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The American taxpayer has the largest stake in the International Monetary Fund. With the highest voting share in the Fund, the U.S. is the only nation with the power to veto all major IMF decisions. We must put pressure on Treasury Secretary Tim Geithner to veto these IMF bailouts for the first time in history. Listed below are the top 10 reasons to stop the IMF bailouts:
1. The IMF is a prime example of our bailout culture.
The International Monetary Fund (IMF) has regularly put American taxpayers on the hook to bail out powerful banks and profligate foreign nations with poor economic policies. According to the Hoover Institution, “it would be difficult to devise a more regressive wealth transfer scheme than IMF financing programs. IMF loans are used to rescue wealthy, politically connected bankers, investors, and financiers at the expense of domestic taxpayers.” Most recently, the IMF spent $145 billion to bailout Greece. The nation had long been living way beyond its means. Greece’s failure to cut their bloated public sector and lavish welfare programs left them bankrupt. The IMF recently announced plans to send $130 billion to spendthrift Ireland. It is reported that Portugal and Spain may be next in line to seek funding followed by Italy and Belgium.
2. Cost to U.S. Taxpayers.
For years, government officials have been touting the fallacy that IMF payments are costless to American taxpayers. Former U.S. treasury secretary Robert Rubin claimed that “the IMF has not cost the taxpayer a dime.” However, American taxpayers subsidize the IMF to the tune of billions of dollars annually. U.S. taxpayers contribute an estimated $55 billion or 17.09 percent of the IMF’s total funding. These hidden subsidies are not subjected to annual appropriations and they are nowhere to be found in the federal budget.
3. The IMF has made global financial crises much worse.
Nearly all of the IMF’s efforts have been counterproductive. Take Argentina for example. For many years, the IMF poured taxpayer-subsidized loans with an exceptionally low interest rate of 2.6 percent into the country. After receiving IMF bailout packages of more than $40 billion, Argentina’s economy collapsed in 2002. The Joint Economic Committee found that the IMF “led to moral hazard problems” and “sustained and subsidized a bankrupt Argentine economic policy.” It is believed that the IMF played a major role in creating the Asian financial crisis. Even former Russian Deputy Prime Minister Boris Federov has stated, "I strongly believe that IMF money injections in 1994-1998 were detrimental to the Russian economy and interests of the Russian people. Instead of speeding up reforms, they slowed them.”
4. The IMF encourages reckless behavior.
The IMF has encouraged reckless behavior by holding out the prospect of a bailout to any country and big politically connected bank that fails. In order to survive, the IMF must provide credit. This has inflamed what economists call moral hazard. Governments and banks are more likely to take greater risks when they believe that they will not be exposed to the full costs of their mistakes. The IMF rewards countries with poor macroeconomic policies and banks that make risky loans with taxpayer-subsidized bailouts.
5. The IMF threatens our sovereignty.
The international bureaucracy of the IMF threatens America’s sovereignty. While America has the largest voting share, it is clearly unconstitutional for an intergovernmental organization to grant American taxpayer-funded bailouts to foreign nations without congressional approval. Moreover, the head of the IMF Dominique Strauss-Kahn is a member of France’s socialist party. Self-described socialist Dominique Strauss-Kahn has proposed a global currency that would serve as an alternative to the U.S. dollar. An April IMF report reads, “A more ambitious reform option would be to build on the previous ideas and develop, over time, a global currency. Called, for example, bancor in honor of Keynes, such a currency could be used as a medium of exchange—an ’outside money’ in contrast to the SDR which remains an ‘inside money’.” Dominique Stratuss-Kahn has already called on European countries to cede sovereignty to the European Union. He declared that “the centre must seize the initiative in all areas key to reaching the common destiny of the union, especially in financial, economic and social policy. Countries must be willing to cede more authority to the centre.”
6. The IMF does not create wealth.
It is impossible to create wealth through government to government transfers. The IMF merely diverts money away from taxpayers in the productive private sector and into the hands of international bureaucrats. These IMF officials redistribute wealth to benefit multinational corporations and banks. It’s a form of corporate welfare. The IMF hands out lucrative contracts to politically connected corporations for construction projects funded by taxpayers. Just as we’ve seen in America, these tax-funded “stimulus” programs have failed to produce economic growth.
7. IMF’s policies have hurt poor countries.
IMF loans have distorted incentives in poor countries. Governments that receive generous taxpayer-subsidized loans have little incentive to advance policies that spur economic growth. Their main objective is to cater to their foreign contributors to stay in power for as long as possible. As Zambian economist Dambisa Moyo states, “foreign aid has been the biggest single inhibitor of Africa's growth.” So far, there has been no correlation between IMF loans and growth. Most of the countries that receive IMF loans are left worse off with massive debts that they cannot afford to pay which only escalates poverty and instability.
8. The IMF still lacks transparency.
Even though the IMF is funded with taxpayer dollars, it has always operated under a veil of secrecy. To design their loan packages, the IMF works exclusively with central bankers and finance ministers. Taxpayers are usually not informed on how or why the IMF puts together their “rescue” packages. Using extensive jargon in their reports, it is hard to tell how the IMF evaluates the success of their bailouts and loans. Russia’s former tax chief Boris Fyodorov says that “the IMF should learn a lesson from the past five years. The IMF was pretending that it was seeing a lot of reforms in Russia. Russia was pretending to conduct reforms. The Western taxpayer was paying for it."
9. The IMF fosters a cycle of dependency.
Rather than encouraging pro-growth policies, IMF loans foster a culture of dependency among developing nations. It’s created a horde of loan addicts. More than 70 countries have relied on IMF loans for more than 20 years. The Fund has failed to help countries become self-sufficient. In virtually every case, these IMF loans become permanent. University of Virginia economics Professor Leland Yeager observes that "self-important international bureaucracies have institutional incentives to invent new functions for themselves, to expand, and to keep client countries dependent on their aid.”
10. The IMF props up authoritarian regimes.
The IMF has spent decades propping up some of the most repressive regimes in the world. Little evidence has shown that IMF loans have helped average citizens in authoritarian nations. IMF loans are a government to government transfer. Zambian economist Dr. Moyo says “a constant stream of ‘free’ money is a perfect way to keep an inefficient or simply bad government in power.” Even worse, these taxpayer-subsidized loans end up in the hands of corrupt dictators. These rulers have an incentive to reward their supporters and special interests constituents. According to a Joint Economic Committee study, “evidence suggests that the IMF knowingly makes loans to corrupt governments while recognizing that some of its loan conditions and procedures can create circumstances promoting additional corruption…thus, IMF lending operations may be consistent with subsidizing corruption.” Why should American taxpayers surrender their money to fuel cruel Sudanese rulers who have engaged in genocide against civilians?
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Adam Smith famously noted in the Wealth of Nations that complex tax codes are "more burdensome to the people than they are beneficial to the sovereign." Our tax code is broken. It's unfair, complex, inhibits saving, investment and job creation, imposes a heavy burden on families, and undermines the integrity of the democratic process. We should scrap it and rebuild a simple, low, flat, fair, and honest tax code.
Here are 10 reasons to Scrap the Code:1. THE CODE IS TOO COMPLEX.
The code is so big that politicians can't even agree on how long it is. Title 26, the Internal Revenue Service (IRS) code totals to about 3,400,000 million words. The non-partisan Tax Foundation reports that the entire tax code with regulations in 2005 was over 9,097,000 words. To put that in perspective, the Bible has 774,746 words. The code has grown in length between 1995 and 2005 by 18.9 percent. The directions for filing a typical form 1040 totals 161 pages. The "EZ" version is 41 pages.2. THE CODE IS BEYOND COMPREHENSION.
No single person knows or understands the entire tax code--not even IRS Employees!
In 2008, the IRS was wrong on questions concerning tax law about 10 percent of the time. Myriads of accountants and lawyers are employed to decipher the cryptic tax code. It should be scrapped and simplified. No small modification to the code can remove the enormous complication.3. THE IRS IS TOO BIG.
