offers are tax increases.  As I'm sure many of you have heard, we don't have a revenue problem, we have a spending problem.  In using an Orwellian nomenclature of calling a tax increase, a "spending cut", Obama seeks to confuse the issue.

In the 1990's a combination of events led to a few years of budget surpluses.  Following the fall of the Soviet Union, National Defense was downsized to cash in on the Peace Dividend.  After being elected, Bill Clinton raised taxes on an expanding economy and then two years later, a Republican congress began reigning in discretionary spending.  Looking at the chart, we can see spending increased back to 20% of GDP following 9/11 and was held there until Nancy Pelosi and the Democrats regained control of Congress.  From there, spending took an immediate upswing.  Under Obama, this spending has been made worse.

Deficits are expected to increase in a recession as revenues decrease, which did happen in 2008.  But by shifting our spending baseline in such an extreme way, Obama has accelerated our impending demise.  The truth is that with or without our current increases in discretionary spending, our spending will soon drive us into a hole that threatens to swallow us.

The President's response to raise taxes while leaving entitlements untouched will only delay by a few years the inevitable.  Soon our entire revenue stream will be spent on entitlements.

Raising tax revenues from the historic level of 18% of GDP will only offer us, at best, a temporary respite.  Of course, raising tax rates has no guarantee of increasing revenue.   As Larry Kudlow writes at National Review,

Of course, the president’s formula of estimating higher revenues to lower the deficit is completely wrong. The reality is that higher tax rates will slow the economy, inhibit new start-up companies, penalize investors, and may very well lose revenues and increase the deficit.

It is questionable what raising tax rates will do to our economy.  What is not questionable is what will happen to our debt if we do not address the real source of our future troubles.

No amount of tax increases will ever be able to manage debt of this size.  Any plan that does not seek to alter or amend Medicare spending is not a serious plan.  Today, our entitlement spending is 58% of our spending.  Add in interest payments and we're now over 75%.  National defense and discretionary spending are left with only 1/4 of our budget.  In the past, our defense spending was close to half of all spending.  Today it sits at 20% and the President looks to cut if further.

 

While he presents us with cuts from a declining slice of the pie, he makes no offer to deal with the programs that will soon make up the entire pie.  What happens then?  Imagine a government shutdown that never ends.

As I have tried to make clear, we cannot ignore the real driver of our budget deficit.  It's the huge twinkie in the room.  Last week's budget showdown over spending cuts in our non-defense discretionary spending is chump change compared to the real issue - entitlements.

That's a big twinkie and it will continue to grow no matter how high taxes are raised. 

In 2008, a very liberal Senator Barack Obama ran as a centrist, promising to cut the budget, not raise taxes on the middle class and be pragmatic and do what works.  Now, when his leadership has been challenged to a large degree by Rep. Ryan, a very liberal President Obama showed us his true colors - tax and spend.  His proposal will soak the rich while cutting defense in order to keep spending more on "investments".

40 years ago, Medicare, Medicaid & Social Security spending was 4% of GDP.  Today it is 10%.  In another 40 years, it is projected to be at 18% - the historical average for tax revenues.  At that point, we have no other money left for defense, interest payments or running the government.  Then, or even sooner, those programs, along with a whole host of other government spending will be cut or eliminated - unless we make changes now.

In choosing to confront Ryan's Path to Prosperity, the President, instead chose to offer up a European vision for a Path to Austerity.  As the two paths diverge, the choice is clear.

Obamacare - Accelerating Toward the Abyss

Do you remember the world before Obamacare?

Let's go back to the world of healthcare as it existed 18 months ago.  It's expensive, some go without any insurance and for too many Americans, a serious illness can cause bankruptcy, home foreclosure and other financial pitfalls, but care is available; if not at the doctor's office, then at the ER.  For some, the high price of prescription medication is cost prohibitive.  Our system is heading for the abyss.  Something must be done. 

