MyGovCost News & Blog

Government Motors Protection Racket

Monday April 7th, 2014   •   Posted by K. Lloyd Billingsley at 7:05am PDT   •  

NHTSA-Logo_200General Motors knew about faulty ignition switches that could cause vehicle engines to turn off, disabling air bags with deadly results. Federal government investigators with the National Highway Traffic Safety Administration knew about this problem but as this report notes the NHTSA “twice passed on investigating” the faulty switches that “led to at least 13 deaths and more than 2.6 million recalled vehicles.” As one independent investigator put it, “the revelation that NHTSA had teed up an investigation and deep-sixed it is very troubling.”

The GM problems were apparent in 2007 but the NHTSA declined to investigate. Then in 2010, after another accident, the NHTSA’s Office of Defects Investigation said the data “did not show a trend” and backed off. The timing is certainly of interest. Recall that in 2009 the federal government bailed out General Motors to the tune of nearly $50 billion, losing at least $10 billion on the deal. With so much “invested” no surprise that government bureaucrats opted to go easy on Government Motors, as GM was accurately called. Contrast that leniency with government treatment of Toyota, a foreign automaker that did not need a bailout and did not take government money.

The government brought a criminal investigation against Toyota for defects such as sticking gas pedals and floor mats that trap the accelerator. The settlement allowed unlimited criminal and civil penalties and Toyota agreed to pay $1.2 billion, the largest penalty ever for an automaker and 35 times the maximum penalty the NHTSA can impose. FBI bosses railed against Toyota for putting sales over safety and profit over principle.

General Motors did the same thing but government bureaucrats twice declined to investigate. At least 13 people have died due to the defective switches and GM only began recalls in February. The NHTSA and the Justice Department are now reportedly looking into the matter but one doubts they will take draconian action as with Toyota. And a key problem should already be apparent to taxpayers and motorists alike. When government investigates Government Motors it lowers the bar on safety standards.

Meanwhile, for the possibilities of fakery involving automobile safety, see this article.

Rolling Over Taxpayers

Friday April 4th, 2014   •   Posted by Craig Eyermann at 8:43am PDT   •  

Tax DayIf you have an Individual Retirement Account (IRA), and particularly if you have more than one IRA, you need to be aware that a recent U.S. Tax Court decision has opened the door to allow the IRS to nail you for taxes if you attempt to rollover money from more than one of your IRAs into another in a given year. That is despite the information that the IRS has been providing to people who own IRAs in Publication 590 over the past 20 years that says otherwise.

CBS Marketwatch’s Robert Powell reports on the recent U.S. Tax Court decision that affected Alvan and Elisa Bobrow:

In 2008, Alvan rolled over two distributions from his IRAs and took the position that the rollovers were valid because they were done in a timely manner, and involved different IRAs, Appleby wrote in her analysis of the court case. His position was that he had not broken any rules, as explained by the IRS in their publication for the past 20 years.

The IRS disagreed and determined that only one of the two rollovers was valid. So, Uncle Sam and the Bobrows went off to court. And the Tax Court—much to the surprise of all IRA experts—agreed with the IRS.

The mistake cost the Bobrows an additional $51,298 in income tax and a penalty of $10,260. Maybe they should be thankful; it could have cost them $31,000 more, according to Appleby. You can read the gory details in Bobrow v. Comm’r, T.C. Memo. 2014-21.

So what was the bottom line? In essence, only one of the Bobrow’s distributions was eligible for rollover during the 12-month period. In fact, that Tax Court concluded that the Internal Revenue Code Section 408(d)(3)(B) limitation—the relevant section of the federal tax code—applies to all of a taxpayer’s retirement accounts and that regardless of how many IRAs he or she maintains, a taxpayer may make only one nontaxable rollover contribution within each one-year period.

In other words, we’ve all been operating under the impression that what was written in Publication 590—you know, the IRS’ very own publication—was correct. But it’s not.

This outcome is a new example of how the IRS’ bureaucrats can provide misleading information to U.S. taxpayers. Misleading information that puts ordinary Americans at direct risk of having the federal government punish them with major financial losses if they make the mistake of trusting it.

