The U.S. Department of Energy claims lineage from the Manhattan Project of World War II, and its official history cites none other than Albert Einstein. Actually, the DOE dates its inception from 1977: “[T]he twelfth cabinet-level department brought together for the first time within one agency two programmatic traditions that had long coexisted within the Federal establishment.” The president at the time was Jimmy Carter, who also launched the federal Department of Education as a payoff to the National Education Association for supporting him. Carter was known for his “misery index” and national “malaise.” As Sarah Westwood notes in the Washington Examiner, none of that for the current bosses at the U.S. Department of Energy, who like to party.
In one year alone they spent $21 million hosting, count ‘em, 329 “government employee conferences” such as casino nights, a Super Bowl party, and dinner cruises. Westwood notes that the department spent taxpayer dollars on a golf tournament and a dinner at the NASCAR Hall of Fame. A full 16 of the conferences, held between April 2013 and September 2014, cost $100,000 or more. The department “declined to host their events in federal facilities and instead opted to rent space in swanky hotels.” Westwood does not say anyone was disciplined or fired for this waste and extravagance, so taxpayers can take it as more evidence that the federal government is unaccountable and probably unreformable. But this department has deeper problems.
The DOE official history also notes: “Until the 1970s, the Federal government played a limited role in formulating national energy policy in an era of relatively cheap and abundant energy. The nation relied on the private sector to fulfill most of its energy needs. Historically, Americans expected private industry to establish production, distribution, marketing, and pricing policies. When free market conditions were absent, Federal regulations were established to control energy pricing.”
In other words, the U.S. Department of Energy, with its budget of $30 billion, doesn’t actually create much energy. The private sector still supplies most of it, and the department’s regulation makes it more expensive for taxpayers. So it makes perfect sense that the department wastes taxpayer dollars on Super Bowl parties, casino nights, and such.
Let’s take a moment to flash back to the distant past of January 8, 2015. That Thursday was the day that President Obama bragged about the state of the recovery in the U.S. housing market, at least according to The Hill‘s report on the president’s claims:
President Obama bragged Thursday it was “no accident” that the housing market rebounded under his administration, saying his economic policies helped usher in a construction boom and the lowest foreclosure rate since 2006.
“We ended up helping millions stay in their homes; we ended up saving millions more thousands of dollars each year by refinancing,” Obama said in an address in Phoenix. He added that was “what happens when you have policies that put middle-class families first.”
So it sounds like things are going exceptionally well for U.S. homeowners, doesn’t it?
Less than a month later, on Monday, February 2, 2015, President Obama released his budget request for the federal government’s fiscal year 2016, which reveals that his boast from less than a month earlier is actually far from the truth. We know this because of an interesting line item called “Mortgage Credit” in Table 3.2 of the historical tables for the budget. This shows historic spending and the president’s proposed spending from 2016 through 2020, which indicates that a new bailout for distressed homeowners and mortgage lenders is in the works.
Here’s how we know. We compared the net amount of money that President Obama expects the U.S. government to collect in the future through the Mortgage Credit in his 2016 budget proposal, with the amount of money that he expected to collect in the overlapping future years covered by his previous year’s budget proposal. For the four years 2016 through 2019, we find that instead of collecting $162.1 billion, the U.S. government will collect only $125.9 billion. That’s a $36.1 billion reversal in fortune for the U.S. housing market during those four years.
To understand why that matters, consider that in good economic years, the Mortgage Credit represents the money that the federal government collects from insuring and guaranteeing mortgages through government agencies or government-sponsored enterprises such as the FHA, Fannie Mae or Freddie Mac. But in bad years, such as was the case in the years following the bursting of the housing bubble, the flow of money reverses and is instead used to bail out the bad or underwater loans mortgage lenders made that were guaranteed by the U.S. government.
