The Revenue Limits of Tax and SpendWhether rates are high or low, evidence shows our tax system won’t collect more than 20% of GDP.By DAVID RANSONWall Street Journal – link to originalMay 17, 2020
The Greeks have always been trendsetters for the West. Washington has repudiated two centuries of U.S. fiscal prudence as prescribed by the Founding Fathers in favor of the modern Greek model of debt, dependency, devaluation and default. Prospects for restraining runaway U.S. debt are even poorer than they appear.
U.S. fiscal policy has been going in the wrong direction for a very long time. But this year the U.S. government declined to lay out any plan to balance its budget ever again. Based on President Obama’s fiscal 2011 budget, the Congressional Budget Office (CBO) estimates a deficit that starts at 10.3% of GDP in 2010. It is projected to narrow as the economy recovers but will still be 5.6% in 2020. As a result the net national debt (debt held by the public) will more than double to 90% by 2020 from 40% in 2008. The current Greek deficit is now thought to be 13.6% of a far smaller GDP. Unlike ours, the Greek insolvency is not too large for an international rescue.
As sobering as the U.S. debt estimates are, they are incomplete and optimistic. They do not include deficit spending resulting from the new health-insurance legislation. The revenue numbers rely on increased tax rates beginning next year resulting from the scheduled expiration of the Bush tax cuts. And, as usual, they ignore the unfunded liabilities of social insurance programs, even though these benefits are officially recognized as “mandatory spending” when the time comes to pay them out.
The feds assume a relationship between the economy and tax revenue that is divorced from reality. Six decades of history have established one far-reaching fact that needs to be built into fiscal calculations: Increases in federal tax rates, particularly if targeted at the higher brackets, produce no additional revenue. For politicians this is truly an inconvenient truth.

The nearby chart shows how tax revenue has grown over the past eight decades along with the size of the economy. It illustrates the empirical relationship first introduced on this page 20 years ago by the Hoover Institution’s W. Kurt Hauser—a close proportionality between revenue and GDP since World War II, despite big changes in marginal tax rates in both directions. “Hauser’s Law,” as I call this formula, reveals a kind of capacity ceiling for federal tax receipts at about 19% of GDP.
What’s the origin of this limit beyond which it is impossible to extract any more revenue from tax payers? The tax base is not something that the government can kick around at will. It represents a living economic system that makes its own collective choices. In a tax code of 70,000 pages there are innumerable ways for high-income earners to seek out and use ambiguities and loopholes. The more they are incentivized to make an effort to game the system, the less the federal government will get to collect. That would explain why, as Mr. Hauser has shown, conventional methods of forecasting tax receipts from increases in future tax rates are prone to over-predict revenue.
For budget planning it’s wiser and safer to assume that tax receipts will remain at a historically realistic ratio to GDP no matter how tax rates are manipulated. That leads me to conclude that current projections of federal revenue are, once again, unrealistically high.
Like other empirical “laws,” Hauser’s Law predicts within a range of approximation. Changes in marginal tax rates do not make a perceptible difference to the ratio of revenue to GDP, but recessions do. When GDP falls relative to its potential, tax revenue falls even more. History shows that, in an economy with no “output gap” between GDP and potential GDP, a ratio of federal revenue to GDP of no more than 18.3% would be realistic.
In this form, Hauser’s Law provides a simple basis for testing the validity of any government’s revenue projections. Today, since the economy already suffers from a large output gap that is expected to take many years to close, 18.3% must be a realistic upper limit on the ratio of budget revenues to GDP for years to come. Any major tax increase will reduce GDP and therefore revenues too.
But CBO projections based on the current budget show this ratio reaching 18.3% as early as 2013 and rising to 19.6% in 2020. Such numbers implicitly assume that the U.S. labor market will get back to sustainable “full employment” by 2013 and that GDP will exceed its potential thereafter. Not likely. When the projections are tempered by the constraints of Hauser’s Law, it’s clear that deficit spending will grow faster than the official estimates show.
Mr. Ranson is the head of research at H. C. Wainwright & Co. Economics.
Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved

In Athens or in Washington, it’s the size of government that matters.By MONA CHARENNRO – link to original

