MyGovCost News & Blog

Tax System Remains Punitive

Friday February 16th, 2018   •   Posted by K. Lloyd Billingsley at 9:28am PST   •  

As we noted, the Republicans’ tax bill lowers the corporate rate from 35 to 21 percent and according to the New York Times it will cut taxes for about 75 percent of filers in 2018. That is good news for taxpayers, who would do well to consider realities that have not changed, such as the essentially punitive nature of the system.

The more work a person performs, and the more she achieves, the more she will be taxed for her efforts and success. For the ruling class this is “progressive,” and accurate only in the sense that the rates progress to higher levels. True to form, the new tax system retains, count ‘em, seven tax brackets, so it’s not any kind of a flat tax. Neither was the “flatter” tax Missouri Democrat Richard Gephardt proposed back in the nineties, which featured five brackets with rates from 10 to 36 percent. Gephardt thought a true flat tax, a single rate for all, was unfair.

Ruling-class bagmen assume that any taxpayer’s success has been due to some sort of exploitation or malfeasance, and that government is better equipped to redistribute the proceeds of workers’ labor. Actually, it isn’t, and as this writer has often noted, the government gets workers’ money before they do in the form of withholding. That exploitive practice dates from World War II and was supposed to be temporary. It remains as perhaps the most effective enabler of government greed, and the Republicans’ tax bill did nothing to change it. Neither did it change the rates of taxation in the states.

California governor Jerry Brown once described himself as a “born-again tax cutter.” In the 1992 presidential primary, Brown proposed a flat tax of 13 percent for all Americans. That went nowhere and California now deploys a top marginal income tax rate of 13.3 percent, highest of the 50 states, and a base sales tax rate of 7.5 percent.

The tax system will be “fair” when all Americans pay the same tax rate. When that happens, and when workers are the first to get their own earnings, true tax reform could be at hand.

Trump’s Troubling, Truthful Budget Director

Wednesday February 14th, 2018   •   Posted by Craig Eyermann at 6:28am PST   •  

Even though he oversaw the production of President Trump’s ugly first budget proposal, there appears to be quite a lot to like about Mick Mulvaney, the director of the White House Office of Management and Budget (OMB) and also the legitimate interim director of the constitutionallyquestionable Consumer Finance Protection Bureau.

Specifically, the thing to like most is his truthfulness, which may very well get him in trouble in the swamp that is Washington D.C. There was a fantastic illustration of his character yesterday, when he was testifying about President Trump’s budget proposal on Capitol Hill, as reported by Reuters‘ Katanga Johnson and Susan Cornwell:

The White House budget chief said on Tuesday that, if he were still a member of Congress, he “probably” would vote against a deficit-financed budget plan he and Trump are proposing.

At a U.S. Senate panel hearing where he defended the administration’s new $4.4-trillion, fiscal 2019 spending plan, Mick Mulvaney was asked if he would vote for it, if he were still a lawmaker, which he was before Trump hired him.

“I probably would have found enough shortcomings in this to vote against it,” said Mulvaney, director of the U.S. Office of Management and Budget (OMB), in reply to a senator’s question.

The frank admission by Mulvaney, formerly a Republican member of the House of Representatives and noted deficit hawk, underscores not only his new job at OMB, but also a rapid retreat from fiscal conservatism by Republicans since Trump signed a major tax cut bill in December.

Mulvaney’s comments drew rare praise from across the political aisle, as later tweeted by Senator Patty Murray (D-WA), who had asked the question that prompted his response:

It was nice to hear an honest answer from OMB Dir. Mulvaney in the budget hearing today. I asked if he would vote for President Trump’s budget if he were in Congress, and he said that he wouldn’t. That’s one thing we agree on! –PM

In his comments, Mulvaney went on to recognize that his role as President Trump’s OMB Director requires him to “try and fund the president’s priorities,” which is why the President’s first budget proposal doesn’t look like something that he would have voted for while he served in Congress, but at least we now have confidence that President Trump is hearing solid fiscal advice before he sets his policies. He might choose to disregard the advice he receives, but at least he’s hearing it when it matters.