We wondered if the shortfall in expected revenues could be tied to President Obama’s announcement that the federal government would cut the fees it charges on the mortgages it insures in half, which would reduce its Mortgage Credit revenues by an average of $900 per year for as many as 800,000 homeowners. But that math falls far short in explaining the revenue shortfall, as the total reduction in the federal government’s revenues would fall by $0.720 billion per year.
Extended over a four year long period, that works out to be $2.88 billion shortfall, which would only explain just under 8 percent of the negative discrepancy that exists between President Obama’s fiscal year 2015 and 2016 budget proposals for the years spanning 2016 through 2019.
This means that something else explains the other 92 percent or $33.2 billion revenue shortfall. The most likely explanation is that President Obama has become considerably less optimistic about the growth prospects for the U.S. housing market than he was a year ago, such that he now anticipates at least a worsening rate of recovery.
That change in outlook is confirmed by a change in tax policy outlined by the U.S. Treasury Department in connection with the President’s 2016 budget proposal:
In recent years, home values in regions across the country have fallen substantially, leaving millions of homeowners now owing more on their mortgage loans than the value of the homes securing those loans. Many homeowners are also experiencing difficulty making timely payments on their mortgage loans. In these circumstances, there is a substantial volume of foreclosures. In addition, it is often in the best interests of both the homeowner and the holder of the mortgage to avoid foreclosure in one of several ways. For example, the homeowner may sell the home for less than the amount owed on the mortgage loan, and (despite the shortfall) the holder of the loan accepts the sales proceeds in full satisfaction of the loan. Alternatively, the homeowner may transfer title to the house to the lender in return for cancellation of the mortgage. Or, the homeowner and the holder may agree for the loan to be modified so that the homeowner can again become timely in making payments. Although there has been improvement in the residential real estate market, there is still an elevated number of cases in which homeowners may have discharge of indebtedness income with respect to their home mortgage loans.
Beyond the many modifications being made without Government assistance, large numbers of mortgage modifications are being made under the Treasury program Making Home Affordable, including the Home Affordable Modification Program® (HAMP®). Facilitating home mortgage modifications remains important for the continued recovery of the residential real estate market.
The importance is demonstrated by the fact that HAMP® has been extended at least through the end of 2016. Also, many lenders have reached settlements with Federal and State authorities, which include terms committing lenders to engage in certain borrower-favorable conduct, and writing down mortgage loan principal in many instances counts toward meeting this requirement.
It is important to recognize that these changes would not be necessary if the U.S. housing market, and house values, were expected to continue their recovery. Instead, we find that President Obama’s estimate of the amount of additional money that will be needed to bailout homeowners and mortgage lenders from 2016 through 2019 will total $33.2 billion.
This means that President Obama’s budget proposal for 2016 is really telling us that he believes the brightest days for the recovery in the U.S. housing market are now in the rear view mirror.
Californians are paying off $5 billion in cost overruns on the San Francisco–Oakland Bay Bridge, which came in, count ‘em, ten years late, with its safety still in doubt. Governor Jerry Brown wants to spend $68 billion on a “bullet train” that would be slower and more expensive than air travel. He also wants to spend $25 billion on a couple of tunnels. More than $13 billion in mental health money seems to have been spent in dubious ways. Now new Assembly Speaker Toni Atkins, a San Diego Democrat, wants to hit up drivers with $1.8 billion in new fees to fix the state’s roads, the state’s already onerous tax regime apparently not up to the task. But as Breitbart notes, there’s always money to put politicians in spanking new wheels.
California just spent $540,000, more than half a billion dollars, on new Ford Fusion hybrids for the state senate. Senate boss Kevin De Leon, a person of scant distinction who spent $50,000 on an “inauguration” fit for a king, got a $40,117 Chevy Suburban last year. The free spending Atkins has a 2012 Chevy Suburban for her San Diego district and a $42,694 Buick Lacrosse for Sacramento, all courtesy of the taxpayers she wants to shake down for yet another $1.8 billion. And as we noted, Atkins paved the way for California’s Coastal Commission, an unelected body of regulatory zealots with disdain for property rights, to bypass the courts and impose fines directly.