“The President of Greece warned last night that his country stood on the brink of the abyss after three people were killed when an anti-government mob set fire to the Athens bank where they worked.” — TheTimes OnlineThat “anti-government mob,” it must be understood, consisted of civil servants, tens of thousands of whom took to the streets to protest austerity measures. Greece is in the midst of a general strike. Airports are closed. Trains are not running. Classrooms are empty. Trash is piling up. The Wall Street Journal reports that “angry youths rampaged through the center of Athens, torching several businesses and vehicles and smashing shop windows. Protesters and police clashed in front of parliament and fought running street battles around the city.” The Greek crisis, like a fraying rope on a footbridge, is also sending shudders throughout the Eurozone.This is more than a financial crisis. This is a national meltdown. And while facile comparisons to the U.S. must be avoided, there are nonetheless lessons for us — particularly in light of the direction the Democratic party wants to travel.First, the differences. Greece is a small nation of 11.3 million people. Its GDP is estimated to be in the range of $333 billion (though with recent revelations of government dishonesty about deficit numbers, all figures must be viewed skeptically). Greece partakes zestily in the Mediterranean tradition of tax avoidance, and corruption is endemic. Many ordinary transactions are greased with fakelaki (“little envelopes”) or rousfeti (“political favors”). Daniel Kaufmann, a senior fellow at the Brookings Institution, compared 40 industrialized countries and concluded, “If Greece had better control of corruption — not to Swedish standards, but even at Spain’s level — it would have had a smaller budget deficit by 4 percent of gross domestic product.”So Greece has cultural problems that contributed to its economic implosion. But there are similarities to the U.S. as well — and because we have elected Democrats, they are growing. By the end of 2011, Greece’s debt will be 150 percent of its GDP. According to a March report by the Congressional Budget Office, President Obama’s 2011 budget will generate nearly $10 trillion in cumulative budget deficits over the next ten years — $1.2 trillion more than the administration projected — which will increase our debt-to-GDP ratio to 90 percent by 2020.One in three Greeks works for the government. Government employees enjoy higher wages, more munificent benefits, and earlier retirements than private-sector employees. Civil servants can retire after 35 years of service at 80 percent of their highest salary and enjoy lavish health plans, vacations, and other perks. Because they are so numerous, and because Greece is highly centralized, public-sector unions hardly have to negotiate. They simply vote in their preferred bosses. Some civil servants receive bonuses for using computers, others for arriving at work on time. Forestry workers get a bonus for outdoor work. All civil servants receive 14 yearly checks for twelve months’ work. And it’s almost impossible to fire them — even for the grossest incompetence.Public-sector unions are growing in the U.S. More than 50 percent of all union members are now public employees, and their unions have negotiated sweet deals with local, state, and federal governments. As economic historian John Steele Gordon points out, “Federal workers now earn, in wages and benefits, about twice what their private-sector equivalents get paid. State workers often have Cadillac health plans and retirement benefits far above the private sector average: 80 percent of public-sector workers have pension benefits, only 50 percent in the private sector. Many can retire at age 50.” While private employers were shedding jobs during the recession, state and local governments hired 110,000 new workers.President Obama’s new spending will result in a 14.5 percent increase in the number of federal employees in just two years. And he has looked after union interests with particular zeal — at General Motors and Chrysler, by funneling one-third of stimulus spending to state and local governments, and by repealing the rule that required unions to disclose their spending, to name three examples.And in a corrupt feedback loop that may not be so very different from the Greek practice after all, public-employee unions give generously to Democratic candidates, both in cash contributions and by manning phone banks, getting out the vote, and so on.It’s no coincidence that the states with the most powerful public-sector unions — New Jersey, California, and New York — are facing the most severe budget crises.Greece is in flames, but if you look around, you can smell the smoke here as well.— Mona Charen is a nationally syndicated columnist. © 2010In Athens or in Washington, it’s the size of government that matters.”The President of Greece warned last night that his country stood on the brink of the abyss after three people were killed when an anti-government mob set fire to the Athens bank where they worked.” — TheTimes OnlineThat “anti-government mob,” it must be understood, consisted of civil servants, tens of thousands of whom took to the streets to protest austerity measures. Greece is in the midst of a general strike. Airports are closed. Trains are not running. Classrooms are empty. Trash is piling up. The Wall Street Journal reports that “angry youths rampaged through the center of Athens, torching several businesses and vehicles and smashing shop windows. Protesters and police clashed in front of parliament and fought running street battles around the city.” The Greek crisis, like a fraying rope on a footbridge, is also sending shudders throughout the Eurozone.This is more than a financial crisis. This is a national meltdown. And while facile comparisons to the U.S. must be avoided, there are nonetheless lessons for us — particularly in light of the direction the Democratic party wants to travel.First, the differences. Greece is a small nation of 11.3 million people. Its GDP is estimated to be in the range of $333 billion (though with recent revelations of government dishonesty about deficit numbers, all figures must be viewed skeptically). Greece partakes zestily in the Mediterranean tradition of tax avoidance, and corruption is endemic. Many ordinary transactions are greased with fakelaki (“little envelopes”) or rousfeti (“political favors”). Daniel Kaufmann, a senior fellow at the Brookings Institution, compared 40 industrialized countries and concluded, “If Greece had better control of corruption — not to Swedish standards, but even at Spain’s level — it would have had a smaller budget deficit by 4 percent of gross domestic product.”So Greece has cultural problems that contributed to its economic implosion. But there are similarities to the U.S. as well — and because we have elected Democrats, they are growing. By the end of 2011, Greece’s debt will be 150 percent of its GDP. According to a March report by the Congressional Budget Office, President Obama’s 2011 budget will generate nearly $10 trillion in cumulative budget deficits over the next ten years — $1.2 trillion more than the administration projected — which will increase our debt-to-GDP ratio to 90 percent by 2020.One in three Greeks works for the government. Government employees enjoy higher wages, more munificent benefits, and earlier retirements than private-sector employees. Civil servants can retire after 35 years of service at 80 percent of their highest salary and enjoy lavish health plans, vacations, and other perks. Because they are so numerous, and because Greece is highly centralized, public-sector unions hardly have to negotiate. They simply vote in their preferred bosses. Some civil servants receive bonuses for using computers, others for arriving at work on time. Forestry workers get a bonus for outdoor work. All civil servants receive 14 yearly checks for twelve months’ work. And it’s almost impossible to fire them — even for the grossest incompetence.Public-sector unions are growing in the U.S. More than 50 percent of all union members are now public employees, and their unions have negotiated sweet deals with local, state, and federal governments. As economic historian John Steele Gordon points out, “Federal workers now earn, in wages and benefits, about twice what their private-sector equivalents get paid. State workers often have Cadillac health plans and retirement benefits far above the private sector average: 80 percent of public-sector workers have pension benefits, only 50 percent in the private sector. Many can retire at age 50.” While private employers were shedding jobs during the recession, state and local governments hired 110,000 new workers.President Obama’s new spending will result in a 14.5 percent increase in the number of federal employees in just two years. And he has looked after union interests with particular zeal — at General Motors and Chrysler, by funneling one-third of stimulus spending to state and local governments, and by repealing the rule that required unions to disclose their spending, to name three examples.And in a corrupt feedback loop that may not be so very different from the Greek practice after all, public-employee unions give generously to Democratic candidates, both in cash contributions and by manning phone banks, getting out the vote, and so on.It’s no coincidence that the states with the most powerful public-sector unions — New Jersey, California, and New York — are facing the most severe budget crises.Greece is in flames, but if you look around, you can smell the smoke here as well.— Mona Charen is a nationally syndicated columnist. © 2010

by David Gergen

Parade – link to original article

May 9, 2010

Seventy-five years ago,  President Franklin D. Roosevelt was eager to weave a safety net under millions of impoverished Americans who were retired and had no savings. On his left, supporters called for a massive new government program. On his right, Republicans argued that it would bankrupt the country and undermine people’s habits of thrift and self-reliance.