That situation is made worse because of deliberate decisions by the government agency’s leadership in recent years to dramatically cut back on providing assistance for U.S. taxpayers with tax questions to focus instead on developing a more intrusive role in the lives of ordinary Americans through the implementation of the Affordable Care Act (a.k.a. “Obamacare”), the politically-motivated scrutiny of opponents to President Obama’s policies and lavish expenses for employee conferences.

Providing timely and accurate information to U.S. taxpayers would not appear to rank very highly in their list of priorities.

Boondoggles Bloat Government

Wednesday April 2nd, 2014   •   Posted by K. Lloyd Billingsley at 7:30am PDT   •  

CAHSRlogo_200California’s punitive tax structure virtually guarantees high volatility in state finances, particular during times of boom and bust in the economy. But through thick and thin some things never change. As this report notes, the state’s payroll and the size of the state workforce hold steady, and there’s always more to that story.

Consider, for example, California’s high-speed rail project, unpopular with Californians but a big hit with politicians. As the report notes, last year California’s High-Speed Rail Authority nearly tripled its staff to 116 employees and payroll soared from $2.5 million to almost $7 million. The budget provides for 60 more employees next year. The staff and payroll figures exclude “a variety of consultants,” who don’t work for a song.

The “bullet train” has yet to transport a single passenger at any speed. But the bullet train has already succeeded at bulking up government and giving politicians a new place to spend. Consider also Covered California, the state’s wholly-owned subsidiary of Obamacare.

It has almost 900 employees and a payroll of $22.8 million. Former state finance director Ana Matosantos is bagging $20,000 a month. Covered California is spending tens of millions on promotion and $80 million on television, radio and internet marketing. But on all counts actual performance remains lethargic, with numerous IT problems, and young people remain wary. But Covered California succeeds as a way to bulk up government and spend money.

The same is true for the $3 billion California Institute for Regenerative Medicine. It has yet to deliver the life-saving cures, therapies and ensuing royalties it promised voters in 2004. But CIRM pays its bosses whopper salaries in the $500,000 range and succeeds as a soft landing spot for washed up politicians.

The patterns are clear. What the people want is not the same as what government wants. Government usually promises more than it can deliver. Government agencies and programs keep getting bigger, regardless of performance. Even in a weak economy government will keep hiring and usually gives priority to ruling-class retreads.

U.S. Embassy Solicits Fiberglass Camel

Tuesday April 1st, 2014   •   Posted by Craig Eyermann at 6:53am PDT   •  

camel_s640x426Before we go any farther, no, this isn’t an April Fool’s Day joke....

And while we’re at it, no, we’re not making this up. This really is a real life example of your tax dollars at work:

The State Department wants to plunk down $400,000 in taxpayer money for a camel sculpture at the new U.S. Embassy being built in Islamabad, Pakistan, according to a report Monday.

“Camel Contemplating Needle,” created by American artist John Baldessari, depicts a 500-pound white camel made of fiberglass staring at the eye of an oversized needle, Buzzfeedfirst reported.

Officials explained the decision to purchase the sculpture in a four-page document justifying a “sole source” procurement.

“This artist’s product is uniquely qualified,” the document states. “Public art which will be presented in the new embassy should reflect the values of a predominantly Islamist country.”

Follow this link to see the Napa Valley version of “Camel Contemplating a Needle”.

Now, here’s where we can point out how incredibly stupid the people who work in the U.S. State Department can be. We were particularly curious as to what exactly a camel might symbolize in a predominantly Islamist country like Pakistan, so we did a quick Google search to find out.

It seems that just over a year ago, the Electoral Commission of Pakistan allotted a number of representative symbols to each of Pakistan’s political parties for the country’s general elections – kind of like how the Democratic Party in the U.S. is often represented by the symbol of a donkey and the Republican Party is represented by a symbol of an elephant.

It turns out that the symbol of a camel was assigned to Pakistan’s Balochistan National Party, which the country’s central government favors against separatist elements in the Balochistan province, who have fought to break away from the control of Pakistan’s central government.

