California is hiking the minimum wage to $15 an hour by 2022, and governor Jerry Brown is hailing the boost as a matter of “economic justice.” As Dan Walters of the Sacramento Bee recalls, Brown had previously resisted this move and argued for a hike to $13 an hour. But then, “Brown not only agreed to the wage boost he had opposed, but essentially claimed ownership,” which reminded Walters of Brown’s classic flip-flop on Proposition 13, the 1978 measure that limited government’s power to increase property taxes.
Walters’ colleague Jon Ortiz examines what the hike to $15 will mean for government employees and taxpayers. With those at the bottom making more by government mandate, government employee unions are certain to press for raises. The ripple effect of higher minimum wages, one government union spokesman told Ortiz, “should flow all the way up the ladder.” Raising government pay, Ortiz observes, “increases cost to taxpayers.” The initial boost to $10.50 on January 1 will boost the state payroll by $6 million. The $15 figure in 2022 will raise the payroll by $235 million. Taxpayers will foot the bill and the unintended consequences extend to the workers themselves.
By hiking the minimum wage to $15, the state, in effect, paints itself into a corner. “If higher wages are law,” Mr. Ortiz notes, “there’s just one way to hold costs: fewer wage earners.” That is what opponents of the wage hike had been arguing all along. Those workers left on the short end, in government or the private sector, may find it hard to see the wage hike as a matter of economic justice. Low-income workers with children, meanwhile, may face additional hardship.
Last year Oakland hiked the minimum wage to $12.23 on the grounds that it would help the poor. But as Mary Theroux documented, “working poor parents will now be scrambling to find good, affordable child care.” Minimum wage hikes, as Abigail R. Hall Blanco contended, can indeed wind up a “nightmare.”
Shirley Hufstedler, the nation’s first federal Education Secretary, has passed away at 90. That news might surprise some, and not just the younger set, who imagined that the first federal education secretary appeared way back in 1776. There wasn’t one, because the Constitution gives states, not the federal government, domain over education. Under these conditions, however, education managed to thrive. Americans established Harvard, Yale, Cornell, Princeton, Northwestern, Stanford and other great independent universities, long before the federal government got involved. Michigan State, Ohio State, UCLA, LSU and countless others, along with countless primary and secondary schools, all arose before any federal involvement in education. Likewise, African Americans established historically black colleges such as Spelman, Howard and Morehouse, long before the federal government played a role.
The federal Department of Education has only existed since 1980 and was a payoff to the National Education Association, the massive teacher cartel that endorsed Jimmy Carter for president in 1976. On November 30, 1979, Shirley Hufstedler, a lawyer and judge, became head of the new education department, which Congress gave a budget of $14 billion. On the watch of the new federal department, student achievement failed to flourish.
As Vicki Alger noted, the NAEP reading performance of 17-year-olds has remained flat since 1978, despite increased spending, “so it appears the U.S. Department of Education has done little if anything to improve the bang-for-buck ratio with regard to federal education spending and student achievement.” But it remains a haven for overpaid bureaucrats, whose average salary exceeds $100,000. As we observed, the department deploys an enforcement division, armed with shotguns, to conduct raids on those suspected of bribery, fraud and embezzlement. On one raid they carted off a man and his three children over a student aid issue involving the man’s estranged wife, who was not even present. But remember, it’s all for the kids.
The budget of the U.S. Department of Education for 2016 is $70.7 billion, an increase of $3.6 billion, over the 2015 level. Based on what the nation achieved before and after the department’s debut in 1980, a ballpark figure for the ideal budget would be zero. Conservatives have threatened to eliminate the department but none, including Ronald Reagan, managed to do so. The federal government continues to get bigger, not smaller.
Last month, the Congressional Budget Office released a report examining the state of the subsidies that would be paid out to people who purchased health insurance through the government’s Affordable Care Act exchanges in each state over the years from 2016 through 2026.
CBO reports typically make for some pretty dry reading, so we’re happy to have come across the investing and financial analysis site The Motley Fool’s Sean Williams’ take on the report’s findings, in which he describes a mistake of “monstrous proportions” made by the federal government.