Sound familiar?

FDR, ever the master, came up with an ingenious solution: create a program in which Americans would be asked to contribute to a social savings account that government would manage on their behalf and would be there for retirement. Instead of big government, it was to be a partnership that would encourage individual thrift and responsibility. Thus was born Social Security, overwhelmingly supported in the Senate by Democrats and Republicans (77–6 on final passage) and the most popular social initiative in the country’s history.

Where is that spirit of creativity and collaboration when we need it again? Today, many citizens are at dagger points as we argue over a question that has hung over us since the founding of our nation: How much government is good for America?

Democrats argue—with justification—that in the elections of 2006 and especially 2008, voters sent a clear signal that they wanted more government. Candidate Barack Obama asserted that free markets were broken and promised that Washington would ride to the rescue, saving the economy, overhauling health care, stopping global warming, and reforming K–12 education. Voters not only gave him 53% of their votes—the highest total for a Democrat in 44 years—but returned swollen Democratic majorities in the House and Senate.

Democrats can well say they had a mandate, and they insist that after throwing trillions of dollars at our problems, we are beginning to see success. The economic engines are indeed starting to rev up, and slowly—painfully so—people are finding work. So Democrats feel they will ultimately be celebrated.

But it is equally clear that, for now, these massive efforts are scaring the dickens out of a growing number of Americans, prompting a significant backlash. Republicans now argue—with increasing justification—that we are creating more government than we need, more than we want, and certainly more than we are willing to pay for. Consider just a few statistics.

• Public spending by federal, state, and local government was 24% of the Gross Domestic Product (GDP) in 1950, 35% before the Great Recession, and could hit 44% this year.

• The Tax Foundation estimates that 60% of all Americans now receive more in income benefits from government than they pay into government, and that with new policy directions, the number will grow closer to 70%.

• The Tax Policy Center has found that while everyone is expected to pay payroll taxes, only 47% of American households now pay federal income taxes.

• The European Union has agreed that it is dangerous for a country to allow its publicly held debt to exceed 60% of its GDP. The Congressional Budget Office says that the U.S. could hit 60% by the end of this year, and on its current course could hit 100% by 2020.

• Meanwhile, The Economist estimates that the federal government now employs a quarter of a million people to write and enforce regulations.

Personally, I find these trends troubling. If they continue, we will diminish both the vitality and prosperity of the nation. Government should be compassionate and yet lean. But I recognize that others who care just as much about the country’s future sharply disagree. Our challenge is whether we can put down our daggers and once again work together in a civil, creative spirit. We clearly have the means to solve our problems; what is less clear is whether we have the collective will.

David Gergen is a professor of public service at Harvard and a senior political analyst at CNN. He serves on the board of Teach for America and has advised four Presidents.

America’s most privileged class are public union workers.

The Wall Street Journal – link to original

MARCH 26, 2010

It turns out there really is growing inequality in America. It’s the 45% premium in pay and benefits that government workers receive over the poor saps who create wealth in the private economy.

And the gap is growing. According to the U.S. Bureau of Labor Statistics (BLS), from 1998 to 2008 public employee compensation grew by 28.6%, compared with 19.3% for private workers. In the recession year of 2009, with almost no inflation and record budget deficits, more than half the states awarded pay raises to their employees. Even as deficits in state capitals widen and are forcing cuts in services, few politicians are willing to eliminate these pay inequities that enrich the few who wield political power.

Let’s walk through the math. In 2008 almost half of all state and local government expenditures, or an estimated $1.1 trillion, went toward the pay and benefits of public workers. According to the BLS, in 2009 the average state or local public employee received $39.66 in total compensation per hour versus $27.42 for private workers. This means that for every $1 in pay and benefits a private employee earned, a state or local government worker received $1.45.

The BLS study breaks down where that 45% premium comes from. It turns out that public employees earn salaries that are about one-third higher on average than what is provided to private workers per hour worked. But the real windfall for government workers is in benefits. Those are 70% higher than what standard private employers offer, as shown in the nearby table. Government health benefits are twice as generous as what workers employed by private employees earn. By the way, nearly this entire benefits gap is accounted for by unionized public employees. Nonunion public employees are paid roughly what private workers receive.

What if government workers earned the average of what private workers earn? States and localities would save $339 billion a year from their more than $2.1 trillion budgets. These savings are larger than the combined estimated deficits for 2010 and 2011 of every state in America.

In a separate survey, the federal Bureau of Economic Analysis compares the compensation of public versus private workers in each of the 50 states. Perhaps not coincidentally, the pay gap is widest in states that have the biggest budget deficits, such as New Jersey, Nevada and Hawaii. Of the 40 states that have a budget deficit so far this year, 28 would have a balanced budget were it not for the windfall to government workers.

But these current fiscal problems are a picnic compared to the long-term benefit commitments that state and local politicians have made to public retirees. A 2009 study by economists Robert Novy-Marx and Joshua Rauh, published in the Journal of Economic Perspectives, estimated that these government pensions are underfunded by $3.2 trillion, or $27,000 for every American household.

The Orange County Register reports that California has 3,000 retired teachers and school administrators, who stopped working as early as age 55, collecting at least $100,000 a year in pensions for the rest of their lives.