The IRS employed 90,647 people in 2008. It had operating costs of $11,207,223,000. If we simplified the code, then many of those IRS employees could go into more productive lines of work, rather than checking up on whether or not the correct amount of money was extracted from hard working Americans. The money spent on the IRS is economic deadweight loss caused by the level of complication of the code. If it were scrapped and replaced, billions of taxpayer dollars could be saved just by reducing the size of the IRS--not to mention all the gains from productively employing former IRS staff members in the private sector.4. THE CODE CORRUPTS THE CULTURE IN WASHINGTON. DC.
Lobbying is the biggest business in Washington. About $3.2 billion was spent in the 2008 on lobbying. Many, if not the majority, of America's 15,139 registered lobbyists are working on increasing the level of complication of the tax code by fighting for special loopholes and regulations that will save their company money or put their competitors out of business. Yet lobbying and ethics reform too often focuses on the symptoms, like gift bans, instead of the underlying cause. What would be America's single most effective move to clean up the swamp of special interests in Washington? Scrapping the code and replacing it with a fair and simple one.5. THE CODE TAXES SOME INCOME TWO OR MORE TIMES.
Our code taxes certain types of income twice. For instance, a company pays taxes on dividends that it pays out and then when stock holders earn money from the dividends, they pay taxes on them again. When government taxes particular types of income more than others, it distorts the market economy by punishing certain kinds of behavior with double taxation. Absent government intervening through the tax code with the complicated and unfair system, the market economy would likely perform more efficiently.6. CONGRESS USES THE TAX CODE TO LEGISLATE MORALITY.
Congress, with its recent passage of the SCHIP bill, raised taxes on cigarettes by 61 cents per pack. Our corrupt and easily manipulated tax system allows members of Congress to pass laws that increase the cost of certain behavior. In the case of SCHIP, they targeted smoking. In the case of AIG, they targeted bonuses. Frightening precedents are being set by Congress this session that will likely lead to even more explicit penalties for certain industries. President Obama claims that he will place a cap-and-trade tax on industry that will eliminate construction of any new coal power plants. Under a fairer and less easily manipulated tax system, government couldn't pick winning and losing industries as we have witnessed recently.7. HIGH MARGINAL TAX RATES PENALIZE SUCCESS.
Marginal income taxes are higher for each dollar workers earn. Our most productive members of society face federal taxes of 36 percent or higher. Under our system, the top 10 percent income earners pay 70 percent of federal income taxes. The president plans to increase top marginal rates to at least 39 percent—and that's not even counting state income tax rates. In virtually every state in the country, high income workers would face top marginal tax rates that would rob them of more than 50 percent of their income. Our current code destroys the incentive of the most productive to work hard.
Shouldn't we be trying to give incentive to the most productive to continue working rather than taxing so much of their income away that they no longer think it's worth working hard? How many inventions or cures for diseases have we lost because the most productive stopped working when faced with 50 percent or higher rates on each additional hour of work?8. COMPLYING WITH THE CODE COSTS AMERICANS BILLIONS.
Compliance is a multi-billion dollar industry and 59 percent of all individuals filing taxes hire someone else to do it for them totaling to 81 million returns done by accountants last year. If we scrapped the tax code for a simpler one, people could fill out their tax forms easily. The sum total benefit could be billions of dollars. All those accountants and lawyers who make their living off the level of complication of the tax code could go into more productive work that would benefit all Americans.
Compliance weighs more heavily on the poor—making our tax code more regressive than it appears. Taxpayers with adjusted gross income (AGI) under $20,000 pay 5.9 percent in compliance costs while those with an AGI of over $200,000 pay .5 percent of their income for compliance.9. THE CODE DRIVES POLITICAL DONATIONS
The Congressman on the House Ways and Means Committee Received $55,157,458 in the 2008 Election Cycle.
The Ways and Means Committee deals with taxes. It's responsible for "raising the revenue required to finance the Federal Government. This includes individual and corporate income taxes, excise taxes, estate taxes, gift taxes, and other miscellaneous taxes." It's the busiest committee and it's membership during the 2008 election cycle received $55,157,458 in campaign contributions.
If we scrapped the code, the committee members would lose their power to manipulate the code in order to pay off their campaign contributors. Our tax system leads to corruption and corporate capture of legislation .10. LAWS SHOULD REST ON PRINCIPLES OF JUSTICE.
The tax code is modified every few years along no reasonable principle. The code is arbitrary and unpredictable, and is morphing from its stated purpose--efficiently raising government revenue--into an instrument that Congress uses to instill fear, punishment, and political control. The code should be scrapped and replaced with a more just system based on principles of fairness and equality before the law rather than on the whim of lobbyists and lawmakers.
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Last fall, Seattle-based RealNetworks released RealDVD, software that allows users to legally save a copy of any DVD that they own to their computer or laptop for later viewing anywhere or anytime. The motion picture studios—including Disney, Paramount, Sony, Twentieth Century Fox, Warner Bros., and Viacom—have filed a lawsuit against RealNetworks to have the new product banned, which threatens to hamper competition and technological innovation in one of the most dynamic sectors of the economy. The trial begins on April 24th.
1. RealDVD does not remove the content scramble system (CSS) that protects copyrighted material, which ensures that it does not run afoul of Digital Rights Management (DRM) requirements. In addition, a new layer of encryption is added that locks the copy to a single hard drive and eliminates the possibility of making additional copies for distribution, removing the threat of piracy.
2. Consumer rights could be dramatically curtailed or even eliminated if the courts determine that the Digital Millennium Copyright Act (DMCA) trumps the long history of legal decisions that define fair use. If the studios win their legal challenge to RealDVD, the courts, in effect, will be asserting that the DMCA adds significant new restrictions to what consumers are allowed to do with DVDs they have legally purchased.
3. The DMCA has given the content providers a virtual monopoly on platforms for the distribution of their products by requiring all new technologies be licensed by the DVD CCA. But a copyright is a negative right. That is, it is a limitation on others using the creator’s work. It does not provide the creator with the right to do something with a copyrighted work, and it certainly should not create a monopoly for the technologies that consumers may purchase.
4. The case against RealDVD is the most recent attempt by content providers to limit competition and technological innovation. New technologies have reduced costs and introduced new models of production and distribution. Rather than adapt, the studios are using litigation to defend old business models.
5. Shifting the burden of content protection to consumers and other technology sectors can have significant impacts and costs for the economy. New restrictions will affect innovation and slow the inevitable transition to a digital economy, which can threaten productivity in one of the most dynamic sectors of the economy.
6. The allegations of increased piracy made by the studios are sweeping and require empirical support before they can be used as a basis for denying consumers the use of a new product. In fact, there is little evidence that has been provided to demonstrate that RealDVD actually increases piracy and therefore harms the movie studios.
7. The impact is, in fact, just as likely to be neutral or actually beneficial to the movie studios. RealDVD includes a number of features that may, in fact, boost the demand for DVDs, raising a direct challenge to the motion picture studios’ assertions that a product like RealDVD detracts from their revenues. Allowing consumers to view their DVDs without having to carry the discs or a drive that plays DVDs increases the value of the DVD, which can increase demand.
8. While attempting to reduce copyright infringements, the DMCA has actually stifled innovation and reduced consumer choice while doing little to stem the flow of piracy. For DVD pirates, the impact of RealDVD will be minimal—it offers little advantage to those seeking to copy DVDs for widespread distribution. Banning a product that maintains the DRM encryption and adds another layer of protection will do little to quell piracy.
9. The studios, in essence, are asserting an exclusive claim not just to the creative content they provide, but to the technologies used by consumers to view DVDs, something that goes far beyond their copyright protection to spur innovation.
10. RealDVD is just the latest target of the Hollywood studios. However, their troubles go well beyond just one product or one market. Quite simply, DVD revenues—which have been a cash cow for the industry—are plummeting. Much like the music industry, the studios are scrambling to deal with new technologies and new consumer preferences. Movie studios must come to grips with the increasing prominence of the internet, a valid and growing competitor to the old model of producing for movie theaters with an aftermarket of televisions.