By placing the $400,000 “inspirational” fiberglass statue of a camel on the grounds of the U.S. Embassy in Pakistan, the U.S. State Department would effectively be perceived as endorsing the Pakistan central government-supported Balochistan National Party. Because what could possibly go wrong for U.S. interests in Pakistan if it thoughtlessly appears to have taken a side in a long-running political conflict that has frequently been characterized by volatility and violence?

We’re pretty sure that this isn’t the most stupid thing that the U.S. State Department has proposed doing with taxpayer dollars, but we’re pretty sure it ranks pretty high on the list, right after similar exercises of “smart power” and perhaps the all-time classic: former Secretary of State Hillary Clinton’s mislabeled “Reset” button, meant to symbolize a new, friendlier relationship with the expansionist nation, but which when correctly translated from Russian, really said “overcharged”.

Why yes, the American people most certainly were for that boondoggle....

We did say we weren’t making any of this stuff up, right?

FDA Delays Burn Americans

Monday March 31st, 2014   •   Posted by K. Lloyd Billingsley at 8:15am PDT   •  

FDAlogo_200Summer will soon be here, and with all the fuss about global warming one would think Americans could avail themselves of the most protective sunscreens, like those used by their counterparts in Europe. They won’t be able to do that because, as this Washington Post report notes, “applications for the newer sunscreen ingredients have languished for years in the bureaucracy of the Food and Drug Administration, which must approve the products before they reach consumers.” Dermatologists find this delay distressing.

Darrell S. Rigel, clinical professor of dermatology at New York University and past president of the American Academy of Dermatologists, told the Post, “These sunscreens are being used by tens of millions of people every weekend in Europe, and we’re not seeing anything bad happening. It’s sort of crazy.... We’re depriving ourselves of something the rest of the world has.”

FDA bosses say the sunscreen issue is a high priority. If so, why must Americans make due with dated, inferior products? Doctors worry that FDA lethargy will have a chilling effect on innovation. Wendy Selig of the Melanoma Research Alliance told the Post, “We have a system here that’s completely broken down, and everybody knows that it has broken down.” And it’s not just broken down on the sunscreen issue.

The meningitis B vaccine Bexsero is approved in Europe, but the FDA approves it only on an ad hoc basis. Limited approval generally comes after an outbreak, such as those last year at Princeton and the University of California at Santa Barbara, where lacrosse player Aaron Loy had to undergo amputation of both feet.

The FDA should immediately approve the widely used MenB vaccine for general use in the United States while final testing proceeds. The FDA should also approve the more effective sunscreens already used in Europe. A pound of prevention is better than an ounce of delayed bureaucratic response.

The Federal Government: It’s a Lock

Wednesday March 26th, 2014   •   Posted by K. Lloyd Billingsley at 7:27am PDT   •  

Lock_200The Obama administration promised to be the most transparent administration in U.S. history, but according to a recent report by the Associated Press, the reverse might be true. More often than ever, the administration “censored government files or outright denied access to them last year under the U.S. Freedom of Information Act, cited more legal exceptions it said justified withholding materials and refused a record number of times to turn over files quickly that might be especially newsworthy.”

According to the government’s own figures from 99 federal agencies over six years, the administration made “few meaningful improvements in the way it releases records.” Last year the federal government showed the “worst” record on transparency since President Obama took office.

The government cited national security to withhold information a record 8,496 times, a 57 percent increase over 2012 and more than double Obama’s first year. The Defense Department, NSA, and CIA were the worst offenders but hardly alone. As the AP report notes, “the Agriculture Department’s Farm Service Agency cited national security six times, the Environmental Protection Agency did twice and the National Park Service once.”

The EPA denied 458 out of 468 expediting requests, and the State Department 332 out of 334. Homeland Security denied 1,384 such requests, a full 94 percent of the total. And more than ever the government censored materials it turned over or fully denied access to them. That happened in 244,675 cases or 36 percent of all requests. On 196,034 other occasions, “the government said it couldn’t find records,” and in some material it did release the government “completely marked out nearly every paragraph.”