As for what other troubling truths Mulvaney may have passed on to President Trump before speaking publicly, The Hill‘s Sylvan Lane has an interesting anecdote from last Sunday’s talking head news shows:

White House budget chief Mick Mulvaney said Sunday that rising federal deficits could force interest rates to spike after President Trump signed a bipartisan budget deal with $300 billion in new spending.

Mulvaney told Fox News Sunday with Chris Wallace that the spending boost could drive up interest rates, but that the economic growth unleashed would eventually pay down the debt.

“If we can keep the economy humming and generate more money for you and me and for everybody else, the government takes in more money, and that’s how we hope to be able to keep the debt under control,” said Mulvaney, the director of the Office of Management and Budget.

That might be a big “IF” in the years ahead. It would be a different story if we had a President with a stronger commitment to restraining the growth of the government’s spending, but that’s not the President we have. Nor is it something that we’ve had since the turn of the century.

An Ugly Budget Proposal

Tuesday February 13th, 2018   •   Posted by Craig Eyermann at 6:16am PST   •  

President Trump released his first budget proposal yesterday. At first glance, it looks pretty ugly where the concept of fiscal responsibility is concerned.

The following chart shows the amount of the U.S. government’s tax collections and spending that President Trump has proposed for the fiscal years of 2018 through 2023, where we’ve provided historical data going back to 2001, covering the presidential tenures of George W. Bush and Barack Obama, to provide some additional context.

U.S. Government Tax Collections and Spending, 2001 - 2017, with Projections for 2018 - 2023

With federal spending continuing at an unsustainable pace, the U.S. government’s annual budget deficits will grow, even though the government’s tax collections are not projected to fall in any year in President Trump’s first budget proposal.

Assuming the future plays out as he proposes, President Trump’s tenure in office would appear set to add the second-most amount of debt to the nation’s total public debt outstanding of any U.S. President, following only Barack Obama’s dubious achievement.

California Straw Man Runs in the Family

Monday February 12th, 2018   •   Posted by K. Lloyd Billingsley at 11:14am PST   •  

American River Parkway Photo by K. Lloyd Billingsley

California assemblyman Ian Calderon has proposed a bill that would make it illegal for restaurant staff to give customers a plastic straw unless they ask for one. Unrequested straws would draw a fine of $1,000 or even jail time. This measure has led some to wonder about those little plastic umbrellas in drinks, or those who foul the environment by giving patrons too many napkins. If the assemblyman is open to a counterargument he might get on a bike and ride the American River Parkway, which starts in Discovery Park, not far from the capitol.

The parkway hosts a bicycle trail, one of the finest in the country, that runs all the way to Folsom. On any given day riders, runners and walkers can see egrets, herons, otters, deer and countless wild turkeys. Trouble is, the first stretch of the parkway has been occupied by the “indigent community,” whose “campers” generate tons of trash, including plastic materials. This poses environmental and public health problems but with this crowd, an accredited victim group, politicians basically do nothing. (Homeowners and renters might try dumping their trash on public property and see what happens.) Such squalid encampments are fouling the environment statewide but assemblyman Ian Calderon prefers to look the other way and grasp at straws. Who is this guy anyway?

Just so you know, Ian Calderon, 32, is son of former assemblyman and state senator Charles Calderon. Charles Calderon is the brother of former state senator Ron Calderon, sentenced in 2016 to 3 1/2 years in prison in a corruption and bribery scandal. Ian’s father Charles is also brother to former state senator Thomas Calderon, sentenced in 2016 to one year in prison for laundering the bribe money through his firm. Those are tough acts to follow but maybe Ian Calderon is off to a good start with his quest to criminalize waiters for handing out plastic straws.

The End of the Tea Party

Monday February 12th, 2018   •   Posted by Craig Eyermann at 6:14am PST   •  

83550088 - The end of the tea party The 20th government shutdown since the passage of the Budget and Impoundment Control Act of 1974 started and ended early in the morning of Friday, February 9, 2018, when, following a filibuster publicity stunt in the House of Representatives by minority leader Nancy Pelosi (D-CA) and a more principled filibuster by Senator Rand Paul (R-KY), the Bipartisan Budget Act of 2018 was passed by both the House and Senate, and signed into law by President Trump.

As with the previous government shutdown just three weeks earlier, hardly any ordinary Americans even noticed that it had happened.