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The president’s fiscal year 2010 budget proposal amounting to $3.55 trillion in spending was released on Feb. 26. According to the non-partisan Congressional Budget Office (CBO), the president’s proposals will add deficits of $9,300,000,000,000 over the next 10 years—many times more than the inflation adjusted cost of all of World War II. The budget proposal sets record levels of annual spending between a minimum of $3,556,000,000,000 in 2011 and $5,139,000,000,000 in 2019. The budget raises taxes by as much as $1,600,000,000,000 over the next ten years
Although we were promised that President Obama would go through the budget line by line to take out the waste, it does not look like he has. While there are plenty more, the Top 10 ways the Obama budget waste’s taxpayer dollars are:
1. The Budget Includes a $646 Billion Cap-and-Trade Energy Tax.
The president’s budget would create a cap-and-trade energy tax system—essentially a tax on the use of fossil fuels. The total amount of carbon dioxide emissions allowed in the country would be capped, companies would pay for the right to some of these emissions, and then can trade those rights with other companies. This would cost American business an estimated $646 billion—a tax they currently do not face, and a tax that would be passed on to the consumer, like all taxes. It will make virtually every other good more expensive. It is an explicit attempt to raise the cost of energy in this country.
The President claims that under his system, “if somebody wants to build a coal-powered plant, they can; it’s just that it will bankrupt them because they’re going to be charged a huge sum.” The new taxes will drive up costs for virtually every good while simultaneously pressuring foreign capital to seek countries with fewer regulations. The tax increase on energy alone according to Dr. Margo Thorning would, “In dollar cost terms, probably [be] an additional $700 to $1,400 per family per year, starting around 2012.”
2. The Budget Makes a “Down Payment” on Socializing Healthcare.
The White House Budget creates a reserve fund of more than $630 billion for healthcare reform. The President, in his budget summary, calls it a “down payment on reform.” If $630 billion is a down payment, taxpayers should be extremely concerned about the total cost of such a program.
Obama’s campaign goal of government run healthcare may become reality with the funding created for it in this budget. The administration has recently announced its intentions to completely overhaul the healthcare system. Increased funding for socialized coverage suggests this effort will greatly expand the role of government in the health sector.
We agree that healthcare needs reform. The problem, however, is not a lack of government funding, but a lack of markets in healthcare. Government restricts supply, creates mandates on insurance companies, requires occupational licenses for medical workers, and intervenes in a variety of other ways. If the government got out of the way, the market could reduce prices—making healthcare more affordable for everyone.
Where the market is allowed to work, we have seen lower prices. Health savings accounts (HSA), for example, add market incentives to treatment processes. An HSA allows individuals with a high deductible health plan to pay tax free dollars into a savings account that they can later spend on medical care. Studies find that HSAs cut overall long term healthcare costs by about a third by encouraging account holders to shop for the best care at the best value. Government should get out of the way to let markets reduce prices and expand insurance coverage for more Americans.
3. The Budget Hands out Billions to Agencies that Fund ACORN and other Community Organizing Groups.
The budget provides $4.5 billion for Department of Housing and Urban Development’s (HUD) Community Development Block Grant Program. The Association of Community Organizations for Reform Now (ACORN), an activist group convicted of vote fraud and spearheading a campaign to trespass on and take over foreclosed properties, has historically received money from this program. Taxpayer dollars, rather than providing public services for Americans, might be funneled through HUD to groups like ACORN. That money comes on top of what ACORN and other groups that helped to elect the President are already receiving from the stimulus bill and omnibus.
According to the American Spectator, the stimulus bill gives as much as $5.2 billion to ACORN.
4. The Budget Increases Department of Housing and Urban Development (HUD) Funding after It Helped Cause the Financial Crisis.
The budget increases HUD’s discretionary funding by $6.4 billion in addition to the $13.6 billion it received from the stimulus bill—a 50 percent increase over last year. Discretionary funding is spent on whatever the department sees fit. It is not mandated funding with a specifically named purpose from Congress.
The Department insures mortgages for those who would not normally qualify. By driving up the demand for housing through loan guarantees for the unqualified, HUD contributed to the housing bubble. The program should be scrapped. Rather than eliminating a program that contributed to the housing and financial crisis, President Obama wants to increase its funding.
HUD’s former Secretary, Alphonso Jackson, was involved in the same “Friends of Angelo” VIP program with Countrywide Financial that Sen. Christopher Dodd (D-CT) was.
5. The Budget Summary Claims that Government Knows Better than Taxpayers about Their Retirement.
The Budget increases discretionary funding for Social Security by $1,100,000,000 and a matching amount from the stimulus bill. The discretionary funding is not marked for Social Security checks, but instead can be used by the department in virtually any way it pleases. For instance, this money might be used for administration costs or self-promoting propaganda.
The funding is an issue, but perhaps more importantly, the recently released budget summary reads, “The President recognizes that Social Security is indispensable…He is strongly opposed to privatizing Social Security.” That means that the president thinks the government can handle your retirement money better than you can.
The $42.9 trillion the government owes on entitlements like Social Security is bankrupting the country. To put that in perspective, the total net value of all privately held assets in America is about $51.5 trillion. Social Security should stop making promises it will not be able to fulfill, and instead allow us to fund our retirement in accounts we own and control.
6. The Budget Creates Yet Another Entitlement and Spends Billions on Pell Grants.
Pell Grants are federal subsidies for post secondary education. The stimulus bill includes $15,600,000,000 for Pell Grants and Obama’s budget takes even more money for them. It increases the maximum award to $5,550, will have the amount adjust with inflation, and will make Pell Grants an entitlement.
Entitlements like Medicare, Medicaid, and Social Security are threatening to bankrupt the country, but Obama wants to create another one with increasing long term cost to future taxpayers.
While the President is trying to increase government funding for education, his budget also mentions raising taxes on charitable contributions which might threaten private scholarships. The President and Congress should be cutting entitlements to save taxpayers money.
7. The Budget Spends $178 Billion on Interest on the Debt.
Of course, we have to pay the interest on the national debt, but the debt does not have to continue to increase in size, in turn increasing the interest payments. According to the CBO, the total national debt by 2019 will be equal in size to 82.4 percent of the economy. We are responsible to pay back the money overspent during past administrations, but we should be looking to reduce spending to cut back on the amount of interest we are paying in the future.
We are already paying $147 billion in interest on the debt for 2009. According to Obama’s budget, the interest on national debt will rise from $171 billion in 2010 to $391 billion in 2019. As of March 23, 2009, the entire national debt, accumulated since the founding of our nation, was $11,041,711,544,305. The CBO forecasts an additional $9,270,000,000,000 added over the next 10 years. It took the country over 200 years to acquire the current level of debt; Obama’s budget would double the number in just 5 percent of that time.
The President did inherit a huge national debt and trillion dollar deficits, but continuing to ramp up spending is not the solution. President Obama and Congress should cut programs and reduce taxes rather than wastefully spend even more. Government should be paying back the money that it owes rather than borrowing to spend even more.
8. The Budget (as Part of Its $1 Trillion Tax Hike!) Raises Taxes by $1 Billion to Fund the Failed EPA Superfund Program.
The budget includes an excise tax increase to collect over $1 billion to finance the Environmental Protection Agency’s (EPA) Superfund program. Superfund is one of the biggest government boondoggles in American history and the president wants taxpayers to pay even more for it. The program was created in the 1980s after the media drew attention to high levels of dangerous chemicals near Love Canal in New York.
Hooker Electrochemical Company buried chemicals in the area of Love Canal lawfully with government permits in sealed, thick, protective tubes of impermeable clay. The Niagara Falk Board of Education, however, acquired the land and despite warnings that the land was contaminated, dug it up and constructed a public elementary school on the site. Irresponsible government caused the leaks at Love Canal and then even more irresponsible government forced taxpayers to pay for it.
The law gives the EPA the power to force a cleanup of any site they claim as toxic, even if there is no evidence that people in the area are harmed. John Stossel calls it our “most expensive clean up project.”
Toxic waste reduces life spans of average individuals by 4 days. Driving reduces the average life span by 182 days. If government really wanted to save lives, then at a very minimum, the Superfund money would go to making roads safer.