Contrary to claims, the federal government is more opaque than ever, so citizens are less informed. The federal government is more intrusive than ever, but citizens are not more secure.

With all its mass surveillance, and even a tip-off from the Russian government, the U.S. government failed to prevent the attack on the Boston Marathon last April 15. Likewise, the government knew about the deadly plans of Major Nidal Hasan but did nothing to stop his deadly rampage at Ford Hood in 2009.

Broken Trust

Tuesday March 25th, 2014   •   Posted by Craig Eyermann at 6:30am PDT   •  

24928299_S Nate Silver is perhaps best known for being one of the most accurate election forecasters in the U.S., where he has applied statistical methods originally developed to analyze sports to determining the most likely outcome of elections.

Previously hosted by the New York Times, Silver has recently relaunched his FiveThirtyEight blog with ESPN, where he has also expanded the range of topics he covers. As a case in point, he recently focused on what is driving the growth of government spending over time. Here is what he found after surveying the data from 1972 through 2011:

Spending on infrastructure and government services, excluding defense, has kept pace with gross domestic product growth. (Spending on infrastructure and services by the federal government specifically has lagged gross domestic product growth somewhat, growing at 1.8 percent per year.) Also, most of the subcategories of infrastructure and services spending that tracks have decreased slightly as a share of the gross domestic product, including spending on transportation, education, science and technology. The major exception is spending on the category they describe as “protection,” reflecting the increase in the criminal justice apparatus, which has grown at 4.8 percent per year.


Another way to view these data is to allocate the increase in spending-to-G.D.P. between the different categories of expenditures. Total government spending — including federal, state and local spending — rose to about 39 percent of the gross domestic product in 2011 from about 30 percent in 1972. So we have a 9 percent increase to account for, which is equal to about $1.3 trillion per year in current dollars.

Spending on entitlement programs was about $500 billion per year in 1972 in today’s dollars. If it had increased at the same rate as the gross domestic product, it would now be about $1.4 trillion. Instead, it is now about $2.9 trillion per year. What this means is that there has been about a $1.5 trillion increase in entitlement spending above and beyond gross domestic product growth. This is actually slightly larger than the overall increase in government spending relative to gross domestic product. This results from the fact that spending on the other categories has been essentially flat relative to the gross domestic product (infrastructure and services), or constitutes a negligible part of the budget for the time being (interest), or actually decreased relative to gross domestic product over the 40-year period (defense).

To clarify: all of the major categories of government spending have been increasing relative to inflation. But essentially all of the increase in spending relative to economic growth, and the potential tax base, has come from entitlement programs, and about half of that has come from health care entitlements specifically.

To put it another way, in order to be able to actually afford the total increase in entitlement spending that occurred, the U.S. economy would have had to grow at a pace nearly twice as fast as it did in the forty years from 1972 through 2011.

Silver then goes on draw a correlation between the increase in the government’s social welfare entitlement spending and the growth of distrust in the government itself:

... the declining level of trust in government since the 1970s is a fairly close mirror for the growth in spending on social insurance as a share of the gross domestic product and of overall government expenditures. We may have gone from conceiving of government as an entity that builds roads, dams and airports, provides shared services like schooling, policing and national parks, and wages wars, into the world’s largest insurance broker.

Most of us don’t much care for our insurance broker.

In truth, most of us are really neutral toward our insurance brokers, at least those in the private sector, because unlike the government, we’re free to do business with them or not. The government, and the politicians and bureaucrats who run it, would prefer to deny us that kind of choice.

To actually build trust takes a combination of integrity, sincerity, reliability, consistency, commitment, and competence. All one has to do to understand why Americans have grown to distrust government so much, and are growing even more distrustful of it, is to consider the nearly complete absence of these factors from the President on down in the implementation of the latest expansion of unaffordable entitlement spending: the Affordable Care Act (a.k.a. “Obamacare”).