Illinois’s pension obligations are so costly the state had to issue $3.5 billion of bonds merely to meet its mandatory contribution to the worker retirement program, which faces $85 billion, or three years of state tax revenues, in unfunded liabilities. Near-bankrupt New Jersey would have to pay $7 billion a year if it properly accounted for its pension and health benefits.

California, Nevada New Jersey and Ohio all allow double dipping, which lets government workers retire in their 50s and then work another full-time job while collecting retirement checks. In Ohio, police, firefighters and teachers can retire after 30 years on the job, collect a full benefit each year and go back to work full-time doing the same job. This is called retire and rehire.

As the Columbus Dispatch reported last year: “Across the state, Ohio’s State Teachers Retirement System paid out more than $741 million in pension benefits last school year to 15,857 faculty and staff members who were still working for school systems and building up a second retirement plan.” Some teachers can earn nearly $200,000 a year in pensions and salaries.

The union response is that government workers deserve all this because they are more educated and highly skilled. That may account for some of the pay differential but not the blowout benefits. The unions also neglect one of the greatest perks of government employment: job security. Short of shooting up a Post Office, government workers rarely get fired or laid off.

If government workers were underpaid, we’d expect high attrition rates, as they pursued better private opportunities. The reality is the opposite. Cato Institute economist Chris Edwards has analyzed Department of Labor statistics and found that private workers are three times more likely to quit their jobs than are government workers.

So if your state is broke, this is a major reason. Eventually, governors, state legislators and city council members are going to have to decide whether protecting America’s privileged class of government workers is a higher priority than funding such core functions of government as public safety. Something has to give. It’s time to close the biggest pay gap in America.

Commentary: Funny math and the Obama Administration

• On the Web | More columns by Glenn Garvin at The Miami Herald

By Glenn Garvin | The Miami Herald

Nov 5, 2009

Abajo encontrará el artículo en español

We used to hear quite a bit about the Bush administration’s supposed “war on science.”

What about the Obama administration’s war on mathematics?

Every time somebody tries to test the logic of the president’s economic policy using actual numbers, the White House starts screaming about space aliens.

You think I’m exaggerating? When the automotive consumer researcher Edmunds.com released an economic study last week concluding that the government’s cash-for-clunkers giveaway cost taxpayers $24,000 per vehicle sold, the White House accused Edmunds of relying on statistics “covering car sales on Mars.” (Who says we don’t get bang for our NASA buck?)

The Edmunds study compared historical auto sales trends with sales figures during the recession to conclude that the $3 billion cash-for-clunkers program generated only 125,000 sales that wouldn’t have occurred anyway. The Obama administration rebuttal didn’t include a single number, just some hopeful rhetoric about (conveniently unmeasureable) “excitement” generated by cash-for-clunkers.

But even that response was a paragon of math wizardry compared to what the White House had to say when ABC reporter Jake Tapper asked about the cost of the jobs the Obama administration claims to have created with its stimulus programs.

This one started when the White House last week issued a report saying that it created or “saved” 640,000 jobs (economists say there’s no way to measure the latter, but never mind), then immediately contradicted itself and said the real number was probably more like one million.

Tapper, using the more generous figure, divided the one million jobs into the $160 billion allocated by Sept. 30, then asked what seems like a reasonable question:

“Does that mean the stimulus costs taxpayers $160,000 per job?”

An outraged Jared Bernstein, chief economist and senior economic advisor to Vice President Biden, promptly accused the reporter of “calculator abuse.” Janet Reno is no longer attorney general, so that may not be a jailable offense, but it seems certain that Tapper can expect to have all his calculators seized and placed in foster homes.

In case you’re wondering where Tapper went wrong, the Obama administration has not repealed the arithmetical rules of division. (Yet.) Bernstein merely said that the reporter should have included all the jobs the White House hopes to have created or saved by the end of next year.

The White House didn’t even respond to the other interesting bit of stimulus math that was revealed last week. The National Association of Realtors, lobbying fiercely for a renewal of Obama’s $8,000 tax credit for first-time home buyers, said around 1.9 million will receive it this year — and some 350,000 of those buyers couldn’t have purchased a home without it.

Ahem, said the respected economics blog CalculatedRisk.com. Multiplying 1.9 million tax credits by $8,000 equals $15 billion in government subsidies. Divide that by the 350,000 sales generated by the tax credit and it turns out the Obama administration is paying $43,000 per house to stimulate sales.

And for what? The vast majority of these homes have already been built. Their sale won’t put anybody to work.

The only addition they’ll make to the U.S. workforce will be the additional auditors the IRS will have to employ to check the paperwork when the buyers ask for the tax credit on their returns this spring.

That’s why the Obama White House has declared war on math: Because it’s a nettlesome reminder of how balky, inefficient and generally useless its various stimulus programs have been. For the $24,000-per-vehicle cost of the cash for clunkers program, the government could have presented every single one of those new buyers with a brand new Smart Car plus two years’ worth of gasoline to run it. For that matter, why not just draw the names of 125,000 random Americans out of a hat and give each one a check for $24,000?

The answer is that the American economy is not the real target of the stimulus; the American government is.

How many new inspectors and bookkeepers and red-tape-sniffers of all types did the U.S. Department of Transportation add to implement the cash for clunkers program?

How many otherwise unemployable policy wonks have been surgically attached to the open veins of taxpayers to help the government administer its new stakes in the banking and automotive industries?

How many economic planners do we have in Washington these days applying their social-engineering skills to make sure we spend our money in ways that benefit the government’s favored beneficiaries? “Pure mathematics is, in its way, the poetry of logical ideas,” Albert Einstein once said.

Obamamath, on the other hand, is the poetry of pork.

