What benefit does China get for being the largest single foreign lender of money to the U.S. federal government?
Well, if Time magazine’s Rana Foroohar is right, the biggest benefit may be that China gets the right to set the course for U.S. monetary policy. Foroohar writes:
In important ways, China now controls U.S. monetary policy. What happens in the Middle Kingdom affects the decisions that Fed chair Janet Yellen can make about whether to raise or lower interest rates. We saw this just a few days ago when the Fed held fire on a long awaited hike in rates (despite the fact that the U.S. is at full employment) because of global economic headwinds emanating from China, most particularly the disinflationary effect that slower Chinese growth has on the world. Yellen needs inflation to be higher–and in particular, she’d like to see wage inflation be higher–before raising rates. Yet there’s no indication that will happen anytime soon, and China is a big reason why.
As I wrote a couple of weeks back, the economic slowdown in China and the crash of the Chinese equity market (which is a symptom of the former, not a cause) is really the echo of 2008. When American consumers stopped buying stuff after the subprime crisis, China tried to take up the slack in the form of a massive government stimulus program. This meant a major run up in debt. A few years back, it took a dollar of debt to create every dollar of growth in China. Now it takes four times that. The debt-to-GDP ratio in China is a nauseating 300%. (American debt hawks worry about our rate, which is less than a third of that.)
At this point, we need to correct Foroohar’s debt statistics, because she has confused the total debt owed by all entities in China, which includes money borrowed by local governments, businesses and households, with the debt owed by just the U.S. federal government to its direct creditors, which is presently about 101% of the nation’s GDP. And it’s only that low because the U.S. government hit its statutory debt ceiling back in mid-March 2015. If the U.S. Treasury were allowed to borrow more, and they would if they could, it would be considerably higher.
Fortunately, Forbes‘ Kenneth Rapoza collected the true apples-to-apples data for comparison back on May 9, 2015. Here is what he reported at the time:
Is it time to start panicking about China’s debt? If you believe Beijing won’t support the municipalities that have overdosed on credit over the last few years, then absolutely. But overall, China’s federal level debt remains low, bank’s remain strong despite higher non-performing loans on the balance sheet, and yet we still get a total debt to GDP ratio of a whopping 282%.
First, a little comparison. The U.S. total debt to GDP, which includes household and corporate debt, is 331.7%. The economy has not imploded because of that, though there are plenty of people out there with books and newsletters to sell who say it is only a matter of time. They might be right. The same holds for China.
Since that time, the Gross Domestic Product of the U.S. economy has been revised, where the most recent data for the total debt owed by U.S. entities now being reported totals some 334.6% of GDP, through March 31, 2015.
So really, the total amount of debt owed by entities in both nations is quite high, but with the U.S. having a significantly higher total debt-to-GDP ratio than China. And since the U.S. government directly owes China so much money, China would appear to be getting the perk of being able to tell the Fed to put off its plans to increase interest rates for its own benefit.
California is the least tax-friendly state according to new rankings from Kiplinger. Much of that unfriendliness is due to the 2012 Proposition 30, which imposed the highest income tax rate in America, 13.3 percent, and also raised the sales tax to 7.5 percent, also highest in the nation. Proposition 30 was pitched as a temporary measure, with the sales tax hike set to expire in 2016 and the income tax hike in 2018. As we recently noted, the California Teachers Association, Service Employees International Union and other government employees unions are pushing a measure that would extend the income tax hike to 2030. State education superintendent Tom Torlakson (D-CTA) backs the measure. Now another group is getting into the act.
As Christopher Cadelago explains in the Sacramento Bee, the SEIU and other groups want to “expand and make permanent the Proposition 30 income tax increases on the state’s highest earners.” Their measure would “increase taxes on couples earning at least $580,000 annually,” which were set to expire in 2018. It would also “impose even higher income tax rates for so-called “super-earner” couples that make more than $2 million a year.” Heading the measure is Ace Smith, “who ran the original Proposition 30 campaign and Brown’s gubernatorial campaigns.” What a cozy world. But of course, it’s all for the children, not for California’s government employees, who as Jon Coupal notes are the highest paid in all 50 states but always want more. “No matter how high taxes are increased,” Coupal says. “It’s never enough for public officials and bureaucrats who live off taxpayer funded paychecks.”
The ruling class ruse is to pitch something as temporary then extend it or make it permanent. The California Coastal Commission, an unelected body that overrides elected governments on property rights issues, started temporary then became permanent. Withholding from workers’ paychecks started as a temporary measure during World War II, but politicians made it permanent. Government bosses like getting workers’ money before they do. Meanwhile, as the two bids to extend Proposition 30 tax hikes confirm, government greed is truly fathomless.
As we noted in 2013, California’s government employee unions are so confident of their power that they demonstrate in front of the capitol chanting “This is our house!” They were right then and are still right now, as a Sacramento Bee editorial explains.
Senate Bill 376 by Ricardo Lara is “a sop to the American Federation of State, County and Municipal Employees (AFSCME), which represents many University of California employees.” The bill would ban the University of California from outsourcing full-time jobs to companies “whose benefits don’t match the university’s wage and sweet benefit plans for comparable employment.” The bill would cost $36 million a year, plus another $12 million to $24 million to boost the wages of new employees.
Assembly Bill 1293 by Pasadena Democrat Chris Holden, and Senate Bill 682 by Sen. Mark Leno, “seek to restrict the ability of state agencies and the court system from entering into contracts for services that are or could be performed by court or state employees.” The Bee editorialists charge that the bills are a sop to the AFSCME and a “valentine” to the Service Employees International Union, the SEIU. That’s the government employee union that chanted “This is our house!” outside the capitol in 2013.
When legislators go out of their way to intervene on behalf of government employee unions, says the Bee, “taxpayers end up paying.” They do indeed, but there’s more to it. According to the federal Bureau of Labor Statistics, unions represent only 16.3 percent of California workers. A full 83.7 percent of California workers, the vast majority, are not union members. So when politicians go out of their way to intervene on behalf of unionized government employees, they are not exactly representing the people. It’s a case of bad government, and California’s ruling class wants the people to pay more.
The California Teachers Association and other government employee unions are pushing a measure that would extend the 2012 temporary tax hikes of Proposition 30 for 12 years. State education superintendent Tom Torlakson (D-CTA) backs such an extension. So under current conditions, the majority of California’s taxpayers can’t exactly say the capitol is “their house.”
We’re always on the lookout for creative ways to describe the state of the U.S. national debt and the factors that affect it. Today’s exercise in data visualization comes to us via the Twitter feed of DonDraperClone, who has assembled several charts showing some of the biggest drivers of the U.S. government’s total public debt outstanding.
The individual charts were generated by using real economic data provided by the Federal Reserve’s Economic Database, also known simply as FRED!
As Lawrence McQuillan has observed, unfunded pension liabilities have soared to $4.7 trillion nationwide, and California accounts for $550 billion to $750 billion of the total. CalPERS, the Golden State’s biggest public pension fund, has authorized 99 types of special payments that count in pension calculations, but the only one that drew any objection from Gov. Jerry Brown was the temporary upgrade pay. With the prospect of a pension reform measure on the 2016 ballot, education bureaucrats are coming up with new ways to make the pension crisis worse.
As Loretta Kalb observes in the Sacramento Bee, “trustees for some of Sacramento’s largest school districts converted hefty superintendent allowances for vehicles and computers into base pay. The moves ensure that superintendents can still count the allowance amounts toward their pensions.” The San Juan district tacked on $16,000 in allowances to the salary of superintendent Kent Kern, bringing his compensation to $270,185. In similar style, the Twin Rivers district “converted a $10,000 car allowance into pay for Superintendent Steven Martinez, bringing his pay to $260,000.” The pensions for Kern and Martinez will of course be calculated from the higher figure. And as we noted, Martinez also bagged a $20,000 pay increase and doubled his retirement payment. The pay and benefit hikes were not connected to any increase in student achievement. The Twin Rivers district ranks a lowly 314th in the state, with a dismal 47 percent proficiency in math and 44 percent in reading. Other education bureaucrats, including “associate” and “assistant” superintendents, also got big raises not connected to student achievement.
The lessons for taxpayers remain clear. The bloated government monopoly education system may fail students and parents, but it serves well as a piggy bank for bureaucrats. Without effective oversight or accountability, a reactionary ruling class deploys its power to quash reform.
The Washington Times reports on a dubious achievement by the U.S. government:
In the first 11 months of fiscal year 2015, the amount of taxes collected by the federal government outpaced the first 11 months of all previous fiscal years, even after adjusting for inflation. The 2015 fiscal year begins Oct. 1, 2014, and runs through Sept. 30, 2015.
Most of the $2.88 trillion the government collected came from individual income taxes, which comprised nearly half of that total, totaling $1.3 trillion.
The Treasury Department has been tracking these data on its website since 1998. In that fiscal year, the federal government collected about $2.3 trillion in inflation-adjusted revenue in the first 11 months. This means that since 1998, tax revenues have increased about 25 percent.
Although the federal government brought in a record of approximately $2.88 trillion in revenue in the first 11 months of fiscal 2015, according to the Treasury, it also spent approximately $3.4 trillion, leaving a deficit of approximately $529 billion.
The chart below shows how the federal government’s tax collections have fared since 1997, both with and without the effect of inflation (as measured by the GDP deflator), which we estimated using Macroeconomic Advisers’ monthly GDP data recorded in the eleventh month of each federal fiscal year from 1997 through 2014, with a projection for 2015, based on the most recently reported month of June 2015.
Doing some quick, back-of-the-envelope math, we see that in 2007, when tax receipts last peaked at $2.34 trillion (in 2009 U.S. dollars), the federal government collected 15.6% of the entire GDP of the U.S. economy recorded at that time.
Eight years later, at $2.63 trillion (in 2009 U.S. dollars), we find that this figure would represent approximately 16.0% of the value of the entire GDP of the U.S. economy through today, as the U.S. government has increased its tax collections by 12.3%, a $289 billion increase in terms of constant 2009 U.S. dollars. Over the same time, the U.S. economy itself grew by just 9.6%.
In 2007, with a budget deficit of $160.7 billion, such increased revenues would have been more than enough to both eliminate the deficit and provide the nation with a $128 billion surplus.
Instead, at $529 billion, the federal government’s budget deficit in 2015 is nearly 3.3 times as large as what it was in 2007.
We confirm then that a lack of spending restraint, rather than a lack of increased taxation, is responsible for the U.S. government’s present fiscal mess, as its expenditure of money has grown far faster than the people can sustain. Consequently, the nation is once again is nearing the possibility of another federal government shut down.
Like most politicians, the president is not one for any kind of effective spending restraint, and certainly not when he perceives that he might gain politically by putting the nation through another artificial fiscal crisis. Even though that crisis will arise not because he has restrained his spending by too much, but because he has not restrained it enough.
The malady of self-delusion can be quite a spectacle.
We mean that in a good way this time, because for once, that incompetence might work to the advantage and benefit of regular Americans!
Let’s start at the beginning. Earlier this week, we commented upon the sorry state of unfunded liabilities for the nation’s public sector employees. Even large tax hikes, we noted, weren’t going to be anywhere near enough to erase the fiscal deficits caused by the growing gap between what government employers have promised to pay for retiree pensions and medical benefits, and what they can actually afford to pay. Because of that difference, we can reasonably expect that their government employers will stop making those benefits so excessively generous.
Today, we know how, thanks to the unintended consequences of policies made by another government entity. The consequences may even by large enough to send the Affordable Care Act into its well-deserved death spiral far sooner than expected. Alison Schrager of Quartz describes the likely impact of a little-noticed accounting change approved by an influential private organization this past summer:
Earlier this summer the Governmental Accounting Standards Board (GASB) released new recommendations urging states and municipalities to include retiree health care when they calculate their liabilities. When private sector firms had to do the same thing in 1990, they ditched the health benefits for retired workers altogether. If state and local governments do the same, it could have serious consequences for Obamacare.
A key feature of the Affordable Care Act are the exchanges where people can buy health care directly from insurers and comparison shop. Insurance markets inherently face an adverse selection problem: The only people who want to buy lots of insurance are the ones most likely to need it. That’s why it was so important that the “young invincibles”—young, healthy people—buy insurance on the exchanges to balance out the high cost of older, sicker people. So far, the population appears sufficiently diverse. The government claims 11.7 million people enrolled through the exchanges and 4.1 million are under 35.
But the new accounting rules might change the group’s composition. Many state and municipal workers retire under the age of 65, when they qualify for Medicare. Since minimum retirement ages for these workers are below age 60, this can leave a significant coverage gap to fill. In addition, some pensions offer health care that subsidizes or supplements Medicare after retirees turn 65. All these benefits are extremely expensive—the total liabilities are estimated to total $1 trillion. State and local governments have almost no money put aside to pay for retiree health care. The average funding ratio—how much money is put aside relative to how much is owed—is only 6%. Compare that to state pensions, which are allegedly about 70% funded....
The creation of ACA health exchanges may be the final nail in the coffin for retiree health-care benefits. The exchanges make it easier for states to phase out health-care plans because pre-Medicare retirees now have other, affordable options. Paul Frostin of the Employee Research Benefits institute anticipates this will open the door to more plan terminations; he’s even found some evidence it’s already happening.
It’s not often we get to see how a single, uncoordinated action by an obscure organization can force hundreds of excessively generous and unaffordable public employee retirement benefit programs onto a sound financial footing while also destroying the single most controversial government welfare benefits program ever devised by U.S. politicians and bureaucrats, but we really have to tip our hats to the unelected and unknown members of the GASB.
Normally, when that sort of thing happens, it hurts regular Americans. But this time, thanks to the incompetence of thousands of policitians and bureaucrats at all levels of government, a blow for sanity might finally be struck.
Who ever said that all unintended consequences have to be bad?!
In 2012, California assemblywoman Fiona Ma backed AB 2482, a bill to license, yes, interior designers. Backers of the measure claimed it would protect consumers from unqualified home decorators, but as Dan Walters of the Sacramento Bee notes, “it was quite evidently aimed at limiting who could offer design services to potential clients – in effect, a state-enforced monopoly.”
As Walters saw it, licensure regulation made sense for doctors, dentists, and medical practitioners, but licensing requirements for others “provide, at best, marginal protection to consumers and exist mainly to carve out monopoly markets for those who obtain the licenses.”
Nationwide, “about 25 percent of jobs require state licenses, 5 times as many as in the 1950s.” In California the figure is 20.7 percent. The decision of which occupations are licensed, says Walters, “is essentially an arbitrary, and therefore political, matter, rather than a uniform effort to protect consumers.” The various boards that grant licenses, which belong to the state Department of Consumer Affairs, “are typically dominated by licensees themselves, so they have a built-in interest in dampening competition.” Arbitrary licensure results in “higher costs for consumers,” says Walters, and the requirements “make it much more difficult for those on the lower rungs of the economic ladder – especially women and ethnic minorities – to climb up.”
In a recent appearance on C-SPAN, economist Walter Williams recalled that an Italian immigrant could once buy a used car, paint “Taxi” on the side, and earn a living. With taxi medallions now costing hundreds of thousands of dollars, that is now impossible, and entrenched interests fight new ventures such a Uber. Williams also observed that medical boards are dominated by doctors, who claim they are best qualified to regulate the medical profession. By this standard, said Williams, Al Capone would make the best attorney general. Who better than a criminal to regulate criminals?
Fiona Ma, meanwhile, moved on to California’s Board of Equalization, a tax agency that doesn’t actually equalize anything. In 1990, some drone at this board proposed taxing editorial cartoons, like works of art purchased in a gallery. The “laugh tax” proposal made California a national joke. So does much of what goes on in Sacramento.
That’s not so much because of the take-home pay, which is often in the same ballpark as what people with similar education and training earn in similar occupations in the private sector, but because of the fringe benefits they receive.
A very good case in point are the retirement benefits that federal, state, and local government employees collect. Many government workers are able to retire far earlier than their private sector peers because of the extraordinarily generous pensions and retiree medical benefits that their government employers promise.
The problem is so bad it goes by a special name—unfunded pension liabilities—and the average state government unfunded pension liability in the United States is $15,052. The Manhattan Institute’s Diana Furchtgott-Roth and Jared Meyer summarized the findings of their recent research on how that largely invisible form of public debt has grown so large in a CBS Marketwatch article:
States are in this situation because during economic booms they deliver more generous pensions to their employees, but during economic downturns, these increases are rarely pared back. This means that states make promises to public-sector unions that they usually cannot afford.
Absent major concessions, these pensions will have to be paid over time to the 19 million men and women who work for a state, county, municipal or school-district government. If pension-fund income is insufficient to cover those obligations, as is expected, those who will be on the hook to pay will be today’s young Americans, who have college loans, high unemployment rates and lower incomes than the public-sector workers. As they progress in the workforce, they will be responsible for the debts.
Unfortunately, unlike the private sector, where businesses are required by law to continually set aside sufficient funds to fully pay such defined benefits to their employees when they retire, public-sector entities have no “full-funding” requirements. They instead choose to set aside only a fraction of the promised benefits and then count on their power to hike taxes on their residents to make up any shortfall between what they’ve promised and what they can actually deliver to their retired employees.