This program, like so many others, is receiving extra taxpayer dollars after failing to accomplish its mission. Rather than shutting the project down after it failed to achieve its goals, it gets even more money. If business was run like government agencies, then we would expect more money for producing products that consumers did not want and would not buy. Superfund is one of the worst wastes of taxpayer money and Obama wants to increase its funding.
9. The Budget Generates Even More Cheap Credit to Further Distort the Market.
The Budget provides $17.5 billion for loan guarantees to new businesses. The proposal explains that the program is intended to unfreeze the credit markets. Cheap credit from the Federal Reserve played a significant role in the creation of a bubble in the housing market. From where will the next bubble come? If the government spends billions to finance small businesses, then maybe we will see a bubble there. Will that result in another crisis? Will taxpayers have to pay to bailout even more failed companies when government intervenes again?
Further tinkering with prices for credit will only exacerbate the problems that we are facing today. The market needs the uncertainty created by government intervention to end in order for a speedy recovery to take place.
10. The Budget Increases Funding for Space Exploration while the Country Suffers in Recession.
Discretionary funding for the National Aeronautics and Space Administration increases by $900,000,000 in Obama’s budget plus another $1,000,000,000 from the stimulus. The President backs returning to the moon in the budget. Sure, NASA has brought us some pretty cool rocks from the moon, but is this really such a priority that it is worth taking money from working Americans through taxes to fund?
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The President’s 2010 budget proposal increases taxes and spending by magnitudes only matched previous to this year by war. The budget, according to the Congressional Budget Office (CBO) includes over $3,550,000,000,000 to grow old programs and create new ones. As the budget expands the role of government it pushes entrepreneurs aside. We went through it and pulled out the Top 10 examples of what Obama wants the government to do that the private sector does just fine:
1. Obama’s Budget Tries to Simulate the Market in Education Rather than Unleash Capitalism.
In a recent speech, the president clarified some of his plans in the budget including merit pay for teachers and his support of public charter schools. Both programs are excellent changes from the way the public school systems in states across this country have worked in the past. Merit pay and charters offer the right incentives to educators to work to provide parents with the best for their children.
However, if the president recognizes that choice is important to parents and incentives matter for educators, then he should favor a private school system. The market provides the most choices and the best incentives for students, parents, and teachers. Private schools must please their students by providing the type and level of education that students and their parents want. Each school would have to compete with every other school to provide the best possible service at the lowest possible cost, which will also provide parents with the most choices possible. The president favors charter schools and merit pay for both the freedom and the quality they provide, but getting government out of education will allow entrepreneurial school leaders and teachers to provide even more freedom and higher quality education at lower cost for all students at no expense to the taxpayer.
2. Obama’s Budget Stifles Entrepreneurship in the Oil Industry with New and Higher Taxes
The president’s budget contains at least eight different tax hikes on domestic oil production that could cost the industry more than $80 billion over the next ten years. Cap and trade energy taxes could cost domestic oil producers $274 billion—they’d be paying about 41 percent of the new tax. The budget also repeals the marginal well tax credit for heavy oil and low production wells from which 70 percent of all oil is derived. Repealing this credit will seriously harm small American oil producers. According to the Center for American Progress, 271,000 oil and gas jobs annually would be destroyed with the new taxes and fees.
From removing tax breaks to the implementation of cap-and-trade, the budget is sure to reduce production and force American entrepreneurs that are working hard to supply the country with energy to close their doors for good.
Obama said during his democratic nomination speech, “I will set a clear goal as president: in ten years we will finally end our dependence on oil in the Middle East.” The only ways we are going to reduce dependence on Middle Eastern oil while simultaneously reducing American production through tax increases is either by high trade barriers to foreign oil—a tax by another name—or by heavily taxing the use of all oil—foreign and domestic. Both would cause significant harm to the American economy and American entrepreneurship.
High trade barriers harm all American consumers by driving up the price of oil. What we need is not higher tax and trade barriers, but lower taxes and less red tape so American entrepreneurs can compete internationally to produce oil at lower prices.
3. Obama’s Budget Plans to Simulate and Plan the Market in Transporation Rather than Allow it to Freely Function.
President Obama’s budget claims that it will make surface transportation more efficient. The budget even introduces the possibility of “road pricing” to reduce congestion. Steps toward market-based reform for our nation’s road system are certainly a move in the right direction, but why should government bother when entrepreneurs could provide the same services at no cost to the taxpayer? Rather than have government attempt to simulate market prices for congestion, Congress and the president should instead seek out truly market solutions that would allow entrepreneurs to drive the countries surface transportation system toward profitability and efficiency under private ownership.
4. Obama’s Budget Wastefully Funds Socialized Water Production that Displaces Efficient Private Sector Solutions.
The Budget includes $3.9 billion for clean water. It earmarks 1,700 pet water projects annually for funding. Government involvement in water quality treatment and production is unnecessary. The private sector has a proven track record of doing it more efficiently. What makes water different from any other good that we need to live? The private sector already produces food, shelter, and clothing. We do not need government to provide us with water.
Lawmakers in Las Vegas are facing a water crisis and a 10-year drought. The city is in a desert and its officials refuse to charge the actual cost of the water. Instead, the city taxes residents and then sells the water at lower-than-cost prices. Of course, when the marginal cost of using more water is virtually zero, people consume more which exacerbates the problem and drives taxes higher to pay for the subsidized water. The solution? Privatize control over water.
Private water providers exist and work right now. If the President wants conservation, then water services should not be funded by any government. Instead they should be controlled by the private sector that will sell water at its true cost, plus a little profit, rather than forcing one taxpayer to subsidize another. People will use less when water is more expensive—probably by watering their lawns and washing their cars less often. The environmentalists that favor water conservation should agree with advocates of the free market on this issue. Entrepreneurs can provide water that everyone needs for life while also encouraging people to reduce waste through the use of a market system.
5. Obama’s Budget Funds Food Safety Despite its Failure.
The budget spends over $1 billion on the Food and Drug Administration (FDA) to “prevent and control food borne illness.” Since at least 1938, the FDA has been crowding out market solutions to food safety and has been failing at watching over American food. We repeatedly hear about the next tainted food the FDA let slip by—whether it’s bad peanut butter, sketch spinach, or dodgy tomatoes.
If Underwriters Laboratories can gain the reputation that it has as a reputable and trusted source for product compliance, then certainly a private solution to the FDA can be found. The free market can provide food safety and it is time that government got out of the way to let American entrepreneurs try it.
6. Obama’s Budget Will Cripple Private Broadband Internet by Placing Heavy Requirements on Service.
The President’s campaign site claims, “As a country, we have ensured that every American has access to telephone service and electricity, regardless of economic status, and Obama will do likewise for broadband Internet access.” That means if someone builds a home in the middle of Death Valley (were it allowed) telephone and electric companies would have to provide service to that home—by law. Of course, that is extremely costly for those companies and would result in either greater cost to other electricity and phone users or taxpayers.
The budget is looking to require broadband internet service to such a house, too. The stimulus provided $7.2 billion for it already and the President has budgeted another $1.3 billion to the Department of Agriculture to expand service. There is no law requiring access yet, but spending government money on it is a sure sign of its coming.
Entrepreneurs have already come up with many ways to provide low cost internet services to areas that would otherwise be too expensive to serve. Satellite internet, for instance, can connect anywhere in the world. Some companies even have customers use their cell phones as modems to connect their computers to the internet. The market will provide broadband internet to everyone once it is possible to do so at a price people will pay. And even more entrepreneurs would be trying if they knew government would not get involved to force them to offer service to customers that would offer no profit.
Obama, however, does not think the market is offering this service fast enough and wants to tax people to speed it up. Those taxes will take money out of one part of the economy, destroying jobs and reducing investment, and be redistributed to areas the President favors rather than where market participants freely choose to put their dollars.
7. Obama’s Budget Wastes Taxes on Science, a Field in which the Private Sector Has a Proven Record of Success.
President Obama’s budget increases funding by 16 percent to the National Science Foundation, the Department of Energy’s Office of Science, and the Department of Commerce’s National Institute of Standards and Technology. We all love technology, but private businesses and individual inventors will likely do a better job than government, especially for the price. Instead of raising taxes to pay for government research, the budget should instead cut funding, lower taxes, and leave that money for businesses and individuals to use as they see fit.