———————————————————-

GLENN GARVIN: En guerra con las matemáticas

By GLENN GARVIN

El Nuevo Herald

Publicado el viernes 06 de noviembre del 2009

http://www.elnuevoherald.com/opinion/story/581670.html

Cada vez que alguien trata de probar la lógica de la política económica del Presidente usando números reales, la Casa Blanca habla de extraterrestres.

¿Creen que exagero? Cuando la firma investigadora de automóviles Edmunds.com divulgó un estudio la semana pasada en el que llegaba a la conclusión de que el programa gubernamental Dinero por Cacharros le costó a los contribuyentes $24,000 por vehículo vendido, la Casa Blanca acusó a Edmunds de confiar en estadísticas “que cubren las ventas de autos en Marte” (¿quién dice que el dinero de los contribuyentes invertido en la NASA es un malgasto?)

El estudio de Edmunds comparó tendencias históricas de ventas de autos con cifras de ventas durante la recesión para concluir que el programa Dinero por Cacharros, con un costo de $3,000 millones, sólo generó 125,000 ventas que de todos modos habrían ocurrido. La respuesta del gobierno de Obama no contenía una sola cifra, sólo una retórica optimista sobre la “emoción” (que convenientemente no se puede medir) generada por el programa.

Pero aun esa respuesta fue un modelo de magia matemática comparada con lo que la Casa Blanca dijo cuando Jake Tapper, reportero de ABC, preguntó sobre el costo de los empleos que la administración de Obama afirma haber creado con sus programas de estímulo.

Esto empezó cuando la Casa Blanca emitió un informe la semana pasada en el que afirmaba que había creado o “salvado” 640,000 empleos (los economistas dicen que no hay forma de medir lo último, pero no importa) e inmediatamente después se contradijo y dijo que la verdadera cifra era probablemente un millón.

Tapper, usando la cifra más generosa, dividió el millón de empleos entre los $160,000 millones asignados el 30 de septiembre, y luego hizo lo que parece una pregunta razonable: “¿Eso significa que el estímulo les cuesta a los contribuyentes $160,000 por empleo?”

Furioso, Jared Bernstein, principal asesor económico del vicepresidente Biden, acusó rápidamente al reportero de “abuso con la calculadora”. Janet Reno ya no es secretaria de Justicia, de manera que eso quizá no sea un delito punible con la cárcel, pero es posible que Tapper pueda esperar que todas sus calculadoras sean confiscadas.

En caso de que usted se pregunte en qué se equivocó Tapper, la administración de Obama no ha abolido las reglas aritméticas de la división. (Todavía.) Bernstein tan sólo dijo que el reportero debió haber incluido todos los empleos que la Casa Blanca espera haber creado o salvado para fines del año próximo.

La Casa Blanca ni siquiera respondió a otro interesante caso de matemática del estímulo que se reveló la semana pasada. La National Association of Realtors, que cabildea ferozmente por una renovación del crédito fiscal de Obama de $8,000 para los que compran casa por primera vez, dijo que 1.9 millones lo recibirán este año, y que unos 350,000 de esas personas no podrían haber comprado una vivienda sin el crédito.

No es así, dijo el respetado blog de economía CalculatedRisk.com. Multiplicar 1.9 millones de créditos fiscales por $8,000 da $15,000 millones en subsidios del gobierno. Si se divide eso por las 350,000 ventas generadas por el crédito fiscal, resulta que la administración de Obama está pagando $43,000 por casa para estimular las ventas.

¿Y para qué? La inmensa mayoría de esas casas ya están construidas. Su venta no le dará trabajo a nadie.

La única adición que harán a la fuerza laboral serán los auditores adicionales que el IRS tendrá que emplear para revisar el papeleo cuando los compradores pidan el crédito fiscal al declarar sus impuestos la próxima primavera.

Por eso es que la Casa Blanca de Obama le ha declarado la guerra a la matemática: porque es un molesto recordatorio de lo ineficientes y en general inútiles que han sido sus diversos programas de estímulo. Por el costo de $24,000 por vehículo del programa Dinero por Cacharros el gobierno podría haber regalado a cada uno de esos compradores un auto Smart nuevo, aparte de más gasolina por dos años. O si no, ¿por qué no haber elegido al azar a 125,000 norteamericanos y darle a cada uno un cheque por $24,000?

a respuesta es que la economía norteamericana no es el verdadero objetivo del estímulo, sino el gobierno norteamericano.

¿Cuántos nuevos inspectores y contadores y burócratas de todo tipo añadió el Departamento de Transporte para implementar el programa Dinero por Cacharros?

¿Cuántos especialistas que no se habrían empleado de no ser por el programa se han adherido a las venas abiertas de los contribuyentes para ayudar al gobierno a administrar su nueva participación en la banca y la industria automotriz?

¿Cuántos planificadores de la economía tenemos en Washington en estos días aplicando sus conocimientos de ingeniería social para garantizar que gastemos nuestro dinero en formas que favorezcan a los beneficiarios del gobierno? “La matemática pura es, a su manera, la poesía de las ideas lógicas”, dijo Albert Einstein. La matemática de Obama, en cambio, es la poesía de la prebenda.

Economic liberty is key to societal well-being.

By RYAN STREETER AND ARTHUR C. BROOKS

Wall Street Journal Oct 26, 2009 – link to original

Since the fall of the Berlin Wall 20 years ago, the performance of market economies has been a powerful theme in assessing the health of societies around the world. But free enterprise has come under attack with the global economic crisis, the perceived threat of climate change, and a broader concern—most recently promoted by French President Nicolas Sarkozy—that growth alone does not indicate prosperity.

And at first glance, this year’s Prosperity Index, published yesterday by the Legatum Institute, seems to provide evidence that capitalism is in trouble. The index aims to be a holistic measure of societal well-being, measuring not only things like economic freedom and property rights but also factors such as education, health, and good governance. The Institute found that four of the five most prosperous countries are democracies of Northern Europe: Finland, Sweden, Denmark and Norway—all well-known as high-tax, social welfare states. And while the U.S. and U.K. rank ninth and 12th respectively, France, Germany and Spain are not far behind. Fourteen of the top 20 countries are European. So does that mean capitalism needs to be reigned in as many of its critics consider? Far from it.

Consider the Wall Street Journal/Heritage Foundation Index of Economic Freedom, which measures the key factors in political and economic freedom, such as strength of democratic checks and balances, protection of property rights, enforcement of contracts, ease of starting a business, and of hiring and firing staff. Due to their strongly capitalist systems, Hong Kong and Singapore score very highly in the WSJ index. Their lower personal freedoms and scores on interpersonal trust and community engagement drag them down to 18th and 23rd respectively on the Prosperity Index. Similarly, the top performers of Northern Europe do not do as well in the WSJ Index as they do in the Prosperity Index, since their economic fundamentals are not stellar.

Many people—especially Americans—think of wealth as the basis of health and happiness, too. In other words, market economies with good economic fundamentals drive us to more fulfilling lives. Europeans often counter that a narrow pecuniary viewpoint gives a distorted picture of the human experience. Worse yet, it can lead to the tyranny of materialism. Who is right?

A statistical analysis of both indexes shows that economic prosperity and more holistic indicators overlap significantly, but not completely. It’s no coincidence that the Prosperity Index calls its economic and democracy sub-indexes the drivers of wealth, and implicitly, prosperity. If one strips out the three main economic sub-indexes from the Prosperity Index, one can compile a ranking from the six remaining sub-indexes that have more to do with quality of life than economic growth. Using statistical techniques, one can test how much of the WSJ Index explains the Prosperity Index’s broader well-being indicators. The relationship is statistically significant, with just under two thirds of Legatum’s well-being indicators explained by economic and political freedom.

While free enterprise is not the only important factor explaining national differences in well-being, it probably does explain most of it. This means subverting the mechanisms of free enterprise would not just lead to lower economic growth but also lower social scores. The fact that the Nordic countries do so well in the Prosperity Index has largely to do with the fact that apart from their welfare policies, they also encourage entrepreneurship, free trade, and have stable monetary policies—even as they employ strong rhetoric against capitalism. Finland, Sweden and Denmark all score higher than Switzerland and nearly all of their southern European counterparts on their capacity to commercialize innovation, through factors such as business start-up procedures, business registration rates, and royalties on patents. All of this drives dynamic entrepreneurship, and spurs people to innovate and take risks, as they are more reassured that good ideas will pay off.

U.S. policy makers would do well to note this fact as they contemplate more “European” policies. And as the West contemplates ever tighter regulations on how and where money can be spent, lent and invested, their leaders should remember that economic and political liberty—while not the whole story—play a key role in prosperity. They are the engine driving much of what makes life worthwhile.

Mr. Streeter is a senior fellow of the Legatum Institute. Mr. Brooks is president of the American Enterprise Institute.

OUR OPINION: Miami’s labor unions must take pay cuts to avoid more layoffs

The Miami Herald – Sept 10, 2009 – link to original

No one likes a salary freeze, much less a pay cut. But for the past two years thousands of workers and business people have had to accept both as South Florida’s housing bubble burst, the banking crisis hit and unemployment spiked to double digits.

Pay cuts, furloughs, rising employee contributions for healthcare insurance plans, no more employer matches for employee 401(k) plans or other investments — all of those belt-tightening techniques and many more have been employed by private businesses to avoid mammoth layoffs.

Should city of Miami workers — 86 percent are represented by labor unions — be exempt from such sacrifice because contracts were set during flush times? Of course not.

Times have changed. Construction has ground to a halt. Tax revenue for cities and counties throughout Florida has plunged along with property values that are correcting after an unsustainable race to the top that left tens of thousands unable to afford homes now in foreclosure.

Facing a $118 million budget hole this coming fiscal year — about a fifth of the city’s annual operating budget — Miami Mayor Manny Diaz has been forced to make tough choices with little help from the unions that refuse to take even a moderate pay cut.

Union representatives point to old grievances and say they won’t budge because they are owed tiered salary increases, others based on longevity (not performance) and exorbitant pension benefits, period.

Some are trying to confuse the issue by pointing to consultant costs or the baseball stadium project as the culprit when it’s Miami-Dade County that’s carrying the bulk of that burden.

The culprit here, folks, is the economy. In a city that ranks among the poorest in the nation, it’s unconscionable for unions to expect pay raises and pension benefits that in the coming year will saddle the city with a $101 million obligation.

It’s irresponsible to expect the city to raise the property-tax rate, too, when thousands of city residents have had their own pay reduced or are in the unemployment line.

At least the city’s two AFSCME unions and the firefighters union, IAFF, have offered some concessions. For instance, one of the AFSCME unions covering 2,000 city workers has offered to use workers’ scheduled 3-percent raises next year toward paying off their portion of the pension bill. IAFF would accept a 3-percent across-the-board cut but only if pay raises kick in through 2013. That’s a start for negotiations but pay cuts have to be part of the mix.

Mayor Diaz has produced a tough but thoughtful plan that spreads the pain and keeps about $90 million in reserves. Aside from pay cuts and layoffs, he’s suggesting increasing some fees not touched in decades by about 5 percent to raise $10.6 million.

He would cut salaries as much as 15 percent for those who earn $250,000 or above and limit cuts to no more than 6 percent for those earning between $40,000 and $49,999. Those cuts will be part of the City Commission’s budget deliberations on Thursday.