More significantly, though, the new bipartisan budget deal marks what might be considered the official end of the Tea Party, the only real grassroots political movement of the past 20 years, which had come into being in 2009 as a response to the government bailouts, out-of-control spending, and the extremely fast growth of the national debt that characterized the last year of President George W. Bush’s tenure in office and the first two years of President Barack H. Obama’s reign.

Although never a majority in either the Congress or even within the Republican Party, the amateur politicians aligned with the Tea Party movement proved to be influential enough to succeed in getting some degree of control over the U.S. government’s spending and the large deficits that would otherwise have resulted from President Obama’s reckless spending proposals. If not for the Tea Party movement, the U.S. national debt today could very well have been over $3 trillion larger than the $20.5 trillion it was at the time of the 2018 bipartisan budget deal.

The Tea Party’s success peaked with the passage of the Budget Control Act of 2011, which established spending caps that limited the amount of money that the U.S. government would be allowed to spend.

After the passage of the Budget Control Act, however, professional politicians in both parties, whose interests had little in common with the Tea Party movement, found that they could get around the spending limits by joining together to approve new spending deals, which they increasingly did by using government shutdown events to orchestrate the new deals.

By the last two years of the Obama administration, the influence of the Tea Party had diminished to the point where the spending caps were little more than numbers on paper. The election of President Donald J. Trump then cemented the end of the Tea Party’s influence, as he specifically campaigned to expand government spending for defense and infrastructure, and to not allow any cuts in Social Security and Medicare, two of the largest and fastest growing federal government spending programs.

The Bipartisan Budget Act of 2018 permanently erases those spending limits, while authorizing far more spending than would ever have been considered while the Tea Party movement held sufficient political influence to stop it. As a result, the U.S. government’s budget deficits for 2018 and 2019 appear set to grow the levels that the Congressional Budget Office had projected for its more realistic alternative fiscal scenario following President Obama’s spending proposals back in 2010.

The difference the Tea Party made was in shrinking the size of U.S. government’s spending and budget deficits far below what they would otherwise have been in the years in between. The U.S. government’s future now is being dictated by a bipartisan group of politicians and a president who doesn’t place much priority in exercising fiscal restraint. Or as public-policy economist Daniel Mitchell has described it, the “new budget deal is a victory for Washington over taxpayers.”

Rocket Tax Reveals California’s Tunnel Vision

Thursday February 8th, 2018   •   Posted by K. Lloyd Billingsley at 1:41pm PST   •  

This week Elon Musk launched his Falcon Heavy skyward, with a Tesla roadster along for the ride.

A power pack of 27 Merlin engines boosted the takeoff with five million pounds of thrust, the most by a conventional rocket since the Saturn V moon mission. As USA Today reported, “within a half-hour of the liftoff, SpaceX cameras showed images of a spacesuit-clad ‘Starman’ in the driver’s seat of Musk’s convertible floating above Earth.”

In all the excitement, reporters overlooked one reality: California is the only state to tax commercial rocket launches, and some observers might find that odd.

In his first go-round as governor, Jerry Brown wanted California to have its own space program, which got him tagged “Governor Moonbeam.” Brown did launch three campaigns to become president of the United States and each time he failed. After the 2016 election of Donald Trump, Brown announced that California might launch its own satellites. That didn’t happen, but the state does slap a tax on commercial rocket launches.

If that bothers the governor, he isn’t talking about it. Brown once proclaimed himself a “born again tax cutter” but now backs the nation’s highest income and sales taxes, and he blasts tax protesters as “freeloaders.”

While entrepreneur Elon Musk looks up, politician Jerry Brown looks down. He wanted to dig two massive tunnels under the Sacramento-San Joaquin River delta, at a cost of $16 billion, but has now downgraded that plan to a single tunnel at a cost of $10.7 billion. He also backs the state’s beleaguered “bullet train,” though costs for the first segment alone just rose to $10.6 billion, with no complaint from the outgoing governor.

Brown wants taxes and spending to soar, not the entrepreneurial spirit. This is a governor, and a state, with its head in the ground.

California Bureaucrats vs Government Services for Residents

Thursday February 8th, 2018   •   Posted by Craig Eyermann at 6:54am PST   •  

68711054 - front view of a sad couple with hands on head sitting in the kitchen of a house If the claims of the League of California Cities is any indication, government officials at the county and local level will increasingly have to choose between providing services to the residents of their communities, or really generous pensions to the retired and retiring employees of their governments.