State mouthpieces say the new Ford Fusions are part of green energy policy and so forth. Actually, the $540,000 is all waste. Elected officials, who are not special people, should pay for their own cars with their very substantial salaries. No minimum wage for Golden State’s pampered ruling class, and lots of lavish benefits, including fancy cars. Taxpayers can’t be blamed for believing that California government is a rotted out, money-guzzling wreck, and probably beyond repair.
Sometime between President Obama’s 2015 and 2016 budget proposals for the federal government, President Obama’s idealistic promises failed to meet the tests of the real world, and now Americans are being asked to pay the price.
At least, that’s the distinct impression we have after considering the major changes in the amount of spending that President Obama has requested for the four years from 2016 through 2019, which are documented by major government function in Table 3.2 of the Historical Tables in each fiscal year’s budget proposals.
A really good example of the failures of President Obama’s policies may be found in the categories of Defense spending and International Affairs, where the amount of money being sought by the President from 2016 through 2019 has increased by $66.7 billion and $21.2 billion respectively. These increases are being sought almost entirely because of the need to reverse the multiple failures of President Obama’s foreign policy in the Middle East, where President Obama’s assessment that the region was sufficiently stable enough to remove U.S. troops from Iraq in 2011 has proven to be disastrously wrong, requiring new and extensive U.S. military action and considerable foreign aid.
If there is an upside to that situation from a budget perspective, it can be found in President Obama’s projections for the savings on the amount of net interest that the U.S. will pay on its national debt to its creditors in the years from 2016 through 2019. Here, President Obama anticipates that the U.S. will benefit from a “flight to safety” on the part of the world’s financial institutions, who he expects will bid down the interest rates that the U.S. must pay on its debt.
That flight to safety on the part of these institutions would be driven by their negative assessment of the world’s economic stability and of the world’s economic growth prospects, where loaning money to the U.S. government represents a safer investment than the available alternatives from their perspective. We should note that because it is tied to factors outside of the U.S.’ control, the flight to safety dynamic cannot be considered to be a sustainable trend, although it clearly establishes a perverse incentive for the U.S. to increase instability elsewhere in the world.
In this case, the increase in economic uncertainty resulting from greater political instability from the failures of U.S. policies in the Middle East combined with declining economic growth prospects in both China and Europe benefit President Obama’s desire to increase the U.S. government’s spending.
Here, from 2016 through 2019, President Obama expects that the net cost of paying interest on securities issued by the U.S. Treasury will fall by $202.2 billion compared to the President’s previous year’s projections, and are what President Obama is primarily relying upon to fund his domestic spending initiatives, such as universal two-year community college (or rather, the fifth and sixth years of high school), which is projected to cost the federal government at least an additional $60 billion over 10 years.
But as we’ll reveal in our next installment later this week, the United States has its own negative economic winds to cope with in the domestic economy, which are also reflected in the President’s new budget proposal.
In 2009, the U.S. federal government effectively took over the student loan industry in the United States as one of President Barack Obama’s major initiatives. Seeing student loans as a way to boost the amount of revenue it collects from the low- and middle-income students who take out these loans to pay for higher education without imposing higher income tax rates on them, the U.S. government began directly funding student loans with money it borrows from the public.
Since 2009, about $1 of every $10 dollars that the U.S. government has borrowed has gone to issue student loans. And because the federal government borrows that money at lower interest rates than it charges student loan recipients, it should be making quite a lot of money on its student loan racket.
According to President Obama’s latest budget proposal, the feds are actually losing quite a lot of money. Politico reports:
In obscure data tables buried deep in its 2016 budget proposal, the Obama administration revealed this week that its student loan program had a $21.8 billion shortfall last year, apparently the largest ever recorded for any government credit program.