Without police, firefighters and other workers in the city’s unions agreeing to the proposed cuts, the mayor is proposing eliminating 16 percent of the city’s 3,600 workers, including about one-sixth of the police force. If unions agree to the mayor’s plan, nearly 500 jobs would be saved. Not one officer would be laid off.

If unions are serious about saving jobs and pensions for working people, they will do their part, agree to reduced wages and cap the guarantee on their pensions at a lower rate than the unrealistic return of 7.5 percent now required.

This is a short-term fix that’s fair to workers and taxpayers based on today’s tough reality.

Wall Street Journal – link to original

August 29, 2009

Connecticut grabs $7,007 in state and local taxes per man, woman and child resident, according to the Tax Foundation, more per capita than every state but New York and New Jersey. That’s hardly the company any state would want to keep these days, but the politicians in Hartford seem intent on following Trenton and Albany off the tax-and-spend cliff.

This week Republican Governor Jodi Rell proposed a $1-billion-plus income tax hike, raising the top tax rate to 6.5% from 5% on individuals with incomes above $500,000 and couples with earnings above $1 million to close an expected two-year $8.5 billion budget deficit. The tax hike would be retroactive to January 1, meaning the government would snatch money that residents have already earned. Perhaps she aspires to the nether-world approval ratings of New Jersey Governor Jon Corzine.

Given the size of its deficit, it’s hard to believe that for 200 years Connecticut balanced its budget without any income tax and became the richest state in the bargain. That changed in 1991 when then-Governor Lowell Weicker pushed the state’s first-ever personal income tax with a promise that the rate would remain flat at 4.5%. But the next time the state couldn’t pay its bills, in 2001, the legislature raised Mr. Weicker’s tax to 5%. In 2007, Ms. Rell wanted more money for the schools, so she proposed raising the income tax again. That plan failed, but now comes her “millionaire surcharge,” which Democrats have eagerly endorsed.

But why? Since the income tax became law, Connecticut has experienced a long, slow exodus of jobs and people. The Yankee Institute notes the astounding fact that since 1992, the year the income tax went into effect, businesses in Connecticut have hired a grand total of zero net new workers. This is while the nation added 22 million jobs and despite the Wall Street boom. As the tax burden has surged, the state lost population to other states (a net 113,000) in every year but one over the last decade.

What the income tax did stimulate was a spending binge and big pay raises for the state’s unionized government workers. The year before the income tax was enacted, Connecticut’s government expenditures per capita ranked right in the middle of all states; now it ranks in the top 10. Per capita real spending has nearly doubled since the income tax was enacted.

Instead of ending periodic budget crises, a Connecticut legislative analysis found in 2006 that “heavy reliance on top income tax filers” has meant that tax collections are “more volatile than most states.” The new income tax bracket on the folks in Greenwich and Westport will make these booms and busts all the more severe.

Ms. Rell has one very good idea, which is to eliminate the state’s inheritance tax. The Nutmeg State’s death tax levy has chased thousands of wealthy seniors to states with no estate tax. The governor also wants to use some of the income tax money to lower the sales tax to 5.5% from 6%. She calls this a “huge, huge boost to the economy,” but cutting taxes on consumption and then raising them on investment and small businesses through the income tax is a strategy to lose jobs.

Earlier this year, George Jepsen, the former Democratic Senate Majority Leader, warned his former colleagues that “Connecticut now enjoys a modest competitive advantage over its immediate neighbors, but ill-conceived taxes and fees will . . . deepen the state’s weakness competing with the South and Southwest.”

We’d suggest that Ms. Rell give Governor Martin O’Malley of Maryland a call. Two years ago he passed a similar income tax hike dressed up as tax “fairness.” Today, a third of the millionaires have vanished from the tax rolls—and the state is still in deficit.

To revive growth and boost family incomes in Connecticut, Ms. Rell should be working to repeal the income tax, not expand it. It’s a failed experiment that has mostly benefited the likes of Florida and Texas. Connecticut’s saving economic grace in recent years has been that its political class is slightly less destructive than its Northeast neighbors, and that’s not an advantage it can afford to give up.

Dozens of police officers showed up at the Gables commission meeting Tuesday to protest a proposed 7.5 percent pay cut.

The pension — which comprises 45 percent of the city’s budget.

… someone who worked for the city for 20 years to 68 percent of his or her salary, rather than 60 percent

BY ELAINE DE VALLE

EDEVALLE@GMAIL.COM

The Miami Herald – link to original article

August 26, 2009. 

While the matter was not on the agenda for Tuesday’s commission meeting, dozens of Coral Gables police officers showed up at City Hall on Tuesday to show their distaste for a 7.5 percent pay cut proposed by the administration.

Wearing T-shirts that read, “My life isn’t worth 7% less,” the officers stood side by side as their president gave a short speech after Mayor Don Slesnick spoke.

Coral Gables Fraternal Order of Police Lodge No. 7 President John Baublitz said he couldn’t be too specific because the city and the union are at impasse over contract negotiations, meaning the commission will make the decision. That could happen as early as next week.

Coral Gables, like many cities, is contending with a budget shortfall due to lower property tax revenues. City Manager Patrick Salerno has proposed a 7.5 percent salary decrease for members of the police and general employees union and a 5 percent salary cut for firefighters. The firefighters union voluntarily took its 5 percent pay cut in a contract signed this summer.

The police union is still negotiating with the city.

“We know the mayor and commission will do the right thing and keep the citizens safe,” Baublitz said outside City Hall. “These cuts will decimate the department.”

Baublitz said the cuts would not allow the Gables department to compete with other agencies across the county. The Gables department provided the fourth best pay and benefits from 16 police agencies in the county five years ago, he said.

“Now we are 13 out of 16,” he said. “Every other department in the county has a better retirement plan. If they do the cuts they want to do now, we won’t be able to keep anyone. All the young officers with less than 10 years on the force, they’ll have to leave.”