The President claims that government research will move the country ahead in the long run, but we are facing a recession in the short run. Only entrepreneurs can get us out—not more government spending.
8. The President Wants Government Rather than Entrepreneurs to Plan Local Energy Solutions.
The budget sets aside money in the Department of Energy for “innovative energy technologies.” Taxpayer dollars will be used to guarantee loans for new renewable energy products. While that may sound appealing to many, there are too many problems with government intervention in the market for “green energy.”
Setting aside the discussion about the damage government “guaranteeing” loans does through the credit market, the primary problem here is that government has no way of telling whether or not a particular inventor will succeed or not. For government to involve itself here implies that government bureaucrats spending other people’s money can tell better what type of energy producers will perform better than can private investors spending their own money carefully in search of profit.
If there really is widespread interest in rural community “green energy” development, then certainly some investors will specialize in that area and probably already have. With the incentives provided by profit and loss, these investors will very carefully select only the technologies most likely to bring a healthy return. Government bureaucrats have to spend their budget in order to receive the same or more next year, so they cannot afford to act as cautiously; private lenders cannot afford to act so recklessly. While market actors will behave carefully with market driven incentives for their own personal interest, government bureaucrats will recklessly waste taxpayer dollars because they do not face real personal dollar losses if they finance the wrong people.
9. The Budget Wastes More Money on Failed Foreign Aid.
The president’s budget commits American taxpayers to doubling foreign aid assistance to $50 billion. While helping the poor in other countries is an admirable goal, a transfer payment from our government to theirs is not the way to do it. Former World Bank economist, William Easterly, comments, “Sixty years…and $2.3 trillion later, the aid industry is still failing to reach the goal.”
As long as the governments in these countries maintain barriers to a functioning market economy, foreign aid will continue to fail to lift their people out of poverty. Once the barriers are removed—once private property is secured, contracts are guaranteed, sound money is available, and the tax and regulatory burden is no longer stifling, prosperity will be created by the people just as it was in every rich country.
As economist Peter Bauer first pointed out, the argument that there is a “vicious circle of poverty” keeping the poor poor does not stand up to the evidence—starting with the fact that every rich society was once a stone-age society.
10. The Budget Rewards the Postal Service for Failure.
In late January of this year, the Postmaster General testified before Congress. He claimed that the Postal Service was “in [an] acute financial crisis.” It loses money each year and continues to raise prices of stamps and other services. Of course, he also claimed that the Postal Service was vital to our economy, but that just is not true. The Postal Service exists now because it holds a government-granted monopoly over first class mail—in fact, it is illegal for anyone else to deliver first class mail.
Despite the persistence of at least three major carriers that could more efficiently deliver mail, Congress and the President continue to fund the failing Postal Service. Congress should lift the monopoly on first class mail and let it compete with private mail outlets.
Congress created the monopoly in 1851 when Lysander Spooner out-competed the Postal Service with lower rates and faster service. If the Service can not make money on its own while other private carriers can, then taxpayers certainly should not be robbed to fund it.
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Nancy Pelosi has repeatedly stated that Cap and Trade will be a priority for the 111th Congress. Embraced some years ago in Europe and a few other countries, cap and trade creates an artificial market for various industries to buy, sell, and trade allowances that permit a certain amount of carbon output. It has long been on the wish list for American liberals and extremist environmentalists. And with Democrats now in control of Congress and the White House, you can bet they will soon engage an all effort to enact cap and trade. In fact, in the 2010 White House budget, President Barack Obama calls for a sweeping cap and trade program that would raise $646 billion in new revenues. Here are FreedomWorks’ Top 10 reasons why they shouldn’t…
1. It will raise energy costs: While different nuanced approaches continue to surface, any analysis of any cap and trade scheme comes to the same conclusion; energy costs will go up. The latest serious attempt to enact cap and trade in the United States, America’s Climate Security Act of 2007 sponsored by Sens. Joseph Lieberman (I-CT) and John Warner (R-VA), serves as a good example. An analysis of this legislation cited during a Senate hearing held by the Committee on Environment and Public Works estimated the costs to the average American household would be between $800 and $1,300 by 2015, and then increasing to $1,500 to $2,500 by 2050.
2. It doesn’t help the environment: If energy costs are going to go up for Americans, shouldn’t there be significant environmental benefit and progress towards reversing climate change? You would think so. But even if the most aggressive of cap and trade schemes were properly adhered to, scientists that both advocate and oppose a cap and trade program widely agree that the maximum drop to the earth’s temperature would be no more than 0.07 degrees Celsius by the year 2050. To give some sense of just how negligible this decrease would be, we cannot even estimate the absolute mean surface temperature of the earth within 0.07. What’s worse is that cap and trade actually provides incentives to emit more carbon, not less. An article by the Christian Science Monitor explains: “By turning carbon emissions into commodities that can be bought and sold, cap-and-trade policies could remove the stigma from producing such emissions.” In other words, if industries understand they are working within a legal framework when they output carbon, the public pressure for them to cut down is weakened. Evidence of this can be seen in Europe where most countries have seen carbon emissions go up, even though the European Union has had a cap and trade regime in place since 2005.
3. It doesn’t work where it has been tried: Speaking of Europe, let’s take a closer look at how cap and trade is fairing. As mentioned earlier, the EU is watching carbon emission levels rise despite the fact that they have had a cap and trade system since 2005. Furthermore, the Heartland Institute reports that 12 of the 15 EU nations taking part in the 1997 Kyoto Protocol, a program that sets greenhouse gas reduction targets and serves as a precursor to cap and trade, are failing to meet their reduction targets, with three going over by more than 10 percent and another three going over by more than 20 percent. In fact, emissions for all EU countries went up on average 2.1 percent between 2000 and 2004. Compare this with the United States where currently no such regulatory regime exists and yet emissions went up only 1.3 percent during the same time period. Nonetheless, President Obama has announced an aggressive set of targets for reducing greenhouse gas emissions, promising to “work expeditiously with key stakeholders and the Congress to develop an economy-wide emissions reduction program to reduce greenhouse gas emissions approximately 14 percent below 2005 levels by 2020, and approximately 83 percent below 2005 levels by 2050.”
4. It will cost Americans jobs: This calculation is a pretty simple one. For U.S. industry to comply with a cap and trade scheme, they have to reduce their carbon emissions. There are two ways to do this: (1) produce less – this obviously hurts jobs as companies would seek to streamline their workforce to compensate for a drop in production, or (2) buy carbon allowances in order to keep production up – this, too, would threaten jobs as companies would be forced to devote more internal resources to allowances, negatively effecting their bottom lines and potentially putting workers on the chopping block. In either case, the rising costs of energy under a cap and trade system, as mentioned earlier, only add to the problem. An analysis conducted by Charles River Associates in 2007 estimated anywhere from 1.2 million to 2.3 million jobs would be lost under a cap and trade scheme.
5. It is in effect a hidden regressive tax: We’ve talked about how cap and trade causes energy prices to go up. That doesn’t just hit American industry, but American consumers as well. The Congressional Budget Office (CBO) correctly notes that as these prices go up in the form of higher gasoline, heating oil, and electricity, the poor are hit hardest with what is in effect a hidden regressive tax. President Obama promises to return revenues to vulnerable communities, families and businesses, but that leaves taxpayers at the whim of government to redistribute income rather than letting taxpayer keep their hard earned dollars.
6. It sets a dangerous precedent: While extremist environmentalists and their liberal allies have been whining about climate change for years, most stop short of declaring cap and trade the silver-bullet solution. Environmental groups like the Sierra Club and the National Resources Defense Council are generally supportive of the concept of cap and trade. However, as The Heritage Foundation has pointed out, these groups have found fault with actual proposals such as America’s Climate Security Act of 2007, criticizing them for not going far enough and willing only to endorse them as “a good first step.” As much damage as a cap and trade scheme would cause in its own right, this posture by extreme environmental groups foreshadows even more draconian regulations in our future.