Obamacare (Health Care Reform Law - PPA) was passed a year ago.  It provided that:

• All Americans must buy insurance that meets certain minimum standards (regardless of cost) under penalty of a fine
• Eliminate normal market incentives to purchase insurance before medical care is needed
• Insurance companies must cover young men and women up til the age of 26 as 'children' on their parents coverage - even if they are married and have a job
• The Federal government will pay large corporations and unions money not to drop coverage for retirees (even if they hadn't planned on dropping coverage)
• The Federal government will stop offering a tax benefit to employers that continue to cover Medicare aged retirees
• Employers that choose to offer insurance coverage to employees may not implement any lifetime cap on benefits paid.
• Funnel money away from patient care into lawyers fees
• Mandate that insurance companies spend a minimum % of fees toward care
• Enroll an additional 30 million into Medicaid
• Incentivize employers to drop all healthcare coverage

Does this new healthcare system fix the problems of our current system?  Does it fix anything?  Have we avoided the abyss or are we now moving faster toward it?  Nancy Pelosi said we had to "pass it to see what's in it".  Well, do we like what's in it?

In truth, Obamacare is a misnomer; the President was just as uninvolved with the formation of this healthcare reform law as he has been on most legislation.  He gave the Democrat leadership a set of parameters of what he wanted and let Congress fill in the details.  He gave many speeches taking ownership of the end product, but it would really be more proper to call this Pelosicare.  At the end of the day though, it's his signature issue, so Obamacare is a reasonable tag.

Back to my point.  In what world would anyone devise a system with this list of provisions and believe they have done anything constructive for our problems?  It has absolutely no chance of 'bending the cost curve down'.  Even with a large increase in taxes, the plan will add to our deficit.  Instead of turning the wheel, we have simply stepped on the accelerator.

Senator Evan Bayh, who voted for the reform law said, [h/t Hotair.com]

The real issue that was not addressed, Laura, that you’ve raised now, and I think appropriately, is the cost, the cost to both the government and to your listeners. We need to take steps now to get the costs of health care under control. That was not dealt with really in an aggressive way in this legislation. I think it now needs to be.

I may be wrong, but I thought cost was the primary reason for the healthcare reform.  But wait, there's more.

The AP is reporting that one of the effects of the new law is that the market for concierge doctors is expanding allowing the wealthy to put a personal physician on retainer.  At the opposite end, the NYT notes that expanding the Medicaid rolls doesn't increase access to healthcare since many care providers refuse to accept Medicaid, which often pays less than the cost of the care provided.

Recently the Obama administration admitted that they had payed out $1.7 billion in payments, as part of Obamacare, called the Early Retiree Reinsurance Program.  It's designed to pay companies to continue coverage for their early retirees, but most of the money has gone to companies such as GE and ATT, along with the United Auto Workers.  This isn't going for a new benefit, but simply to pay them to continue what they already offer.

In addition, AARP will reap a fortune from the new law.  The CBO has admitted that the law will destroy 800,000 jobs and cost states $118 billion over the next 12 years.  The law raises taxes and increases costs.  In fact, HHS Secretary Kathleen Sebelius finally admitted that the law double counts money.  They have to do this to make it seem cost-effective.

In another month, I will begin negotiating our union's new collective bargaining agreement with my employer.  The issue of healthcare has always been contentious, but it will even be more so this year.  Rather than allowing us to negotiate between our two sides, we are limited by the new healthcare law.  Certain provisions must be part of our agreement's healthplan, even if neither the union or management want it.  Our hands are tied, while my employer has been provided incentives by the new law, to simply drop coverage.

The new healthcare law is so bad, that employers and unions all over the country are requesting waivers from certain provisions.  Even states are seeking waivers.  The state of Maine has received a waiver from the required care percentage.  Some politicians have said that all 50 states should be exempted if one is.

Other employers that have formerly offered coverage below the new minimum standards, may simply drop coverage now if they do not receive a waiver.  Even employers, such as Starbucks, that supported its passage are now showing concern for the costs.

Some insurers, unable to charge for pre-existing conditions, can no longer offer coverage at a profit and have simply stopped offering coverage to certain segments of the population.

The mandate that all Americans must purchase insurance is being fought in the court system and stands a good chance of being struck down by the Supreme Court as unconstitutional; and it should be.  Let's hope so, because the IRS has increased hiring in preparation to enforce it.

