Biased Opinion - A Senator Lies to You and Me

Look at the picture above. One of the two people in this picture is a public servant. The other is Senator Jeff DeMint, who is either a complete idiot, or a bald-faced liar. In this Meet the Press interview, he perpetuates a pile of complete untruths about the nature of the Federal deficit, and what must be done to balance the Federal budget. The short version is this: either Jeff DeMint is too stupid to understand the Federal budget (when debating and voting on said budget is a large portion of his fucking job), or he figures that you, me, and everyone else in the world simply won't call him out when he lies about it.

First he exposes a little bit of ignorance when says that raising the debt ceiling is like paying off your credit cards. It isn't. Raising the debt ceiling is like getting a raise on the limit on your credit card. The debt ceiling is, supposedly, a limit on the total amount that the Federal government can borrow. It is supposed to force Congress to exercise a little fiscal discipline by limiting the amount of debt the government can incur. But since Congress sets the debt ceiling and sets the budget, the reality is that the debt ceiling is more or less just a fictional number that gets moved when it is inconvenient for Congress.

This is really a minor peccadillo on DeMint's part. After misstating what the debt ceiling is, DeMint then says he won't vote to raise the debt ceiling unless that raise is accompanied by steps to reduce the deficit and move the budget into balance. And then things come apart for Senator DeMint. The major issue comes when interviewer Gregory David asks exactly how he proposes to reduce the deficit. He claims (among other things) that reducing Federal worker salaries and eliminating government waste will save "hundreds of billions of dollars". He says that we can do a lot of deficit reduction by cutting earmarks. He also says that there is no need to even think about making changes to social security, and proposes increasing the amount spent on medicare. This is all complete bullshit.

As I pointed out here, the non-defense discretionary budget is a relatively small proportion of total Federal spending. Even if you cut it all, the government would still run a deficit. The total cost of the civilian workforce for the Federal government is hard to estimate, since in addition to the salaries paid there are benefits to account for, which makes the calculations murky. I've seen a couple estimates, and the absolute highest I've seen is that in fiscal year 2010, the entire civilian workforce will cost about the Federal government about $260 billion. If you fired every Federal worker and reduced the amount spent on them to zero (you can't, a lot of benefits are for ongoing things like retirement benefits), you'd only save between about a fifth and a fourth of the total deficit. And that requires that you fire everyone. Including the President, every member of Congress, every federal judge, including all the Supreme Court justices, every FBI agent, every IRS agent (and if you fire them, who is going to collect the taxes to pay for everything anyway), every park ranger, every employee of the social security administration, every FDA food inspector, and, well, you get the idea. Just reducing the Federal workforce or cutting worker salaries would get you far less of a deficit reduction.¹ In the overall scheme of things, probably a comparatively trivial amount.

DeMint's other two areas for reducing spending - eliminating government waste and getting rid of earmarks, are too trivial to even consider. The 2010 budget contains about $50 billion in earmarks. Which sounds impressive, until you realize that this amounts to 1.4% of the Federal budget. Government "waste" is always touted as a way to save lots of money, but realistically these concerns are always overblown. If one is generous then maybe a similar amount of money is "wasted" as is spent on earmarks (and defining what is and is not waste is a very murky subject to begin with). Even if you assume you can eliminate earmarks and waste entirely, you're saving, maybe $100 billion. And that assumes you eliminate them entirely.

This also assumes that by not earmarking money, you aren't spending it. All an earmark really is is directed spending. If the government is going to spend, say $50 billion on new airplanes for the Air Force, and a Congressman earmarks $1 billion of that to be spent in his district, all that truly means is that $1 billion of the money has to be spent in that Congressman's district. Eliminating the earmark could mean that the $1 billion in spending is also eliminated, or it could just mean that the total amount to be spent is now at the discretion of the appropriate executive agency officials (in this case, that would probably be the Secretary of the Air Force).

So even in the most optimistic scenario for Senator DeMint, he's saved about $350 billion or so. And that's if he fires everyone, eliminates all waste, and cuts all spending currently intended on earmarks. That still leaves a deficit of about $700 billion. Obviously, even that much budget cutting cannot happen using DeMint's targets (the government couldn't function with no civilian workforce after all), so the best he can reasonably hope for would probably be something closer to $100 billion, and then only if he makes some pretty draconian cuts to the Federal workforce and the pay of Federal workers.  In which case, you've pretty much wrecked the economy of both Virginia and Maryland at least, because Federal workers do, in fact, spend their money where they live, feeding those dollars into the economy and helping fuel the prosperity of their region.

And you may have noticed that none of this gets us even close to making a dent of any real size in the $1.17 trillion deficit the Federal government is expected to run in fiscal year 2010.² The simple fact of the matter is that mandatory spending - social security, medicare, medicaid, interest on the debt, and so on, makes up 60% of Federal spending in a typical year. And as the Baby Boomers age and retire and begin collecting social security and claiming medicare benefits, the dollar total of benefits that the Federal government is obligated to pay is only going to grow. Unless we take serious steps in multiple areas, the budget will never be balanced. We have to, among other things, raise more revenue, cut benefits, and reduce defense spending to have any hope of achieving a balanced budget. And even then it will be questionable if it can be done. And blowhards like Senator DeMint spouting complete bullshit and lying to everyone isn't going to help matters any.

¹ For the record, the Federal government, in my self-interested experience, gets a great deal with respect to its employees. Yes, the average Federal worker gets paid more than the average non-Federal worker (although not anywhere near "twice what the average worker does"). We are also, on average, better educated and have more experience than our non-Federal counterparts. Anecdotally, I would make far more money in the private sector than I make as a Federal lawyer.

² The fiscal year for the Federal government runs from October 1 to September 30. Each fiscal year is designated by the year it starts in. So the fiscal year that started last month on October 1, 2010, which will run until September 30, 2011 is fiscal year 2010.

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Biased Opinion - Marsha Blackburn and the Federal Budget

Last night, as the Republican Party took control of the House of Representatives and pared down the Democratic majority in the Senate, Chris Matthews interviewed Republican Congresswoman Marsha Blackburn about how to balance the budget. And Mrs. Blackburn quickly demonstrated that she has no fucking clue concerning the nature of the Federal budget. Either that, or she does understand the Federal budget, and considers Matthews, Maddow, and you and me simply too stupid to see through her bullshit. She first states that we must keep the tax reductions and repeal the Health Care bill, and then when asked how she would balance the budget that she would endorse "across the board" spending cuts.

And then she runs right off the rails.

Matthews asks if this means she is prepared to cut social security, medicare, defense spending and so on. Blackburn immediately backtracks saying that she meant across the board discretionary spending cuts, but that discretionary spending does not include defense spending. At this point, Blackburn has excluded almost all of Federal spending from her definition of "across the board" spending cuts. Some people might be confused by this, but the fact is that in the Federal budget request for the 2009-2010 fiscal year "mandatory spending" (which covers social security, medicare, medicaid, interest on the national debt, and other mandatory entitlement programs such as food stamps) accounts for sixty-one percent (61%) of total Federal spending. Of the remaining thirty-nine percent of federal spending that constituted "discretionary spending", the Department of Defense accounts for just under half of that (48% of discretionary spending), or about eighteen point six percent (18.6%) of total Federal spending. The rest of the government, the part that Blackburn says she'd advocate as candidates for "across the board" spending cuts amounts to just a touch more than twenty percent (20%) of federal spending.

Now before we go on, stop and think about this for a minute. Everything the Federal government does that is not social security, medicare, medicaid, interest on the debt, or defense spending amounts to about 20% of the total amount of money the Federal government spends in a typical year. That includes the Departments of Justice, State, Commerce, Energy, Agriculture, Transportation, Interior, Treasury, Labor, HUD, HHS Homeland Security, and Education, plus NASA, the National Science Foundation, the Small Business Administration, the administrative costs of running the Social Security Administration, and pretty much everything else falls into that 20%. And before someone runs out and starts talking about how much the TARP funds have cost us, the 2009-2010 budget request includes no spending on TARP.

(Just for the record, the budget for NASA amounts to 0.5% of Federal spending in the 2009-2010 budget request. The budget for the National Science Foundation amounts to 0.2% of Federal spending. We spend almost nothing on science in this country).

And even if you cut the budget for all of those agencies to zero, the U.S. would still run a deficit. In 2010, the Federal government estimates it will have receipts of $2.381 trillion (income taxes, social security taxes, corporate taxes, excise taxes, customs duties, and estate and gift taxes for the most part). The total Federal outlays are projected to be $3.552 trillion. This leaves a total deficit of $1.171 trillion. Non-defense discretionary spending in the 2010 budget request amounts to about $704 billion. So, exactly how does Mrs. Blackburn propose to make even a remote dent in the deficit by means of her targeted cuts? (You cannot exclude so much of the budget and credibly call them "across the board"). Either she is shockingly ignorant of the Federal budget, which is inexcusable for a sitting member of Congress, or she thinks we are too stupid to understand that she is spouting bullshit, which is offensive in the extreme.

At this point I'd like to point out the difference between the Federal deficit and the Federal debt. The Federal deficit is how much money the Federal government spends over the amount it brings in during a single year. The Federal debt is the total amount that the Federal government owes overall. While the 2009-2010 Federal deficit is currently projected to be a mammoth $1.171 trillion, the total Federal debt as of October 2010 is a gargantuan $13.6 trillion, more than thirteen times the current deficit. (For comparison purposes, the total gross domestic product of the United States is about $14.3 trillion).

We simply cannot hope to balance the budget by nibbling at the margins like this. It simply cannot be done unless we decide to seriously tackle the question of mandatory spending. And by that I mean addressing the cost of programs like social security, medicare, and medicaid, which make up the lion's share of mandatory spending. We are going to have to take real steps - raising the retirement age, means testing social security, reducing benefits and so on and serious spending cuts in the Department of Defense as well as other areas if we want to have any hope of ever balancing the budget. And we may need to raise more revenue to boot. Mrs. Blackburn claims she wants to have an "adult conversation" about balancing the budget, but then resorts to childish attempts to deflect the conversation from where it needs to be. This is where the adult conversation needs to start. At the current rate, the Federal debt is projected to reach $20 trillion by 2015. The Federal government, at some point, will be unable to borrow money any more.