7. It prevents market forces from working for the environment: The market distortions imposed by a cap and trade system would be significant. Recently, major energy companies such as ExxonMobil and Shell have invested hundreds of millions of dollars in technologies that capture and store carbon as well as lower carbon alternative energy sources. A cap and trade system however, sets up perverse incentives that will distract these and other companies from market-based solutions to curb carbon output. Resources instead will be funneled to the artificial market for carbon allowances that cap and trade sets up.
8. It threatens to put the U.S. at a competitive disadvantage with other countries: Though the E.U. and the United States may be buying into cap and trade, industrial giants like China and India are not. Remember the lost jobs we talked about in point #4? In addition to China and India, nearby Mexico (another country where cap and trade is not even a remote possibility) are more than willing to pick up the U.S. slack and bolster their already robust manufacturing sectors.
9. It opens the door to massive fraud and corruption: As energy companies look to game the system, cap and trade would open the door wide for fraud and corruption that could devastate U.S. investors and the economy as a whole. This has been seen already in the UK, a country currently participating in cap and trade. In a recent article by the British-based Guardian newspaper they report: “Britain’s biggest polluting companies are abusing a European emissions trading scheme (ETS) designed to tackle global warming by cashing in their carbon credits in order to bolster ailing balance sheets.” In the United States we have seen what happens when companies engage in creative accounting measures to hide losses and the staggering domino effect it can have on Wall Street investors and the larger economy. If you need more proof of this threat, look no further than this report by The Competitive Enterprise Institute that discusses Enron’s support for a cap and trade scheme that would allow them to dominate this new, made-up market for carbon.
10. It threatens to bust the federal budget at a time when the United States can scarcely afford it: Federal spending continues at a breakneck pace. The recent passage of the trillion-dollar stimulus bill along with even more taxpayer funded bailouts looming on the horizon add to U.S. budget woes and sink us deeper into recession. And as if times weren’t tough enough, the CBO reports that cap and trade would heap additional undue pressure on our fragile budget. According to their report, government would face the same challenges with higher energy costs that consumers do. Additionally, the fall in production for U.S. industry would lead to a loss of federal government tax revenues. Further increasing spending while decreasing revenues makes cap and trade a tough sell in the current economic climate.
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1. Governor Crist’s insurance reforms have been a failure that may cost Floridians dearly in the future. In one of his first acts after taking office, Gov. Crist launched a special legislative session to address rising property insurance in the Florida. Unfortunately, the legislation that passed has created an insurance market that does not work and has brought the state to the brink of financial disaster. A major storm could mean significant costs for consumers and taxpayers in Florida.
2. Consumer choice is disappearing in Florida’s insurance market. Legislation and regulation have reduced the availability of insurance in Florida while increasing the state’s financial risk. The state-run Citizens Property Insurance Corporation has become the largest insurer in the state as private insurers are abandoning their business in Florida. Increasingly, consumers are left with a choice of either Citizens or a few small insurance companies that most people do not recognize because price controls and other regulations have made it too difficult and too risky to do business in Florida.
3. Florida is chasing capital out of the state at a time when the insurance market needs more available resources. At a time when it is critical to attract capital to cover potential liabilities from storm damage, insurance laws are driving private insurers out of the state. Companies such as Allstate and Safeco found doing business in Florida untenable, and now State Farm, with over one million policyholders, is currently in the process of pulling out. A dysfunctional insurance market increases the financial burden on the state-run Citizens insurance company in the event of a storm, which may mean higher costs for all consumers in Florida.
4. Even though Citizens Property Insurance Corporation—the state-run insurance company—has become the largest company exposed to the greatest risk, its rates remain wholly inadequate to cover the costs of a major storm. Today, Citizens holds one in five of all the homeowners policies in Florida, representing 60 percent of the risk. The 2007 laws capped Citizens rates at an artificially low rate, which has attracted more customers and more risks for the state-run company. But with rates artificially reduced, paying claims after a storm will be difficult, and may even drive the company to bankruptcy.
5. The Florida Hurricane Catastrophe (CAT) Fund is bankrupt and cannot cover the costs of a major storm. To make additional resources, or reinsurance, available to insurers in the wake of a storm, Florida created the CAT Fund, which is funded through premiums paid by insurance companies. Unfortunately, the fund currently faces a potential exposure of $28 billion, yet, by the state’s own assessment, the CAT would be almost $15 billion short in the event of a major storm. Should a major storm hit, the CAT fund would need to raise additional resources in the financial markets. But in today’s economic climate this would prove difficult at best. Indeed, the state believes it could only generate $3 billion through bond sales under current market conditions. If the funds cannot be raised, some claims may never be paid, with the state’s analysis suggesting that within three to six months after a major storm, the fund would be exhausted.
6. Florida’s consumers and taxpayers face substantial hidden taxes and assessments. Although price controls on insurance rates may seem like a benefit to consumers living in high-risk areas, they come with a price tag that will be paid by all Floridians. These costs will appear in assessments added to their insurance policies, and in Florida, three separate, but expensive, assessments may be required. The first assessment goes to the guaranty fund, which provides resources should one of the remaining private sector companies fail. The second assessment goes to Citizens to help cover their subsidized rates. And finally, the CAT fund may impose an assessment should it fail to raise the required resources in the bond market.
7. Price controls do not trump the laws of nature. Florida has been hit by nine out of ten of the most expensive hurricanes in U.S. history. With continued growth and development, the future storms may cause even more damage. Florida has the highest hurricane exposure of any state, with over $2 trillion at risk; coastal exposure accounts for almost 80 percent of the state’s total exposure. Gov. Crist’s insurance reforms targeted the symptom—high insurance premiums—while doing nothing to alter the underlying problem, which is the looming threat of hurricanes in highly developed coastal areas. Under-pricing risk does not make it go away; should 2009 have an active hurricane season, consumers and taxpayers could face significant costs to make up the shortfall of premiums that do not match the potential liabilities.
8. All Floridians are subsidizing the insurance of those who live in high risk areas. Artificially low rates in coastal areas increase the burden on all Floridians, raising insurance costs for those living inland where the probability of storm damage is considerably lower. While this is most obvious with respect to those in inland counties relative to those in coastal counties, it also holds true within coastal counties, where the costs of insuring more exposed properties is also borne by those who chose to build in safer areas. Moreover, artificially low rates encourage more development and growth in high risk areas, raising the costs of any future storms.
9. The federal government is in no position to bail out Florida in the case of a major storm. Many in Florida oppose higher rates, even though they understand that the current system cannot cover the costs of a major storm. They are banking on the federal government to bail the state out in the case of a crisis. Yet the nation’s financial crisis should provide pause to think. The depth and breadth of the problems in the nation’s financial sector would make if very difficult, if not impossible, for the federal government to provide meaningful financial assistance to Florida.
10. Current policies threaten Florida’s economic future. Problems in the insurance market threaten both economic growth and jobs in one of the nation’s fastest growing states. Faced with difficulties finding proper insurance coverage, many individuals and businesses may reconsider decisions to locate in Florida. Coupled with the downturn in the housing sector—which hit Florida particularly hard—this could exacerbate the economic slowdown and delay economic recovery in Florida.
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The Omnibus Spending Bill is working its way through Congress. The bill will spend $410 billion dollars to continue or increase funding to hundreds of government programs. There are plenty of reasons to oppose the legislation, including these 10 reasons you should let your Congressmen know about:
1. The Omnibus Bill will Cost Taxpayers $410 Billion
After spending $787 billion on a stimulus bill, Congress and the President now want to spend another $410 billion of our tax dollars. Last year the deficit was over $1.2 trillion and is slated to be over $2 trillion this year. The national debt is nearly $11 trillion now—and that’s not counting what’s owed on entitlements like Social Security and Medicare. The size of the American economy is estimated at about $14.7 trillion. A few more years with budget deficits like this one and government will owe more money than the total amount that Americans produce each year. The spending has to slow down sometime or our children and grandchildren will be saddled with an un-repayable mountain of debt—if it is not too late already.
