Sunday, July 9, 2017

July, 2017, Part 2, Political Class Insanity: Financial Idiocy In Illinois, The Final Cash For Clunkers Autopsy, and Food Stamp Savings

As we do every month, we review the latest idiocy, lunacy, ineptness, and general insanity from the American political class. The members of the political never cease to amaze us with their greed, idiocy, gumption, and criminal activities. And just when we think there is no new way to disappoint us and tick us off, they manage to find a way to do it, wasting our tax dollars and destroying our freedoms in the process.

The political class has been very busy this month so let’s get right to it:

1) We have recently discussed the reality that the state government of Illinois is very close to falling into a reality bankruptcy if not an official legal bankruptcy. They have unpaid current bills of about $15 billion, they have untold billions in unfunded liabilities, and they are about to get their bond rating downgraded to junk since they have not had a real budget for three years.

Given this dire situation, caused by unrestrained spending over the years, one would hope that the political class in Illinois learned their lesson and went on a cost and spending reduction program to get their budget under control And alas, holding out hope that is dependent on an American politicians is again foolish.

Rather than getting their out of control spending under control, the state legislation politicians think that raising income taxes by 32% is a better solution. According to Nancy Hayes, writing for the Joe For America website on July 4, 2017 the politicians have proposed raising the personal income tax from 3.75% to 4.95% and raising the corporate income tax from 5.25% to a whopping 7%. Worse than raising taxes, it does it appear that substantial spending cuts were made in the proposed budget.

And if history is any indicator what is going to happen, this tax increase will not end well. Back in 2011, Illinois passed a temporary income tax increase but did not do anything to reform or decrease spending. Thus, despite getting an incremental $32 billion in tax revenue from the tax increase over the years, the state’s unpaid bill backlog only decreased by a meager $1.3 billion while the state’s pension debt increased by $25 billion. 

Also, we have previously reported that when the state of Maryland raised the tax rate on citizens earning over $1 million a year, within a short timeframe the tax revenue coming from those earning over $1 million had decreased despite the higher tax rate. Why? State citizens left Maryland to avoid the higher taxes. The same actions likely occurred in Illinois back in 2011 and will likely occur again with a 32% increase in the income tax likely to cause citizens and businesses leaving the state for more tax friendly states.

But to expect politicians to learn from their mistakes is always a fool’s errand. As the closing paragraph of the article states, “The new budget only delays the reality of the credit downgrade everybody fears – junk! What Illinois really needs is a comprehensive five-year recovery plan. A plan that includes debt reduction and unfunded pension liabilities. There’s really only one legal solution to that – bankruptcy.”

2) Let’s revisit an oldie but goodie political classic failure. Remember Obama’s “Cash For Clunkers” program. In that program, the American taxpayer, via the Federal government, gave out massive subsidies to anyone who purchased a new car that came with relatively high gas mileage rating (e.g. big, gas guzzling cars like Hummers did not qualify). The theory was that this incentive program would spark the auto industry by producing incremental car sales and profits and create incremental jobs.

Well, according to the Self Reliance Central website on July 3, 2017, post analysis of this horrible program did indeed prove again that the program was a disaster across many dimensions:
  • The latest autopsy of the program was done by three economists from MIT and Texas A&M University.
  • They found that there essentially were no incremental sales during the program (failure number 1).
  • All the program did was give away money to people that would have bought a car anyway during the Cash For Clunkers timeframe or gave money away to people who moved up or delayed their purchase in order to get the free incentive money during the program’s timeframe.
  • From a car company perspective, the condition that the cars purchased be of higher mileage type resulted in people buying less expensive cars than they normally would have purchased which depressed the per car average revenue and profit of each Clunkers purchase.
  • Thus a program that was intended to increase car maker sales and profits did the exact opposite: it depresses car maker sales and profits (failure number 2).
  • The summary of the study kind of sums up the results of the program: “The 2009 Cash for Clunkers program aimed to stimulate consumer spending in the new automobile industry, which was experiencing disproportionate reductions in demand and employment during the Great Recession. Exploiting program eligibility criteria in a regression discontinuity design, we show nearly 60 percent of the subsidies went to households who would have purchased during the two-month program anyway; the rest accelerated sales by no more than eight months. Moreover, the program’s fuel efficiency restrictions shifted purchases toward vehicles that cost on average $5,000 less. On net, Cash for Clunkers significantly reduced total new vehicle spending over the ten month period."
Bottom line: a political class program that was supposed to increase car maker revenue and profit by increasing the sales of new cars actually depressed car maker revenue and profit without increasing the number of cars sold and cost the American taxpayer millions and millions of dollars (failure number 3). Proving again that most politicians are totally ignorant when it comes to economic matters.

3) If someone gives you something for free, it is human nature to accept it, especially if there are no strings attached. This also pertains to government programs that give you something for free, people accept the free handouts, it is human nature. 

But when the government gives out something for free it is really not for free, American taxpayers pay for that handout. And usually government programs do it inefficiently and corruptly, costing American taxpayers even more.

Such is the case with the government food stamp of SNAP program, a way of providing free food access for those Americans in need (theoretically). During the Great Recession, the Obama administration allowed states to waive the requirement that SNAP recipients have a job or be looking for a job since the economy was in such horrible shape. Certainly a humane approach during difficult economic times.

But like many government programs, times changed but the program did not. The economy got better, just ask Obama, with the official unemployment rate down to 4.3% but the SNAP program did not. For the most part states still allow SNAP recipients to get free food access without the burden of having or looking for a job.

But a Fox Business article from Jennifer Hickey on July 4, 2017 showed what happens when people have to work to get something for free, i.e. they basically go away and give up the free perk:
  • When the state of Alabama required able bodied adults to either find a job or get into a work training program the number of people in the state’s SNAP program dropped an amazing 85%, from 5,538 to just 831 in four short months, indicating that about 4,700 Alabama residents were soaking the program and taxpayer for free SNAP food benefits.
  • When several Georgia counties did the same thing, they saw a 58% drop in SNAP enrollment.
  • The Atlanta Journal Constitution newspaper reported that when another 21 Georgia counties joined in they saw a 62% drop in SNAP enrollment.
  • When the state of Maine reimposed the work requirement, not only did the SNAP enrollment plummet but a follow study showed that that the Maine residents who left the program actually saw their total household earnings more than double within a year, going from $3.85 million to $8.24 million, i.e. those people were no longer dependent on taxpayer handouts and their overall welfare soared as a result of finding work and getting off of food welfare.
  • According to the Foundation for Government Accountability: “Kansas saw a 75 percent decline after implementing work requirements in 2013. In addition, nearly 60 percent of former beneficiaries found employment within 12 months and their incomes rose by an average of 127 percent per year.”
Everybody wins when government and the politicians that operate it do the right thing: show compassion when needed but are vigilant when it comes to taxpayer wealth and prevent free handouts to those that do not need it. The article states that nationally upwards of $8 billion a year could be saved by following the example of these states in just this single government program. 

Imagine how much taxpayer wealth could be saved if EVERY government program went through this same scrutiny. Unfortunately, given that the Washington political class has not done this scrutiny in the past leaves little hope that they will do it in the future.

That will do it for today’s insanity: how easy it is to save taxpayer money while increasing the household income of those in need, the final economic idiocy from Cash For Clunkers, and budget and spending idiocy from Illinois politicians. 

More insanity tomorrow.

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