While most other news coverage of the report have focused on the CBO’s latest downward revision of its original forecast of 21 million Americans enrolling in Affordable Care Act health insurance down to its newest projection of just 12 million, a nearly 43% miss, Williams focuses in on the report’s latest projections for enrollment in the federal government’s Medicaid and Children’s Health Insurance Program (CHIP) welfare health insurance programs, where he finds that the government made a “monstrous forecasting boo-boo”:
Initial estimates from back in 2010 pegged Medicaid and CHIP combined enrollment at about 52 million in 2016. The actual figures? How about 68 million current enrollees in 2016, or a difference of 16 million. The report notes that total Medicaid/CHIP enrollment grew by 3 million last year, and it’s expected to swell to 74 million by 2026.
How did the federal government miss so badly? The CBO believes that fewer people than expected enrolled in employer-sponsored plans because they were eligible for free healthcare under the expanded Medicaid program. Traditional Medicaid fully covers consumers making up to 100% of the federal poverty level. Obamacare’s expanded Medicaid program, which 31 states and Washington, D.C., took advantage of, covers people earning up to 138% of the federal poverty level. The federal government appears to not have understood the magnitude of the lure to drop out of employer-sponsored care and be covered by Medicaid.
Those 16 million additional Medicare and CHIP enrollments represent nearly a 31% forecasting miss, but the impact is worse where the government’s finances are concerned because the number of Americans receiving benefits from these welfare programs is so much bigger.
But wait—the magnitude of the government’s forecasting error from when the Affordable Care Act was passed into law is even worse than it first appears, because when the federal government made its forecast, it expected that these welfare programs would be expanded in every state. Williams explains:
What’s even more egregious is that this estimate in 2010 was done before a Supreme Court decision in 2012 that allowed states the right to choose whether or not they wanted to expand their Medicaid program.
When President Obama initially signed the Affordable Care Act into law in March 2010, Medicaid expansion was mandatory. However, a ruling of 7-to-2 by the Supreme Court allowed individual states to make the decision of whether or not to expand. Ultimately, 19 states have chosen not to. Their reasoning? The federal government offered financial assistance to all expanding states between 2014 and 2016 but fully plans to pare back its assistance to just 90% from 100% between 2017 and 2020. The holdout states simply felt that they would be left on the hook for too much additional revenue generation to cover these new Medicaid members. If Medicaid expansion was mandatory, the CBO estimates another 4 million people would be enrolled.
This 16 million-person shortfall is far from insignificant. In fact, the CBO estimates that the federal government’s failure to accurately forecast how many people would be enrolled in Medicaid/CHIP to be $146 billion over the next decade. When taking into account factors like the estimated $46 billion the federal government will save by paying out less than expected in subsidies for marketplace exchange enrollees, as well as the $28 billion less it’s expected to collect in revenue because the Cadillac Tax will be suspended for an additional two years, Obamacare is now expected to cost $136 billion more than originally forecast over the long-term.
The magnitude of how badly the federal government messed up its forecasts of enrollments in both Affordable Care Act and Medicaid/CHIP welfare health insurance programs is a major reason why the CBO determined earlier this year that repealing Obamacare, as the Affordable Care Act is popularly known, would reduce the nation’s budget deficits and the growth of the national debt over the next 10 years.
Congressional Budget Office. Federal Subsidies for Health Insurance Coverage for People Under Age 65: 2016 to 2026. https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/51385-HealthInsuranceBaseline_OneCol.pdf. March 2016.
As we noted, California State Auditor Elaine Howle has been riding herd on Caltrans for shoddy maintenance practices that promote waste, fraud and abuse. Now the auditor turns attention to the University of California in a new report charging that UC admissions and financial decisions have disadvantaged California’s own resident students. Over the past few years, the university has “undermined its commitment to resident students,” and “in response to reduced state funding, the university made substantial efforts to enroll nonresident students who pay significantly more tuition than residents.” By the auditor’s count, nonresident enrollment is up 82 percent and resident enrollment down 1 percent. The report helpfully charts the back story to the numbers.
The UC had previously demanded that nonresidents’ academic qualifications equal the upper half of residents’ qualifications. In 2011, however, the UC relaxed this admission standard and in the following three years, admitted “nearly 16,000 nonresidents whose scores fell below the median scores for admitted residents at the same campus on every academic test score and grade point average.” At the same time, “the university denied admission to an increasing proportion of qualified residents at the campus to which they applied.”