2. The Omnibus Bill Contains 9,000 Earmarks
Reports say the bill contains 9,000 different earmarks totaling $5 billion. The American people have had enough with our tax dollars going to Congress’ pet project.
3. The Omnibus Bill Fights School Choice
The Washington D.C. scholarship fund currently receives federal money to provide school vouchers for D.C. students. Some 1,700 students receive vouchers of up to $7,500 that they can take to any public or private school in the District to help with tuition costs, giving their parents more choices. This bill requires approval by a House subcommittee and the District simultaneously to continue the program past this year—a hurdle school choice opponents know will be very difficult to clear, given who is in control and their relationships with the teachers unions.
4. The Bill Allows Government to Limit Green House Gasses Based on Potential Harm to Endangered Species
Polar bears are allegedly being driven to extinction by global warming that melts their habitat. The omnibus bill allows the Department of the Interior to roll back special rules that restrict application of endangered species law outside of the area local to polar bears. If the bill passes, the Interior Department could potentially use endangered species laws to limit emissions in the entire country.
5. The Bill Spends Billions Wastefully
One does not have to search for long to find examples of wasteful spending in the bill. Congress plans to spend $31 million to finish construction on the Capitol Visitor Center. Much of the spending in the bill could be used more efficiently by the private sector to achieve the same goals. Agricultural research, for instance, receives $1.1 billion, but private sector agricultural businesses already spend billions on research. $30.3 billion is marked for the National Institutes of Health for research on deadly diseases, but private sector medicine already spends billions and would presumably spend more if their taxes were lower.
6. The Omnibus Gives Taxpayer Money to ACORN and other Special Interest Groups
The omnibus legislation gives $245 million for “Housing Counseling” to be administered through the Department of Housing and Urban Development. Previously these funds ended up in the hands of ACORN, an activist group convicted of vote fraud and spearheading a campaign to trespass on and take over foreclosed properties. That money comes on top of what ACORN and other groups that helped to elect the President are already receiving from the stimulus bill.
7. Combined with Stimulus Spending, 9 Major Federal Agencies are Averaging a Budget Increase of 80 Percent this Year!
Real GDP grew at 2.2 percent last year in this country. This bill represents an 8 percent spending increase over last year’s amount on the same government agencies. That puts government growth just in this bill at over 3 times the growth rate of the economy. Government must be stopped before it grows so large that it stifles out all economic growth.
When the money from the stimulus is added to spending from omnibus, the agencies that receive funding from both are receiving on average 80 percent more than last year. Are you getting 80 percent more out of those government programs?
8. Central Planning Does not Work
If centrally planned government spending on a grand scale produced economic growth, the Soviet Union would have won the Cold War. If government spending on a grand scale produced economic growth we would be in the middle of the Bush Boom right now. It doesn’t. Working, saving, and investing leads to economic output and increases in productivity lead to growth. Government should step out of the way, lower taxes, and allow many of these services to be provided by the private market. That would give consumers more choices, taxpayers could keep more of what they earn, and we would all end up better off.
Building up the national debt and taxing productive members of our society will not lead to prosperity. Government should cut back massively on spending now before it’s too late.
9. It Funds More Damaging Agriculture Subsidies
$20.5 billion of the money is going to Agriculture, Rural Development, Food and Drug Administration Appropriations. Reason.tv has a great video on farm subsidies. The subsidies make poor people in other countries worse off and primarily go to big agri-business anyway. Cotton subsidies alone cost American taxpayers over $2 billion a year.
President Obama in his address to the join session of Congress said his next budget will, “end direct payments to large agribusinesses.” Congress should do so starting with this budget.
10. Government is Too Big Already
FreedomWorks chairman and former economics professor, Dick Armey, has developed a theory on the effects of government growth on economic growth. The “Armey Curve” explains the negative burden government has on prosperity. The idea, borrowing from Arthur Laffer’s curve (which demonstrates that tax revenues fall when the tax burden gets so high that it no longer pays to work), is that at some point the burden of government spending exceeds the private economy’s ability to carry it. More spending often does more harm than good, because it takes more money out of the system than it creates and thereby destroys jobs and leads to stagnation and diminished prosperity for all.
[click here to download a .pdf of this report for printing] The Omnibus Spending Bill is working its way through Congress. The bill will spend $410 billion dollars to continue or increase funding to hundreds of government programs. There are plenty of reasons to oppose the legislation, including these 10 reasons you should let your Congressmen know about: 1. The Omnibus Bill will Cost Taxpayers $410 Billion
The President, just one day after he signed the trillion dollar stimulus bill, started pushing Americans to support his new borrow and spend policy. This time it is at least $275 billion to bail out people with mortgage troubles. Among so many other reasons to tell your U.S. Representative and Senators in Washington to oppose this scheme, the Top 10 are:
1. The Bailout Encourages Bad Behavior
Whether it is from this legislation directly or not, Obama’s plan will shift incentives for market actors by setting a precedent for future housing bailouts that the federal government can never, ever take back. Government is protecting irresponsible home buyers from risk of foreclosure with this plan—especially with the $200 billion for Fannie Mae and Freddie Mac—that will encourage future risky behavior with the prospect of government help.
Moral hazard is a term used in economics, business, and political science to describe such a situation, where one party is insulated from risk and that insulation changes their behavior so they behave as if they were not at risk. Moral hazard comes up when someone does not have to face the full consequences of their own actions—which results in irresponsible behavior like purchasing a home one cannot afford with the hope of a government rescue.
2. It Rewards the Wrong People
As Rick Santelli said on the floor of the Chicago Board Options Exchange, the plan does not “Reward people that could carry the water instead of drink the water.” This plan will force the people who were responsible and worked hard to buy what they could afford to pay for those who did not. Rewarding irresponsibility by forcing people who pay their taxes and their mortgages to bail out the others is not good policy.
Home owners who have paid off their mortgage and renters are exceptionally upset about this new bailout. FreedomWorks’ Chairman Dick Armey comments, “Punishing the responsible majority to reward the irresponsible bankers and those who borrowed more than they could afford is wrong.”
House Financial Services Capital Markets Subcommittee ranking member Scott Garrett (R-NJ) comments, “Additionally, it provides no incentives or rewards to those homeowners who have been diligently making their mortgage payments, or to those who recognized their financial constraints and chose to rent a home rather than buy one.”
3. It Will Further Nationalize our Housing Market
The plan will certainly succeed at one thing: growing government. Obama’s plan will give government even more control over our housing sector—which is hard to imagine, considering how much Fannie Mae and Freddie Mac alone did to transfer our housing market to government control. This is the wrong direction, considering government control of housing trough the income tax, the Federal Reserve, the CRA, and, HUD set up the housing crisis in the first place.
4. It is a Futile Effort to Re-inflate the Housing Bubble, which Failed Miserably in Japan
Those who fail to learn from history are doomed to repeat it, and this policy is another step down the path taken by Japan, which lead to their “lost decade”—which is now going on two lost decades. If we keep going in this direction, the US, too, will lose decades of economic growth.
Japanese housing prices rose by 51 percent and commercial real estate by 80 percent between 1985 and 1991. Similarly, US commercial and housing prices rose 90 percent from 2000 to 2006. Both countries then saw sharp downturns. In response, over 8 years Japan, passed 10 stimulus packages totaling $1.4 trillion. So far the US has passed one $1 trillion stimulus, and now President Obama is proposing billions more.
Twenty years later, and 10 stimulus packages later, Japans Nikkei stock index is down about 80%--from 38,975 in 1989 to around 7,400 today.
A similar drop in the Dow would put it at 2,800, down from 14,000.
5. The Bailout Keeps People in Homes They Cannot Afford
The plan forces banks to refinance mortgages for borrowers who cannot afford to pay even if the bank would have refused refinancing otherwise. This could create an even larger credit crunch that the federal government will undoubtedly attempt to remedy with even more spending than the $75 billion that it promises for this plan further down the road. More spending is the last thing we need and will lead to inflation and higher taxes on our children.