Government Train Wreck

Monday March 24th, 2014   •   Posted by K. Lloyd Billingsley at 7:30am PDT   •  

HSRCACalifornia governor Jerry Brown is an ardent supporter of the state’s high-speed rail project and as this report shows, he has now come up with a new reason for it. “There’s a lot of old people who shouldn’t be driving,” he recently told some union bosses in Sacramento. “They should be sitting in a nice train car working on their iPad, having a martini.” People of all ages have a problem with that.

The so-called “bullet train” might link cities but won’t take anybody to the local pharmacy, a hospital, Costco, or a high-school football game. California’s high-speed rail will take riders where the government thinks they should go but it’s primary purpose has nothing to do with transportation.

High-speed rail is designed to shore up the prospects of California congressmen by spending money in their districts. That’s why the first stretch of the system, which is supposed to link San Francisco and Los Angeles, is slated for the central valley near Fresno, not exactly the primary hub of activity in the state.

The state’s High Speed Rail Authority serves well as soft landing spot for washed-up politicians. For example, governor Brown appointed board member Lynn Schenck, a former congresswoman who also served as chief of staff for California governor Gray Davis. The Authority also provides a landing spot for state employees of dubious background. Carey Renee Moore, a convicted embezzler, got a job with the High Speed Rail Authority, which covered it up in typical style as a “personnel matter.

High Speed Rail is also a mechanism to reward politicians’ support network. Under project labor agreements and measures such as Davis Bacon, all the work will go to union contractors. A full 93.3 percent of private-sector workers are not union members. They can get no piece of the action even though their taxes support the project.

High Speed Rail also serves as a legacy project for Jerry Brown but it won’t take people where they want to go or get “old people” out of their cars. It is supposed to cost $68 billion but the true cost, in the style of the Bay Bridge, would surely be much higher. That’s why the ruling class is riding the bullet train for all it’s worth.

Soaring Debts at Public Universities

Sunday March 23rd, 2014   •   Posted by Craig Eyermann at 6:00pm PDT   •  

24723108_S Normally, whenever the subject of universities and debt comes up, the topic is student loans, which as we’ve previously discussed, have skyrocketed in recent years.

But that problem with debt might not be limited to just students. Forbes‘ Josh Freedman writes about a unique change in the rankings for the University of California (UC):

Last week, the University of California got downgraded. Not in the U.S. News or other college rankings, where six of its campuses rank in the top 15 public colleges in the United States; nor in College Prowler’s list of schools with the most attractive men on campus (where flagship UC-Berkeley clocks in at a measly number 1185). Rather, the UC system has been downgraded in the credit markets: ratings agency Moody’s lowered the UC system’s general revenue bonds from Aa1 to Aa2.

People like to talk about student debt—read, for example, my five part series on the topic. (Ok, I know you’re busy. How about at least one part of it? Do it for me.) But university debt, although rarely discussed, is arguably more important. Schools across the country are borrowing more money, and the increasing reliance on debt-financing at universities is adding logs covered in lighter fluid to an already flammable higher education system. The University of California system, for example, has $14.5 billion in outstanding debt, more than double its level in 2005. The total volume of debt across colleges of all kinds has increased so much that interest payments per student have increased 86% since a decade ago despite low interest rates.

The trend of taking on more debt puts schools’ educational and social mission at odds with their financial needs, making it less likely that colleges will be able to do what they’re supposed to do—which is to provide a high quality education for students of all backgrounds.

What makes the trend for universities particularly troubling is where the money they’ve borrowed is going: to fund things like new sports stadiums and luxurious student housing facilities, which are increasingly viewed as ways to bring in more revenue, say through ticket sales and rent. Many schools are even pledging money they collect for tuition as collateral for these projects, as a way to make them more affordable and save money they would otherwise have to pay in higher interest.