The main cause of the shortfall was President Barack Obama’s recent efforts to provide relief for borrowers drowning in student debt, reforms that have already begun to reduce loan payments to the government. For more than two decades, budget analysts have recalculated the projected costs of about 120 credit programs every year, but they have never lowered their expectations of repayments this dramatically. The $21.8 billion revision—larger than the annual budget for NASA, or the Interior Department and EPA combined—will be tacked onto the federal deficit.
Politico goes on to describe the write-off as a “big quasi-bailout”—one that adds 5 percent to the size of the U.S. annual budget deficit.
The negative revision has been made unavoidable because of actions President Obama has taken to provide generous “relief” to student loan borrowers whose incomes are not large enough to afford the full amount of their debt payments, by making their loan payments to the federal government’s student loan program directly proportional to their incomes. If that sounds more like how income taxes work than how debt works, that’s because the student loans in these cases have been effectively transformed into income taxes.
But that transformation comes with a cost, since the deficient and delinquent student loans that are not being paid off in full means that the money the federal government borrowed to fund them will continue as a perpetual obligation for U.S. taxpayers. The only question is whether this $21.6 billion “adjustment” is a one-time cost, or the first of a stream of such adjustments.
It’s not yet clear whether this will be a hefty one-time revision, or a harbinger of oceans of red ink as millions more borrowers get relief on their payments to the government. Several reports by Barclays Capital have warned that Obama’s generosity to borrowers could leave the student loan program as much as $250 billion in the hole over the next decade. And behind closed doors, officials in the White House budget office and the Treasury Department have criticized the Education Department’s loan models as overly optimistic, with some officials pushing internally for third-party audits.
The correct answer to that question is that it is the first of a never-ending stream of such negative adjustments. Because of that, we’ll stick with our previous suggestion for resolving the problem:
Perhaps the most effective way to resolve this issue would be simply to make all student loans fully dischargeable in bankruptcy proceedings once more, whether originated by private lenders or by the federal government. That way, the people who need real and permanent relief from their student debts, regardless of who their lender might be, could get it.
Faced with the risk of losing massive amounts of money because of the bad decisions it made in getting into the business of making direct student loans in the first place, the federal government might then have an adequate incentive to adopt a more fiscally sound approach to its direct lending racket by getting out of it.
And that would go a very long way toward eliminating the federal government’s hidden budget deficit.
As we have noted several times, the new eastern span of the San Francisco-Oakland Bay Bridge was $5 billion over budget and, count ‘em, ten years late. That’s a full decade but after all that time and money, safety issues linger with faulty welds and such, which California governor Jerry Brown dismissed with his famous “shit happens” quip. UC Berkeley structural engineering professor Abolhassan Astaneh-Asi, who knows a bit more about bridges than Brown, believes the structure is unsafe and declines to use it. Now, as investigative journalist Charles Piller reports in the Sacramento Bee, the man in charge of the project is conveniently retiring.
Tony Anziano managed the bridge construction process for Caltrans, but he is an attorney, not an engineer. Witnesses in hearings last year charged that Anziano ordered his underlings not to document serious flaws in welds. Anziano denied the charges. Sen. Mark DeSaulnier said he didn’t believe him, but the criminal investigation one Caltrans whistleblower called for never took place. DeSaulnier, now a congressman, tells Piller, “it’s frustrating that there’s never been anyone in the management of the bridge who has been held accountable.” DeSaulnier is right about that, but toll payers and taxpayers might find fault with his oversight as head of Senate Transportation and Housing Committee.
He heard detailed, credible testimony from a number of experts and whistleblowers but never held Caltrans bosses to account. On the other hand, DeSaulnier revealed the real reason for his concerns. The billions in cost overruns, the 10-year delay, and lingering safety issues, he said, had eroded public confidence and made Californians “adverse to taxes.” These taxes were needed for other “infrastructure” projects that DeSaulnier said would promote economic growth. He gave no examples, but the prime candidate is surely the state’s $68 billion high-speed rail project, another sure-fire boondoggle.