Adam Aston of the Sacramento Bee describes the dilemma that government officials at the state and local level within California will face within just a matter of years.

Most California cities expect their spending on public employee pensions to climb by at least 50 percent over the next seven years, restricting their ability to fund basic services like public safety and parks, according to a study from their lobbying organization.

The report escalates the League of California Cities’ appeal for more flexibility in negotiating pension obligations. Almost all of California’s cities belong to the $360 billion California Public Employees’ Retirement System, and some cities over the past year have raised increasingly loud complaints that fee hikes from the pension fund are “crowding out” other spending priorities.

The report, which was released Thursday, warns that pension costs are becoming “unsustainable.”

“The impact of pension costs are becoming such a large element of city costs that it is inevitably going to cause the reduction of services somewhere,” said Dan Keen, a retired Vallejo city manager.

If the city of Vallejo sounds familiar, it is because the city has had direct experience with unsustainable expenses – it declared bankruptcy back in 2008 because of a “combination of generous public-safety salaries, declining property values and fiscal mismanagement”, where Dan Keen spent a lot of his time in office working to keep the city’s financial situation on a positive track after it emerged from bankruptcy in 2011.

How big is the public employee pension issue in California? Long-time Los Angeles Times political columnist George Skelton cited figures about the magnitude of the fiscal problems that will be faced by governments at all levels throughout California provided by former California assemblyman Joe Nation, who is currently a public policy professor at Stanford University.

The state’s two biggest public pension systems are badly underfunded. They’re also the largest and second-largest public pension funds in the country. They’re the California Public Employees’ Retirement System, or CalPERS, and the teachers’ pension fund, CalSTRS.

CalPERS has unfunded liabilities — benefits promised compared with anticipated funding — of $136 billion, Nation says. For CalSTRS, the projected red ink is $87 billion. That’s based on 2016 data, the latest available.

If you total up the unfunded liabilities of all state and local public pension systems in California, the projected debt comes to around $333 billion, Nation says. But that’s a conservative figure based on official reports. It could be up over $1 trillion.

“No one believes the official numbers are correct except maybe people within the system itself,” Nation says. “They all use fuzzy math and play games with their debt.”

Just using the official numbers, Nation says, the unfunded liability amounts to an average of $26,000 per household — fourth worst in the country. No. 1 is Connecticut at $38,000, followed by Alaska and Hawaii.

In California, the pension systems are 69% funded, meaning they can project enough money to pay 69% of what’s promised.

“It’s clear pension costs are going to overtake so much else in the budget,” Nation continues. “We have these benefits that are not sustainable.”

No wonder that outgoing-Governor Jerry Brown recently indicated that when the next recession comes to California, the state’s public employee pensions will be in for a major haircut. It’s a shame that hardly any of his potential replacements have been willing to address the source of what is very likely to become the state’s most significant fiscal problem in the next several years. It really shouldn’t be that hard of a choice to make between the interests of bureaucrats and those of the people of the communities they serve.

Fe Fi Foe FISA

Wednesday February 7th, 2018   •   Posted by K. Lloyd Billingsley at 3:22pm PST   •  

Last month president Trump signed the FISA Amendments Reauthorization Act of 2017, extending the Foreign Intelligence Surveillance Act until December 31, 2023. The law “allows the Intelligence Community, under a robust regime of oversight by all three branches of Government, to collect critical intelligence on international terrorists, weapons proliferators, and other important foreign intelligence targets located outside the United States.” Angelo Codevilla, professor emeritus of international relations at Boston University, was part of the Senate Intelligence Committee staff that drafted FISA in 1978. Codevilla believes FISA was “a big mistake to begin with” and wants to see it repealed.

The legislation was supposedly to address complaints from leftists who sued the FBI and the National Security Agency after learning they had been overheard working against the United States during the Vietnam War. According to Codevilla, “the main push for FISA, in fact, came from the FBI and NSA” who sought to preclude further lawsuits by having wiretaps approved by a judge “thus absolving them of responsibility.” The law “removed responsibility for the substance of executive judgment from the shoulders of the very people who make such judgments” and the FISA court “creates an irresistible temptation to political abuse.” Therefore, “it behooves us to erase doubt about who is responsible for electronic surveillance by repealing FISA.”

What great national security successes FISA might have achieved remain unclear. The NSA, which pushed for FISA, conducts massive surveillance on U.S. citizens, allegedly in their best interest. It remains unclear whether the powerful agency captured emails and other records corrupt government officials sought to hide from the people. And of course, acts of terrorism continue on the domestic scene.

FISA allows the “intelligence community,” to conduct surveillance but long after FISA was authorized the 16 powerful agencies, plus the vaunted FBI, failed to prevent the 9/11 attacks. On the other hand, FISA succeeds as a Federal Internal Surveillance Act, easily subject to abuse. Mr. Codevilla makes a strong case for its repeal.

The Return of Trillion Dollar Deficits

Monday February 5th, 2018   •   Posted by Craig Eyermann at 6:35am PST   •  

72774473 - trillion, 3d rendering, traffic sign It was only ever a matter of time, but trillion dollar deficits are once again on the radar for the U.S. government.

Susan Cornwell of Reuters has the news:

As the U.S. Congress limps toward the likely passage next week of another stopgap spending bill to avert a government shutdown, a Washington think tank has estimated the federal budget deficit is on track to blow through $1 trillion in 2019.

If it does, it would be the first time since 2012 the U.S. economy will have to support a deficit so large, highlighting a basic shift for the Republican Party, which has traditionally prided itself on fiscal conservatism.

The Committee for a Responsible Federal Budget, a Washington fiscal watchdog, said the red ink may rise in fiscal 2019 to $1.12 trillion. If current policies continue, it said, the deficit could top a record-setting $2 trillion by 2027.

The U.S. federal government ran its first trillion dollar deficit back in 2009, then went on to do so each year until its 2013 fiscal year, where the passage of the Budget Control Act of 2011 forced the Obama administration to rein in its spending, which was followed by the passage of the American Taxpayer Relief Act of 2012, which imposed higher income tax rates beginning in 2013. The combination of these legislative events led to the U.S. government’s deficits dropping below the trillion-dollar mark in 2013, where since then, they went on to bottom at $586 billion in fiscal year 2016, before beginning to rebound to $666 billion at the end of FY 2017 on September 30, 2017.

So what would the return of trillion dollar deficits mean for the rate of growth of the U.S. national debt today?

The following chart, which shows the year over year growth rate of the U.S. total public debt outstanding from January 20, 2009 through February 1, 2018, along with projections of that growth assuming that the U.S. government racks up a $1 trillion deficit in its current 2018 fiscal year, followed by an additional $1.12 trillion deficit in its 2019 fiscal year, illustrates how the growth of the national debt will change.

Year Over Year Growth Rate of the U.S. Government's Total Public Debt Outstanding from January 20, 2009 through February 1, 2018, with Projections Through the End of Fiscal Year 2019 on September 30, 2019

This chart may reveal the answer to why today’s Republican Party would appear to be much more comfortable with allowing trillion dollar deficits than the Tea Party-inspired deficit hawks that were reacting to the nonproductive and excessive federal government spending of the early years of the Obama era. Even with the nation’s total public debt growing by $1 trillion in FY2018 and $1.12 trillion in FY2019 to $22.4 trillion on September 30, 2019, the average year over year rate of growth of the national debt during the Trump era would average 3.7%, which is well less than half of the 9.1% rate of growth that was seen during President Obama’s entire tenure in office. More significantly, it is also less than the average of 4.9% year over year growth for the national debt that was recorded during the final two years of the Obama administration.

That’s partly due to the U.S. national debt having already been allowed to grow to such a gargantuan size over the past nine years, where today’s national debt of $20.5 trillion is nearly double the $10.6 trillion figure that stood when President Obama first assumed office.

What is more important for the American people however is how that projected rate of growth for the national debt compares with the rates of growth of both the nation’s economy and the population. If the rate at which the national debt grows is slower than the rates at which the economy and the population grows, then the burden of the national debt upon regular Americans will decline.

Whether that might happen however is a whole different question to consider.