That can lead to some really negative consequences if the universities cannot generate the additional revenue they expect to fund their debt payments without cutting into their basic mission. Freedman shares a horror story from the University of California’s Berkeley campus:

That saved money is now in the form of shifted risk, however. Student tuition, as well as other university finances, are now pledged in case the projects aren’t enough to pay back their cost. In fact, this already happened once: UC Berkeley took out $445 million in bonds from 2009 to 2013 to rebuild its football stadium. (The stadium sits directly on top of the Hayward Fault line and had an earthquake rating of “poor.”) Unfortunately, due to overly optimistic assumptions about how many people like football and how good they are at football, the school has fallen $120 million short. As a result, the Wall Street Journal reported, university officials have admitted that the shortfall will have to be made up for by campus funds.

That decision by the state’s public university administrators is one of many that has contributed to the downgrading of the University’s credit rating. Now they, and everyone who attends a UC campus, will pay a higher price for the bad decisions of the people who are running the UC system. Whose next bad decision will likely involve passing along the cost of their mistakes onto students in the form of higher tuitions and fees.

The Fed Weighs In

Thursday March 20th, 2014   •   Posted by Craig Eyermann at 6:00am PDT   •  

el1403-bannerSince it began its various quantitative easing programs several years ago, the U.S. Federal Reserve has become one of the largest creditors to the United States federal government, funding around half of the massive amount of debt issued by the U.S. Treasury to sustain government spending at greatly elevated levels since 2009.

Having become such a large holder of the national debt, and because the nation’s central bank would be counted upon to be the government’s creditor of last resort, loaning money to the government at low interest rates that no one else will, the Fed has an obvious interest in anticipating how much new debt the federal government will generate in the future.

That’s the subject of the March 2014 Economic Letter produced by the Dallas branch of the Federal Reserve. Jason Saving, a senior research economist for the Fed, describes what the Fed expects will happen under current law, in both the short term and the long:

Over the next 10 years, annual deficits might be expected to gradually decline as the recession’s aftereffects increasingly enter the rearview mirror and the “targeted, timely and temporary” short-term stimulus measures intended to combat the recession fade to insignificance. This expectation would certainly be consistent with both 2013’s marked reduced deficit and expected declines in 2014 and 2015. Further, support for this view would be provided by the pickup in revenue from 60-year lows and measures—such as the recent two-year budget agreement—that, at least ostensibly, reduce annual deficits.

However, this outlook turns out not to be the case. After bottoming out at 2 percent of GDP during 2015–18, annual deficits are projected to rise with each succeeding year, reaching nearly 3.5 percent of GDP by 2023. The primary reasons: the retirement of baby boomers, which raises entitlement outlays (Social Security and Medicare), and an expectation that interest rates will rise sharply over the next decade, dramatically increasing U.S. borrowing costs.

What about further down the road? Under a “current law” scenario (under which Congress makes no adjustments to the existing policy environment), deficits would grow inexorably over time, rising to 6.4 percent in 2038, reaching 14.2 percent of GDP by 2088.

Saving produces the following chart to show how deep the hole dug by running persistent deficits year after year becomes, as a percentage share of GDP:


Saving also identifies the main drivers for those ever increasing annual federal budget deficits:

Entitlement spending would grow at roughly the same pace over that period, driven mainly by the interplay of an aging population with ever-more-expensive medical technology. This is no coincidence, because it is precisely this growth in entitlement programs (and to a lesser extent a sizable increase in interest payments) that causes long-term deficits to soar.

Saving then describes the economic impact of running up the national debt through those ever increasing budget deficits (emphasis ours):

The accumulation of historically high federal fiscal deficits over a prolonged period is significant for at least three reasons. First and perhaps most obviously, large and growing deficits directly increase the interest payments required to service them, requiring sacrifices (or higher taxes) elsewhere. Second, an abundance of economic research illustrates that increased borrowing eventually “crowds out” competing demands for capital from private investment, relegating the economy to a lower growth path. Future generations will face a lower standard of living than they would otherwise experience. Finally, carrying a higher stock of debt makes it more difficult for government to respond appropriately when the next recession occurs. Indeed, this was precisely the situation faced by the U.S. after running historically unprecedented peacetime deficits during 2001–08.

These are all points that we’ve emphasized here at the MyGovCost blog for quite some time. It’s just really nice to see that at least one person at the Fed gets it!

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