In fact, that is exactly what is happening in Chicago, Illinois, where the city government has a long history of promising far more in benefits to its employees than it can ever hope to deliver. A. J. LaTrace of Curbed Chicago reports:
The city’s budget crisis isn’t going away anytime soon, but in order to help fill the hole, Mayor Emanuel has proposed what is being widely reported as “the biggest property tax hike in recent Chicago history.” The mayor is looking to raise $500 million through the hike, which will squeeze an additional $500 annually from homeowners whose property is worth $250,000. In addition, the mayor wants to start charging for garbage collection separately, which will come to somewhere around $10 to $12 per household per month.
Alderman Patrick O’Connor tells the Tribune that the plan would provide $450 million for police and fire department pensions while $50 million would be used for a Chicago Public Schools construction program. While the mayor attacked his opponent Jesus “Chuy” Garcia for voting for a big property tax hike during the Harold Washington years, the one that Rahm is currently proposing would be over triple the amount when adjusting for inflation. Weary homeowners may have suspected that the city would raise property taxes to help provide some relief from the pension crisis, and it appears that some sort of tax hike is on the horizon.
And yet, notice that even the largest property tax hike it its history won’t be enough to end Chicago’s fiscal problems. The public employee beneficiaries of the city’s excessively generous retirement pension, and medical benefit plans, should really start planning to have those benefits made less generous.
Back in April 2014, we described the newly unfolding tragedy of fraudulent waiting lists at the Department of Veterans Affairs’ medical facilities as a rationing scheme – one that was operated by knowing individuals within the VA for the purpose of enriching themselves:
The VA has been wracked in recent weeks by reports of negligence on the part of the department’s managers and admininistrators, who allegedly have implemented a unique health care rationing scheme aimed at making the system appear to be meeting the needs of ailing veterans, but is instead denying critical care to them.
The rationing scheme involves the use of multiple waiting lists for veterans seeking medical care at a number of VA health care facilities across the United States. Here, a number of facilities have been discovered to be maintaining an “official” waiting list, which is meant to communicate the VA is successfully limiting waiting times to 14 days or less before providing care. But in reality, the “official” waiting list is a fraud, as these facilities would appear to also be maintaining secret waiting lists – ones where the veterans seeking care are effectively placed in a virtual waiting room where months pass before they can even get on a schedule to receive care.
That kind of deception carries a real human cost, as the story first broke in Phoenix, where as many as 40 veterans have died before receiving care after seeking it from the VA as they were placed on the facility’s secret wait list instead. Since that story first broke, it would appear that this secret rationing system has been adopted at a number of Veterans Administration facilities across the nation – something that could only happen with the knowledge and assent of the Department’s administrators.
In other words, the situation being discovered by the public today is not an isolated incident resulting from the actions of a few rogue administrators at a local facility. Instead, it is the result of deliberate actions taken on the part of the department’s top administrators, which we can see by the system of incentives they created to reward those who adopted the secret wait list scheme and punish those who did not.
On Wednesday, September 2, 2015, we learned the magnitude of what the U.S. government’s single payer health care system for the nation’s military veterans cost the nation in the terms of the medical treatment it denied them. CNN reports:
Hundreds of thousands of veterans listed in the Department of Veterans Affairs enrollment system died before their applications for care were processed, according to a report issued Wednesday.
The VA’s inspector general found that out of about 800,000 records stalled in the agency’s system for managing health care enrollment, there were more than 307,000 records that belonged to veterans who had died months or years in the past.
In other words, if a veteran had the processing of their application to obtain medical treatment at the VA grind to a halt in the VA’s bureaucratic limbo, they had a 38% chance of dying before the VA’s Inspector General found their stalled application years later. The remaining 62% in bureaucratic limbo were simply never permitted to obtain care.
What did the VA’s bureaucrats do with the applications instead? CNN describes what the Inspector General found:
The inspector general found the VA’s office responsible for enrollment “has not effectively managed its business processes to ensure the consistent creation and maintenance of essential data.”
Additionally, the investigation states the Veterans Health Administration “has not adequately established procedures to identify individuals who have died, including those with pending health care enrollment records.”
The report said an internal VA investigation in 2010 found staffers had hidden veterans’ applications in their desks so they could process them at a later time, but human resources later recommended the staffers responsible not be disciplined.
And once again, we find that when given both the responsibility and the opportunity to hold themselves accountable in looking out for the interests of regular Americans, the U.S. government’s bureaucrats looked out for their own interests instead.