This is not a question of ideology, or economic models, or party allegiance. This is simple math. We have to get our financial house in order, and quite simply, I don't think that either of the major political parties is prepared to even consider doing what needs to be done in order to accomplish that.

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Biased Opinion - Taxes

So, it is political season, and it is starting to hit Virginia in earnest. Campaign ads are all over the television and radio, we have gotten campaign calls pretty much every day for a while now and so on. And, of course, I watched the candidates lie a lot.

If you didn't gather this before, in my my day job I work for a federal agency as a fiscal law attorney. Most people look at me when I tell them that with this puzzled look on their face wondering what the heck that means. Basically, my job is to advise people who I work with concerning the legalities of spending that portion of federal money allocated to our agency. I also look at the budget when it is being developed in order to see if there is anything we need to know about ahead of time, or think we need to ask Congress to change for various reasons. Although not strictly necessary for my job, this has also given me some contact with the tax code that brings the revenue in to the government.

Knowing this, I am never surprised when candidates for federal office display a shocking ignorance of the federal budget when they talk about what they intend to do in office. When people running for Congress or the Senate for the first time do this, I usually excuse it and figure they might learn if and when they get there. But when candidates for the nomination for President, who have served in the Congress and are touting their experience or their skill in managing legislation do this, I worry. It comes down to this: Passing the various appropriations bills is almost always the most important thing that Congress accomplishes in most years. In some years it is the only important thing Congress accomplishes.

More often, I worry about silly tax code pronouncements. Usually they talk about providing a "middle-class tax cut", because that sounds nice and egalitarian, and everyone pretty much universally thinks it is a good idea (because the vast majority of people in the country think that they are middle-class, and any middle-class tax cut will, by definition, apply to them). The problem is that such pronouncements are usually little more than lies.

The problem is that for just about any income tax cut, the bulk of the benefits will go to the very highest income earners, almost by default. The secret to income taxes in this country is that the wealthy pay almost all of them. The top 50% of income earners pay about 97% of the income taxes. The top 5% of income earners pay about 57% of the income taxes. The top 1% of income earners pay about 37% of the income taxes. Even if you define "middle-class" as being income earners between the 50^th percentile and the 95^th percentile, they only pay about 40% of the total income taxes paid. This reality makes it very difficult to create a tax cut that doesn't end up with most of the benefits accruing to the top of the income barrel - because that's where most of the money comes from. This, of course, gets people up in arms about how the tax cuts which were sold as being for the middle-class have ended up in the hands of the wealthy.

Now, this isn't a call for reducing taxes on the "wealthy", and I am not making any assessment as to how much taxes should be overall. But the reality is that after deductions and adjustments, the typical middle-class family probably only pays 4-5% of their income in income taxes as it is. There just aren't a lot of ways to drive that number down. If a politician was really serious about a middle-class tax cut, he'd look at some of the other taxes everyone pays, taxes that hit middle-class (and lower-class) individuals harder than their wealthy counterparts. The social security tax is "capped", meaning that if you make a lot of money, there comes a point where you can stop paying more into the system. The social security tax is also about 6% paid by the employee and 6% "paid" by the employer (and the reality is that the employee effectively pays the tax, he just doesn't know it), which is a much higher rate than most people end up paying in income taxes. That would be a place that the burden could be shifted "up" and the burden placed more squarely on higher income earners. It would also be a perfect place to reduce taxes on the middle-class. Of course, it would be political suicide for anyone to propose this - social security is called the third rail of American politics for a reason.

The federal government also taxes a lot of things directly at the point of sale as excise taxes. The most obvious is gas - every gallon of gas sold nets the government 18 cents (24 cents for every gallon of diesel sold). This is a lot more per gallon than the oil companies make in profit on that same gas. While the income tax is designed to be progressive, an excise tax like this is regressive - in other words, it hits those with lower income more, since it is a flat amount of money that has to be paid any time a gallon of gas is purchased. Any politician that was truly serious about reducing the tax burden on the middle-class would reduce the gas tax. Although they are taxes imposed by the states, the various sales taxes are also regressive - if a presidential candidate came up with a way to reduce the burden these sales taxes impose I would be impressed (on the converse, I was amazed when Clinton proposed a national value added tax, a hugely regressive type of tax; the proposal was, thankfully, widely ridiculed, and soundly rejected). Property taxes are also imposed by the states, and mostly hit middle-class homeowners, although you can take a credit on your income taxes.

So, the upshot of my rambling is that I have yet to see a candidate who actually has proposed any kind of tax system that will change the tax burden on the middle-class in a meaningful way. Ever. In any election. As long as they keep tinkering with the income tax system as their exclusive playing field, I don't think anyone ever will.

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