Political Calculations revisits the Zero Deficit Line:
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How much would the U.S. federal government need spend per household to even come close to balancing the annual U.S. federal budget?
The latest update to our Zero Deficit Line chart reveals the answer!
Our estimated median household income of $53,601 in 2014 would correspond with the U.S. government running a balanced budget if federal spending per U.S. household were held down to be $22,628, which is 42.2% of the median household income.
But instead of spending that much, the U.S. government spent $5,576 more than that amount, or approximately $28,204 per U.S. household, which works out to be 52.6% of its income.
One way to think of that 52.6% figure is that it is the effective tax rate that would need to be levied on the income of the middle class in the U.S. to support President Obama’s spending in 2014!
We also observe in the chart that 2014 was a year in which the U.S. federal government stopped making significant progress in eliminating the gap between the trajectory for federal spending and the Zero Deficit Line.
Which explains why the national debt per U.S. household reached an all time high, in both nominal and real (inflation-adjusted) terms.
We estimate that 2014 saw the total public debt outstanding of the U.S. government rose to be an average of $143,382 per U.S. household, after having been essentially flat from 2012 to 2013.
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Picking up on that last point, the lack of growth of the U.S. national debt from 2012 to 2013 is mostly a result of the shell game that the U.S. Treasury Department was playing with the funds it controlled during the debt ceiling debate in 2013. As soon as the debt ceiling was lifted, ending the need for the U.S. Treasury to play its shell game, the national debt spiked immediately upward to the level it would have reached if not for that restraint. The apparent lack of growth of the U.S. national debt from 2012 to 2013 was really an illusion.
What do taxpayers get for $13.2 billion in government spending on mental health? Not much, according to a new report by California’s Little Hoover Commission. In fact, as David Siders explains in the Sacramento Bee, the state cannot even document whether the $13.2 billion even improved any Californians’ lives.
That is the legacy of Proposition 63, a 2004 ballot measure sponsored by Senator Darrell Steinberg that slapped a one-percent tax on millionaires to fund mental health services. As Little Hoover Commission boss Pedro Nava explains, backers promised the measure would keep people off the street, out of the hospital, out of jail, and even help people “make the move from tax user to taxpayer.” It didn’t, and it is “difficult if not impossible, to analyze the measure’s effect.” This has something to do with “overlapping and sometimes unaccountable bureaucracies.” This is the same measure, by the way, that Steinberg wanted President Obama to use as a model for the nation.
As we noted in 2013, when Prop 63 had brought in $8 billion, California’s state auditor could not account for how the money was spent. The San Jose Mercury News found that the state had fewer psychiatric hospital beds, fewer doctors treating patients, fewer clinics across the state, and that in the previous year 750,000 Californians had failed to receive mental health treatment they needed. The Sacramento Bee wondered if the money had been “shoved down a rat hole,” and there is something to that. Steinberg is a former attorney for the California State Employees Association. State employees got their Prop 63 money, and the rest was squandered on yoga, horseback riding, gardening, iPads, public relations videos and such.
Senator Darrell Steinberg wrapped a spending initiative in a white coat and promised great things. The measure failed its intended beneficiaries but succeeded in funneling billions to his ruling-class cronies. By the time state watchdogs pegged the tab at $13.2 billion, Steinberg was safely out of office. That seductive dynamic will surely produce more white-coat initiatives but taxpayers would have to be crazy to vote for them.
What does President Obama’s new budget proposal mean to the typical American household?
The following chart illustrates the amount of spending per U.S. household that President Obama is proposing to do in the federal government’s 2016 fiscal year as a percentage share of the median income earned by U.S. households. And, as a bonus, it puts this percentage into historical context by showing how that share has evolved since Ronald Reagan’s days in office.
Although the $74 billion that President Obama wishes to increase federal spending in 2016 would appear to be small with respect to that years’ proposed budget of $4 trillion, when broken down by spending per U.S. household, that spending increase is the equivalent of more than 1 percent of the typical U.S. households annual income.