Salerno scoffed at that notion.

“We lose officers now. People leave for family reasons, for positions they think may be better,” Salerno said, acknowledging that turnover might increase.

“I certainly would not want to lose police officers. However, this is, in many respects, an ability to pay issue on the part of the city,” Salerno said. “What we’ve asked for is for the police to make a pension contribution. They are the only bargaining unit that does not contribute.”

Other employees, including firefighters, have contributed 5 percent of their pay to the pension — which comprises 45 percent of the city’s budget — for at least four years, the manager said.

“That’s just simply a situation that is not one that is sustainable over the long term, and it needs to be addressed,” he said, referring to the pension being nearly half of payroll costs.

He said the union representatives did not present any financial terms at the meeting last Friday, but sent a fax to the city’s labor attorney, James Crosland, on Friday afternoon. The union asked for the multiplier on the pension to be 3.4 percent, rather than 3 percent. The change would allow someone who worked for the city for 20 years to 68 percent of his or her salary, rather than 60 percent.

“This is not a time to be asking for increased pension benefits,” Salerno said. “In these particular times, I am not aware of communities giving increased benefits.”

City commissioners are scheduled to hear both sides at a hearing at 10 a.m. Monday in commission chambers at City Hall, 405 Biltmore Way.

Coral Gables unionized employees are being asked to take a 7.5 percent pay cut, 2.5 percentage points higher than initially discussed by city leaders.

The Miami Herald - link to original article

BY ELAINE DE VALLE
EDEVALLE@GMAIL.COM

Similar stories:

Coral Gables police officers protest proposal to cut their pay

City layoffs, wage cuts, higher tax bills likely in store for Gables

City employees in Coral Gables are being asked to take a bigger pay cut than they first anticipated.

The city manager has proposed a 7.5 percent salary decrease for members of the police and general employees union — more than the 5 percent first proposed. About 85 percent of the city’s approximately 800 employees belong to the police, fire fighters or general employees unions.

Labor attorney Jim Crosland presented the offer Aug. 5 to the Teamsters local that represents the general employees. The offer proposes either a 7.5 percent cut in wages or an additional 7.5 percent contribution to the pension.

The general employees already contribute 5 percent to the pension. The 7.5 percent cut would be additional.

The firefighters union also contributes 5 percent to the pension, but is not being asked for additional cuts because it voluntarily took a 5 percent wage cut in a contract signed this summer. The police union has not contributed to the pension; it is being asked for a 7.5 percent wage cut or pension contribution.

“We won’t agree to a 7.5 percent pay cut,” said Mike Scott, president of the Teamsters Local 769, which represents the general employees.

“Their budget documents refer to a 5 percent cut and I don’t even know if that will see the light of day,” he said, adding that his union will present its economic proposal at a meeting next week.

Part of the reason for the sudden additional wage cuts could be an additional $2 million pension liability that had not been identified at the budget workshop last month.

Instead of $800,000, as commissioners had been told they would have to pay this year, the city will have to contribute $2.8 million to the pension fund to keep it in the black.

“Bad news comes in clumps,” Mayor Don Slesnick said.

“The actuary working with [Finance Director] Don Nelson projected around $800,000 and that’s what we were working on increasing our contribution this year,” Slesnick said. “The increase was decreasing. It was still an increase, but it was decreasing.

“Now all of a sudden, the figures most recently given put the increase at $2.8 million, which is a total shock,” the mayor said, adding that the commission had “begged the pension board” to seek a new agreement with a new attorney and new actuary.

“We haven’t gotten the full story, but this is the same actuary who has given me a hard time on a number of issues,” Slesnick said.

Slesnick said he was not sure whether the salary cuts were related to the pension news.

The 7.5 percent salary cut will save the city $2.75 million — just enough to cover that $2 million extra hole and have some wiggle room, said City Manager Pat Salerno.

“It’s a combination of things. It’s what we need to do to put ourselves on a path to being able to sustain our pension plan,” Salerno said.

City commissioners cannot impose an additional pension contribution, but they can impose wage cuts, Salerno said.

“If we don’t reach an agreement, they can impose a 7.5 percent wage decrease,” Salerno said.

“Either way, the payroll check to the employee is going to go down 7.5 percent, whether it’s a wage reduction or a pension contribution,” Salerno said.

The firefighters union, which had already agreed to a 5 percent salary cut, will not be asked to make any further sacrifices, Salerno said.

“They have a contract.”

Other details of the contract proposed by the city for the general employees include a cut in future merit increases and loyalty payments given after 10, 15 and 20 years of service from 5 percent of one’s compensation to 2.5 percent.

Additionally, employees who were compensated an extra 7 percent in pay rate because they worked from 6 p.m. to 7 p.m. will now get a 2.5 percent additional compensation. And the city will fund 70 percent, rather than 100 percent, of health insurance.

The proposed contract also gives the city authority to change to the Florida State Pension system, something that has been discussed for years as the city’s pension payments have ballooned to more than $20 million a year. Any new employees would be entered into that pension.

Battalion Chief Dan Thornhill, secretary and treasurer of the Coral Gables Firefighters Association, said he did not think the city would go back to his unit to ask for more concessions.

“We’re kind of proud as employees of what we’ve done,” Thornhill said of the fire department. “It’s something pretty significant that’s never been done in the history of our city. We went back and sharpened our pencils and did what we could and it saved them $2 million.

“Now the police and general employees,” represented now by the Teamsters Local 769 “are going to have to do their part,” Thornhill said.

Leaders at the police union, which has an impasse meeting Aug. 31, could not be reached last week. But the Teamsters’ president, who has a meeting scheduled this week with Salerno, said employees could not be asked to bear so much of the burden.

“Obviously there has to be some give from employees and we recognize that. But we need to see what management is going to contribute,” Scott said