The University of California used to play fast and loose with academic standards to get the requisite number of minorities, and that too resulted in the denial of admission to many qualified students. Voters put a stop to racial and ethnic preferences in 1996 by passing Proposition 209, the California Civil Rights Initiative, but diversity dogma still dominates.
In response to reduced state funding, the University of California could opt to dramatically reduce bureaucracy, heavy with highly paid vice chancellors, assistant vice chancellors and such. Their preference has been to hike tuition, and when students have engaged in peaceful protest, campus police pepper-sprayed them. Fair to say that the UC also disadvantaged those students, and the ensuing crisis wasted more taxpayer dollars.
We came across a really interesting example that exemplifies the difference in the way people in the private sector think versus how people who work for government think!
In the private sector, thanks to modern computing technologies, many businesses are able to automate a vital portion of their businesses: the taking of orders for their goods and services. The technology allows the businesses to serve the needs of their customers 24 hours a day, 7 days a week, even if their employees only work from 9:00 AM to 5:00 PM on Monday through Friday. Everybody wins in the process – customers can order what they want whenever it is convenient for them and the business can collect revenue generating orders even when its employees are off the clock.
But in the public sector, government bureaucrats apparently cannot tolerate providing that level of service, even when they use the same technologies. Warren Meyer came across what may be a classic example of how bureaucrats think such technology should be used from the IRS. The screen shot below is taken from the IRS’ site for applying for Employer Identification Numbers online.
You see that correctly – the IRS’ automated online application website for Employer Identification Numbers closes down on both weekends and from 10:00 PM to 7:00 AM Eastern time every weekday. The following screen shot shows the message an applicant receives when they attempt to “Apply Online Now” during the periods outside of the IRS’ hours of operation for the website.
The IRS operates the most popular U.S. government website.
What this state of affairs demonstrates is a certain amount of contempt that the IRS’ bureaucrats would appear to have not just for regular Americans, but very specifically for people who seek to create both businesses and jobs in the United States. After all, who else would ever need to apply for an Employer Identification Number to facilitate their ability to pay taxes to the U.S. government for both themselves and for the employees whose federal taxes they will act as the government’s agent to withhold?
By forcing such productive people to wait until 7:00 AM on Mondays through Fridays to apply for an Employer Identification Number, the IRS’ bureaucrats gain two main benefits for themselves.
We considered the possibility that limiting the Employer Identification Number application process to certain hours of operation might limit the potential for fraud, but clearly, the limited hours of operation are no barrier to that crime.
If you can think of any other benefits for the IRS’ bureaucrats, please add them in the comments!
“More bureaucracy isn’t a solution for homelessness.” That is the kind of headline readers would expect in a libertarian publication. It’s actually the headline of the lead editorial in the March 24 edition of The Sacramento Bee, the newspaper of record in California’s capital. Since this publication rarely criticizes bureaucracy, taxpayers will find the editorial worthy of attention.
Every year, the editorial notes, “tens of millions of dollars are spent trying to help people get off the streets – and, every year, the problem only seems to get worse.” So the spending is there, to the tune of about $40 million in Sacramento County, but with no solution in sight. The editorial board of the Bee wonders “whether any solution should involve yet another layer of bureaucracy,” noting that Sacramento County has just approved a new position for a director of homeless initiatives, with salary and benefits of $217,261 a year. The money is certainly there but “it’s a job with duties that are, at best, vague and, at worst, redundant.” The “stakeholders” in the homeless issue don’t agree on a solution and don’t recognize a chain of command. Therefore “adding a county director of homeless initiatives could complicate things even further.” So as they say, another layer of bureaucracy is no solution.
Meanwhile on the Bee’s op-ed page, on the same day, a headline reads: “California has too many small and stupid governments,” an opinion readers might expect from the Howard Jarvis Taxpayers Association. The author, however, is Zocalo Public Square columnist Joe Mathews, not known as a critic of government. By his count, California has more than 6,000 governments, with 480 cities and “thousands of special districts that few Californians know anything about.” Mathews wants to reduce the numbers through consolidation but, as with bureaucracy, it follows that more levels of government would not be the solution to anything. As taxpayers know, California also has too many big and stupid governments.