That’s the main reason why President Obama has begun floating proposals to tax the savings of middle class households. While the White House has recently backed down from President Obama’s stated desire to tax earnings from the 529 college savings plans used by many middle class households to save for their children’s higher education, so long as the President seeks to sustain federal government spending at such elevated levels, middle class households should consider themselves at an elevated risk of having these or other tax increases imposed upon them.
Speaking of which, we also see that spending during President Obama’s tenure in office consumes roughly 15 percent to 20 percent more of the typical U.S. household’s income than was typical during the tenures of his four predecessors in the Oval Office.
Data Sources
The historic portion of the data originates from the following sources:
U.S. Census Bureau. Historical Income Tables: Households. Table H-5. Race and Hispanic Origin of Householder – Households by Median and Mean Income. [Excel Spreadsheet]. Accessed 31 January 2015.
Sentier Research. Household Income Trends: January 2000 to December 2014. [PDF Document]. Accessed 31 January 2015.
White House Office of Management and Budget. The Budget of the United States Government. Fiscal Year 2015. Historical Tables. Table 1.1 – Summary of Receipts, Outlays, and surpluses or deficitis (-): 1789-2019. [Excel Spreadsheet]. Accessed 31 January 2015.
Projections
Portions of the data from 2014 onward are based upon the following projections for the number of households in the U.S. and their median incomes:
We assume that the rate of increase in the number of U.S. households is equal to the average annual change recorded from 2000 through 2013.
Meanwhile, the median household income data for 2014 is based on the average of the values reported each month from January 2014 through December 2014 by Sentier Research, which is based on data collected through the U.S. Census’ monthly Current Population Surveys.
The median household income figures for 2015 and 2016 were then projected by adding the amount of the annual increase from 2013 to 2014 for each year. Given the recent trend for median household income in the U.S., these figures may be highly optimistic, with the effect being that the calculated percentage share of federal spending with respect to median household income could be considerably higher than we’ve shown above for the years of 2015 and 2016.
California governor Jerry Brown derides critics as “declinists,” but when it comes to the cost of government, he’s definitely an increasist.
As Jon Ortiz and Phillip Reese note in the Sacramento Bee, last year California paid out $1.1 billion more to state employees than the year before. The new tab comes to $16.43 billion, a full seven percent higher than in 2013. According to state data, the payroll of the Department of Corrections went up $279 million, the California Correctional Health Care Services $91 million, the California Highway Patrol $71 million, and the Department of Forestry and Fire Protection $68 million. And in the state Water Resources Control Board, Veterans Affairs, and Office of Inspector General, salaries increased between 18 and 25 percent, but these were not the largest percentage increases.
As Ortiz and Reese note, those came at Covered California, the state’s wholly owned subsidiary of Obamacare, where the payroll grew a whopping 123 percent. This huge increase comes in an arrogant and dysfunctional agency responsible for widespread misery among Californians. But in the cost-increase department, Covered California has some stiff competition. At California’s High Speed Rail Authority, the payroll grew 72 percent. This huge increase comes on a projected $68 billion “bullet train” that recently broke ground near Fresno, not the place where it is supposed to go.
Along with a bigger payroll, the number of full-time and part-time state employees is also up to about 245,000 from 242,000 in 2013. The average salary is $67,062, and as Ortiz and Reese note, “nearly one in five state employees earned $100,000 or more, a 30 percent increase from 2013. About one-quarter of the six-figure salaries went to managers and supervisors.” A full 54 state employees were paid more than $400,000, “up from 37 in 2013.”
California also maintains 3,666 job classifications including “teletype operator” and “switchboard operator,” even though the switchboard no longer exists. These classifications, explains Mr. Ortiz, “make government more expensive.” And as Sacramento Bee columnist Dan Walters observes, oversight of California government is spotty at best. The massive payroll boost, meanwhile, gives taxpayers more evidence that California remains unreformable.
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