A Super Bowl Stadium Scam

Sunday February 4th, 2018   •   Posted by Craig Eyermann at 7:33pm PST   •  

Super Bowl 52, or rather, Super Bowl LII, to follow the numbering convention that the National Football League has chosen to distinguish all of its championship games but the 50th one from each other, featured the Philadelphia Eagles defeating the New England Patriots at the U.S. Bank Stadium in Minneapolis, Minnesota.

Now that it’s all over, we can confirm that the biggest loser at the big game wasn’t the New England Patriots, but rather, the residents of both the state of Minnesota and the city of Minneapolis. And it’s not just because their home town team didn’t win enough games to make it to the Super Bowl this year.

Instead, it is because Minnesotans got taken to the cleaners by a billionaire team owner who wanted a stadium that would be Super Bowl-worthy, regardless of whether or not the Minnesota Vikings ever played in the championship game. City Journal‘s Steven Malanga describes how the taxpayers of Minnesota and Minneapolis got played:

Vikings owner Zygi Wilf, a New Jersey real estate developer, began pushing for a new stadium soon after purchasing the team in 2005. His supplications became more earnest after the roof of the Vikings’ old home, the Metrodome, collapsed in December 2010. Wilf originally proposed contributing just one quarter of the new stadium’s $1 billion cost, a spectacularly low-ball offer in an era when backlash against stadium subsidies for professional teams increasingly force owners to pony up a bigger share of construction costs. Wilf claimed that he couldn’t afford more, but he wouldn’t release the financial details of his real estate empire. A Minnesota state investigation, undertaken after a New Jersey judge ruled that the Wilf family had defrauded real estate partners in a local project and had to pay them $84.5 million, determined that the family could afford to pay up to $500 million for the stadium.

Even after Wilf upped his offer, the road to the stadium deal was paved with controversy. Minnesota financed a portion of its share of the costs by introducing a state-licensed electronic-gambling game to generate construction revenues, but the game proved a clunker with local residents; to fill the financing hole, Minnesota drew on revenues from its tobacco tax and increased corporate taxes. Then Wilf announced that he’d help finance his part of the deal by charging season ticketholders a seat license fee—prompting a threat from Minnesota governor Mark Dayton to pull government financing. Dayton soon changed his tune, explaining that sports financing has its own ineffable logic. “I’m not one to defend the economics of professional sports,” he said. “Any deal you make in that world doesn’t make sense from the way the rest of us look at it.”

To translate that last statement, Minnesota’s governor most certainly knew that it was a very bad deal for the state’s taxpayers, one where the state would become a de facto business partner of a billionaire NFL team owner who had been found in court to have defrauded his previous business partners, who would most certainly be the biggest beneficiary of the deal, and chose to do it anyway.

But Governor Mark Dayton wasn’t the only politician to spend their way into the Hall of Shame for stupid stadium deals using their community’s tax dollars. Malanga continues with the story of how more local politicians got in on the deal at considerable cost to their community:

Though it lent its balance sheet to the deal, the city of Minneapolis, according to critics—including one former city councilman—has been “hosed” by the Vikings. The city officially contributed $150 million to stadium construction, but these observers contend that that figure doesn’t include expensive infrastructure improvements that Minneapolis was forced to make. As part of the stadium package, Minneapolis also agreed to send $7.5 million a year in operating subsidies to the authority running the facility, which amounts to $225 million over the course of the deal. City taxpayers also apparently remain on the hook for any shortfalls in the revenues that back the bonds used to build the surrounding infrastructure. Residents understand little of this financing because, as the Minneapolis Star Tribune noted, the stadium deal “was as transparent as the Berlin wall.”

Clearly, it wasn’t such a good deal for either Minnesota’s or Minneapolis’ tax-paying residents. But the story is different for a billionaire team owner that the politicians were desperate to please, who was the one and only clear winner in the taxpayer-financed stadium shenanigans.

Of course, the stadium has been a boon for the Vikings ownership. The Vikings are worth an estimated $2.4 billion, and the new stadium has increased the net worth of Wilf’s business empire by $200 million, according to estimates.

And now, Minneapolis and Minnesota have hosted their one and only Super Bowl, where the NFL is scrapping the bidding process that would make it possible for the city to ever host another. But they’ll always have memories of Super Bowl LII. And the bills for the stadium that it was played in.

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