Despite claims that the negotiations for health care reform would be broadcast on CSPAN, the Obama administration has been less than transparent.  When the House Energy and Commerce Committee requested records of healthcare meetings held by the White House, the administration denied the request.  As one of the participants in those talks, Kaiser CEO George Halvorson was reported to have said, "the real discussion this time, behind those closed doors, is about changing the way care is delivered. Not about the cost."

In over 2000 pages, Obamacare manages to stick it's finger into every pie of our healthcare system and will leave us poorer, less healthy and with a system that is less fair than what we had.  The law manages to be wrong in just about every way imaginable.

If you watch the NFL, you have seen how instant replay has changed officiating.  In addition, the NFL officiating committee has sought to clearly define certain issues that are still ambiguous under replay.  One, the 'tuck rule' creates a highly complex determination of whether the quarterback has fumbled, by attempting to discern what his intent was.

Another complex rule states that when a receiver goes to the ground in the process of catching the ball, he must retain possession throughout the entire process.  What this means is that if he falls down making the catch, rolls around a few times the ball cannot become dislodged during that movement.  In practice, by the letter of the law, when a receiver dives to make a catch in the end zone and he, in his exuberance to celebrate, tosses or drops the ball on his way back up from the ground, the pass has to be ruled in complete; even when it's obviously a catch.

I offer this as a way of saying that we need to keep the rules simple.  When we make the rules complex, we allow too much room for unintended consequences.  A basic principle in life is that the rules always progress further and further into complexity until the system becomes inoperable and must be scrapped or reformed.  This complexity creates injustice.

Our tax code is a good example.  It's jam-packed, full of loopholes and complexity that create injustices as profitable companies pay no taxes while the middle class pays its share.  It needs to reformed.  Try and imagine a tax code reform that used 2000 pages to create a system that is even more complex than what we currently have. 

Reform should be a do-over - a chance to remake the system, but our healthcare reform instead pushes us further down the hole.  It doesn't remake anything and it doesn't reform anything.  It simply gives us more of what's already wrong with our system, thereby accelerating its demise.

It's time to hit the brakes and stop the madness before the full implementation of Obamacare.  If we don't, I'm afraid of where we will end up.  We must repeal it and replace it with a few commonsense reforms instead.

1. Allow insurance coverage to be sold across state lines.  Currently, each state regulates coverage seperately creating a complex web of 50 different set of regulations for insurance companies to navigate.
2. Tort reform.  Eliminate one of the chief cost drivers.  In obstetrics, malpractice insurance is driving doctors from the market.  Lower supply means higher costs.
3. De-link coverage from employers.  The greatest turmoil in healthcare is caused during the loss or change of employment, but why?  Changing employment doesn't affect your car insurance or your electric bill.  It shouldn't affect your healthcare coverage either. 

Some have used these issues to propose universal (single payer) coverage, but this does nothing for the cost.  In fact it would cause a larger problem.  Increased demand with lower supply will send costs higher than ever.

These three reforms will enhance competition, put real purchasing power into the hands of individuals (which is lacking) and stop putting our healthcare dollars into the pockets of high priced lawyers.  The end result will be more care for less money.  Isn't this the real reason we wanted reform anyway?

Tell Them About the Twinkie

I love Washington DC math.  I'm already a math geek as it is, but when you throw in a certain amount of creativity, math can really be a lot of fun.  I just wish there was a tangible use for Washington math in the real world.  Balancing my household budget would be a piece of cake.  If only...

This week, HHS Secretary Kathleen Sebelius testified before a House subcommittee.  She was questioned on an obvious budgetary fudge of double counting money saved from cuts to Medicare Advantage.  During questioning Rep. John Shimkus (R) asked her,

What’s the $500 billion in cuts for? Preserving Medicare or funding the health-care law?

Sebelius’ reply? “Both.”

By the sheer force of her will power, Secretary Sebelius is able to take $500 billion in cuts and double that into $1 trillion.  Her talents are being wasted in HHS.  Surely the ability to double money on a whim could be used more productively in other areas.