Last year, as part of the 2-year budget/debt ceiling deal negotiated between President Obama and former House Speaker John Boehner, spending on national defense was supposed to increase. Here’s what Military Times wrote at the time:
The White House and Congress late Monday agreed to a budget deal that would provide financial relief to the Defense Department over two years by increasing defense spending caps.
The agreement calls for raising the national debt ceiling until March 2017, as well as automatic, across-the-board spending caps set forth by previous deficit-reduction legislation.
The deal would boost the spending restrictions on the base defense budget by $25 billion to $548 billion in fiscal 2016 and by $15 billion to $551 billion in fiscal 2017, according to a summary of the legislation. In addition, it would provide some $59 billion for the war budget in each of the next two fiscal years, resulting in an overall defense budget of $607 billion and $610 billion, respectively.
Several months later, here’s what the effect of that agreement looks like when we compare the spending levels for national defense from 2016 through 2020 in President Obama’s FY 2017 budget proposal against the same years in his previous year’s budget proposal.
The 5-year increase in defense spending from President Obama’s FY2017 proposal is $26.8 billion. However, we see that once we adjust the values for inflation to be in terms of constant 2009 U.S. dollars, spending on national defense will largely continue to decline in real terms.
Factoring in what we have already shown with President Obama’s proposed spending for both Medicaid and the Affordable Care Act, it is clear that spending on National Defense is being cut in real terms in order to sustain these health care-related welfare programs. In June 2015, the Congressional Budget Office determined that repealing the Affordable Care Act would greatly improve the U.S. government’s fiscal situation by reducing the size of its budget deficits.
Getting back to defense spending, given U.S. obligations for defense and the increasing global instability that has come to characterize President Obama’s tenure in office, often as a direct consequence of the administration’s foreign policies, the small increase in U.S. defense spending proposed in the FY 2017 budget is very likely understating the increase in spending that events will likely force upon the nation as the consequences of President Obama’s defense and foreign policies continue to play out.
In light of the ongoing drought, Californians are grateful for the storms that have been pounding the Golden State. It’s a slightly different story, however, down at the Sacramento headquarters of the state Board of Equalization. As Jon Ortiz notes in the Sacramento Bee the “24-story money pit” sprung two leaks during recent heavy rains. Floors 10 and 22 both had a history of leaks and other troubles, but these were apparently unaddressed, as Mr. Ortiz explains, despite “23 reports or actions to fix or monitor concerns.” These leaks are hardly the first problems with the state government building.
As we noted, in more than two decades bureaucrats spent some $60 million to fix defects including leaky windows, mold, burst pipes, falling glass and traces of toxic substances. In 2014 the cost to fix everything was another $30 million, excluding the cost of moving employees during repairs. In 2014 the debt on the building was $77 million and will not be paid off until 2021. Assemblyman Roger Dickinson wanted a new facility that would cost an estimated $500 million, plus the cost of paying off the debt on the BOE building. Some observers have raised the issue of a lawsuit for defective construction, but as the vigilant Mr. Ortiz pointed out, the statute of limitations ran out in 2002. So no luck there.
Embattled taxpayers might want to run an inventory. The initial construction on the BOE building was shoddy, so the state’s oversight was a failure. Legislators missed the deadline on legal action and kept plowing money into the defective building. Well into 2016, the 24-story money pit is still leaking water. It stands as a monument to waste, fraud and abuse in state government.
Something is deeply amiss where President Obama’s latest proposed spending for Health Care Services is concerned.
Previously, we noted the remarkable growth in the amount of spending that President Obama has proposed for the line item (literally Line 551 of Historical Table 3.2) that includes expenditures for the Medicaid and Affordable Care Act (more popularly known as Obamacare) welfare programs in his Fiscal Year 2017 budget proposal compared to how much he projected would be spent on this same category in his Fiscal Year 2016 budget.
But since those dollar amounts represent spending in terms of dollars that have not been adjusted to account for the effect of inflation, we wondered how much of the increase was due to “real” increases in spending as opposed to inflation-driven increases.
To find out, we used the nominal and inflation-adjusted revenue and outlay data for the overall federal budget in Historical Table 1.3 of President Obama’s FY 2016 and FY 2017 budget proposals to calculate how much the spending for Health Care Services in both would be after being adjusted for inflation to be in terms of Constant 2009 U.S. dollars.
The chart below illustrates what we found.
After adjusting both FY 2016 and FY 2017 to be in terms of Constant 2009 U.S. dollars, we see that the amount of “real” spending is nearly identical, with the values for each year from 2016 through 2020 falling within a very narrow margin.
But that doesn’t explain why there is such a difference between the projected actual amount of spending for FY 2016 and FY 2017, when expressed in their nominal current year dollar figures.
With the inflation-adjusted spending being nearly identical, there aren’t very many ways in which the proposed spending figures for Medicaid and Obamacare could have changed so dramatically from one year’s budget proposal to the next as they did. It could be that President Obama completely underestimated how much inflation there would be for these Health Care Services in his FY 2016 budget or perhaps is now completely overestimating how much inflation there will be during these future years in his FY 2017 budget.
Or, in a really weird way, it could be that President Obama believes that all the inflation he projects for the future of the U.S. economy will be from health care services. Since spending for Health Care Services for Medicaid and the Affordable Care Act represents the biggest line item spending increase in his FY 2017 budget proposal, it would be nice to know which scenario applies.
We’ve just updated the MyGovCost calculator to incorporate all the new federal government spending that President Obama has proposed and the Congressional Budget Office really anticipates in the future!
What we found in doing the analysis for the latest budget is that much of what President Obama has proposed is something of a smoke and mirrors exercise.
For example, President Obama’s budget proposal estimates that nominal GDP will grow faster than what has been predicted by the Congressional Budget Office, to where the entire U.S. economy would be 1.2% larger in 2020 than what the CBO anticipates it will be using economic growth rates that are more consistent with what we’ve actually experienced in recent years. To get to that level that President Obama forecasts, the U.S. economy would have to grow far faster on average than what it has averaged throughout the entire post-Great Recession economic recovery that has occurred during his administration, while at the same time, completely avoiding any new recession.
These higher forecast GDP figures ‘boost’ President Obama’s predicted tax collections, which then make the future deficits that would result from his spending proposals appear smaller.
For what it’s worth, President Obama’s forecast for those tax collections suggests that he expects they will rise far faster than GDP growth and as a percent share of GDP, will reach a level of 19.8% of GDP, which has only been seen once before, during the peak of the Dot-Com Stock Market Bubble back in 2000.
By contrast, the CBO forecasts that tax revenue will range between 17.9% and 18.3% of GDP, which is high, but at least is far more consistent with the typical range of 17.5% to 18.0% of GDP that actual tax collections have mostly fallen within since the end of World War 2.
President Obama needs to play games with the numbers because he proposes some remarkably higher spending in the future than what he projected in his previous budget proposals.
Speaking of which, one line item that really stood out in President Obama’s Fiscal Year 2017 budget proposal is the one for Health Care Services, which primarily encompasses expenditures related to Medicaid and additional costs driven by the Affordable Care Act, which is more popularly known as ‘ObamaCare’.
Here, we compared how much money President Obama proposed to spend in the years from 2016 through 2010 in his FY 2016 budget proposal with the same years in his new FY 2017 budget proposal.
Adding up the amount of money that would be spent in the period from 2016 through 2020, we found that in FY 2016, President Obama proposed spending a total of $2.71 trillion, while his FY 2017 proposal totaled up to $2.82 trillion worth of spending over the same five years. That is an overall increase of $111.8 billion, or 4.1%, above and beyond the amount of government spending for health care services that President Obama proposed spending during this period of time only a year ago.
This proposed increase demonstrates how badly President Obama either forecast or deliberately misrepresented the costs for sustaining the Affordable Care Act in the future.
But what will all this mean to you?
MyGovCost’s Government Cost Calculator is designed help taxpayers get a realistic sense of how the U.S. government’s finances affect their bank accounts. In addition to providing a lifetime tax estimate, it enables U.S. taxpayers to see how much of their tax payments go toward various federal spending categories. It also enables them to see what they would have earned if the amount they paid in federal taxes had earned them the stock market’s historic average return, rather than going to the tax man.
Better still, the MyGovCost’s Government Cost Calculator can be accessed anonymously by anyone at this site, which also includes a free app that users are welcome to download to a mobile device.
Please do check it out!
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