6. The Bailout Steals Billions from Hard Working Americans
The money will primarily go to places like Nevada, and California who the bubble was the biggest—where people made the biggest gains, and are now seeing the biggest losses. Taxpaying home owners and renters in other parts of the country including Texas and North Carolina will be paying for Nevada and California homes. The plan will result in a transfer of wealth orchestrated by government from states that did not experience the housing bubble as intensely as others. The end result: taxpayers who can afford their mortgages will pay for those who cannot. No matter what the politicians say, in order for government to try to stem foreclosures, it has to make taxpayers pay.
7. Policy Like this Caused the Crisis
Over at least the last 17 years, government acted to inflate the value and amount of housing in the United States. This policy is an attempt to re-inflate the bubble that caused the housing crisis in the first place. If housing prices are still too high, they should be allowed to continue to fall. Having the government interfere in an effort to prop prices up can not work, and will just push the problem off until another day.
Without the nearly endless interventions in the market that drove prices higher and created the housing bubble, we would never have experienced this crisis. Government caused the crisis and it should get out of the way to let the market fix it.
8. We Cannot Afford it
It would put the taxpayer on the hook for over $275 billion on top of all of the money the government already spent. We are looking at a $2 trillion deficit now and a record breaking debt. If the government continues to spend like it has been, even our grand children will not be able to pay it back.
President Bush pushed the government deep into a $1.2 trillion deficit last year, the third time he set a record for biggest deficit ever, and President Obama’s stimulus bill followed his lead, piling on more debt. Now he is piling it even higher. The deficit in 2008 amounted to about 8 percent of GDP. The entire debt is about 70 percent of GDP.
Even for those who do still believe in Keynesianism, it is important to remember his theory did not start with the government already over a trillion dollars in the hole, he was generally operating from balanced budgets.
9. It Distorts the Market Economy
Bailing out borrowers and refinancing loans will further distort credit markets. It will make economic calculation and forecasting more difficult for everyone else in the economy. Without accurate information on what might happen in a market, consumers and businesses have more trouble deciding what is profitable or what to purchase.
The more government is involved in distorting a market, the bigger the mistakes will be—witness the massive and widespread overinvestment in housing and banking government intervention pushed causing this crisis.
Similarly, the credit markets are as frozen as they are in part because of government intervention creating uncertainty. Under Secretary Paulson, the Treasury selectively gave bailout money to some banks, while refusing to fund others (see Goldman Sachs v. Lehman Brothers). Whether or not one financial institution would receive bailout money or not created uncertainty in the market that changed behavior for many bankers and has caused them, in some cases, to hold more cash than they would have otherwise which could be preventing profitable loans.
10. The Plan Creates Uncertainty in the Marketplace
How is any business person supposed to make plans in an economy like this with the government announcing new spending or making up new rules every few days? Should a home buyer purchase today or wait for another tax credit?
There may be no better measure of this than the amount of time erstwhile-investment programs like Jim Cramer’s Mad Money now spend talking about government policy instead of the fundamentals of companies in the private sector. And they’re right to do so, because who will win or lose in our market-ish economy is more and more decided by government dicta rather than competition.
There have been so many changes in plans and bailouts that we can hardly even count them. As the Nobel Prize winning economist F.A. Hayek wrote, “The more the state plans, the more difficult planning becomes for the individual.”
[click here to download a .pdf of this report for printing] The President, just one day after he signed the trillion dollar stimulus bill, started pushing Americans to support his new borrow and spend policy. This time it is at least $275 billion to bail out people with mortgage troubles. Among so many other reasons to tell your U.S. Representative and Senators in Washington to oppose this scheme, the Top 10 are: 1. The Bailout Encourages Bad Behavior
As with medicine, the first rule of law making should be first, do no harm. The “stimulus” bill fails this test spectacularly. Among so many other reasons to tell your U.S. Representative and Senators in Washington to oppose the stimulus, the Top 10 are:
Our history is replete with examples of “stimulus” spending failing to move our economy toward prosperity—Bush just tried it, Ford tried it. Even Christina Romer, Obama’s Chair of the Council of Economic Advisers agrees. Romer wrote in a study, "Our estimates suggest that fiscal actions contributed only moderately to recoveries." The New Deal didn’t end the Great Depression and Obama’s stimulus package won’t end this recession. In fact, two UCLA economists published a study in 2004 finding FDR’s similar New Deal policies prolonged the Great Depression by seven years.
It fails because you don’t increase economic output by taking a dollar from one person and giving to another. The idea of “stimulus” spending falls for the “ broken window fallacy”—the allure of what is seen versus what is not seen. We will see the jobs created by the government spending. What we won’t see are the jobs lost because consumers have less money to spend because the government got the money its spending from us—the only place it can get money.
Japan, after a dramatic market crash and a drop in real estate prices responded with government spending not unlike what the US Congress is considering today. In fact, they had 10 stimulus bills between 1992 and 2000, spending billions on infrastructure construction, building bridges, roads, and airports as well as pouring money into biotech and telecommunications. While many countries enjoyed booming economies and falling unemployment during this time, Japan had a lost decade, seeing its unemployment more than double. They spent double the US level of GDP on infrastructure, and now have a lousy economy and have one of the highest national debts in the world.
After 10 stimulus packages, Japan has gone from having the second biggest economy in the world by a long shot, to being well behind the new number two, China, and is close to falling behind India. We do not want to follow their lead.
While we were told the stimulus bill would focus on rebuilding America’s infrastructure—mainly the roads and bridges—only 5% of the current bill goes to such projects. The rest of the bill goes to pet projects like:
These programs are just the 2008 version of the “ midnight basketball” program that derailed Bill Clinton’s attempt to ram through a “stimulus” bill in 1992. Despite that bill failing, the economy quickly recovered and the economic boom of the 1990s began.
President Bush pushed the government deep into a $1.2 trillion deficit this year, the third time he has set a record for biggest deficit ever, and President Obama’s stimulus bill follows his lead, piling on more debt. The deficit in 2008 amounted to about 8 percent of GDP. The entire debt is about 35 percent of GDP.
Even for those who do still believe in Keynesianism, it is important to remember his theory didn’t start with the government already over a trillion dollars in the hole, he was generally operating from balanced budgets.
How much is $825 billion? The Heritage Foundation has calculated that that comes to over $10,000 per American family. To further put that in context, on average, families annually spend:
If this bill were a country, it’d be the 15th largest country in world, ranking between Australia and Mexico. It is bigger than the economies of Saudi Arabia and Iran combined. In fact, the $875 billion it calls for is more than all the cash in the United States.
If centrally planned government spending on a grand scale produced economic growth, the Soviet Union would have won the Cold War. If government spending on a grand scale produced economic growth we would be in the middle of the Bush Boom right now. It doesn’t. Working, saving, and investing leads to economic output and increases in productivity lead to growth.
As economics professor Steven Horwitz said, “The stimulus plans assume consumption is the source of growth. It is not. It is the consequence of said growth.”
It was just a couple months ago when we were told if we would just quickly hand over $750 billion to the Treasury Secretary to bailout his friends on Wall Street, he would make the economy all better. That didn’t work, and neither will an additional $825 billion.
And this has nothing to do with paper money being made of cotton and linen. The only way the government gets money is through taxing, borrowing, or printing—that is, it has to take it out of the economy in order to put it back into the economy. If government borrows the money for the stimulus, then it will either have to print money later or raise taxes to pay it back. If it raises taxes to pay for the stimulus, it will, in effect, be robbing Peter to pay Paul – probably with interest. If it prints the money, inflation decreases the value of the dollar for every American – robbing Paul to pay Paul.
No matter how many times supporters of the bill say it, economists do not all agree this bill is a good idea. In fact, hundreds of economists have come out against it, including Noble Laureates, who signed a letter the Cato Institute ran as a full page ad in several major newspapers opposing the stimulus. Still more economists submitted statements to the US House of Representatives opposing the stimulus proposal.
[click here to download a .pdf of this report for printing] As with medicine, the first rule of law making should be first, do no harm. The “stimulus” bill fails this test spectacularly. Among so many other reasons to tell your U.S. Representative and Senators in Washington to oppose the stimulus, the Top 10 are: