Snoopy and the Fiscal Downfall of America, Part 1: Social Security

Many years ago there was a Sunday Snoopy comic that sets up today’s post. Seems Snoopy was going out for jog on a cold, dark winter morning. Before long his knees started complaining because they were taking all of the pressure from the jog steps on the hard frozen ground. The feet chimed in to complain that the knees did not know what they were talking about since the feet got the initial shock of each step. Before long, the lungs started to complain from sucking in the cold winter air.

This went on for a while, with each body part complaining that they did not want to be out on an early morning winter jog. Finally one of them asks, “Whose idea was this anyway, to go jogging on this early and on this very cold morning?” At that point, the heart spoke up and said: “It was my idea because jogging is good for me and if I go, you all go.”

There are many serious issues facing America today. Failing public schools, a lost war on drugs, a leaky border, inept and lazy politicians, the constant battle for gay rights, etc. These are all important and need to be worked. However, relative to the Snoopy story, these are just body parts that need attention on a cold, dark winter morning relative to the basic fact: the United States Federal government is on a dangerous and fast track to fiscal ruin and collapse, i.e. the fiscal heart is about to give out. 

And if that fiscal and financial integrity collapses, much like the heart, every other issue becomes secondary in the face of an economic collapse, a collapse that trashes all of our freedom and liberty. We are going to take a few days to look at how dangerous that track is and how close we are to having a fatal financial heart attack that will make the other body parts, i.e. national issues, wilt in comparison to the dire consequences.

Today we will focus on the dire situation of the Social Security program. The basis of our analysis and discussion comes from recent Congressional testimony given by Boston University economist Laurence Kotlikoff. His diagnosis of the system is not good and his testimony included the following realities:

• In his view, the Social Security system is already insolvent, paying out more in benefits than it takes in via tax revenue.
• This contradicts the view of many in the Washington political class that have this half baked notion that we are 20-30 years away from the system being insolvent.
• He based his conclusions on Social Security’s own data, drawing the information from Table IVB6 of the 2013 Social Security Trustee’s Report which Kotlikoff says: "This table reports that Social Security has a $23 trillion fiscal gap measured over the infinite horizon.” 
• He goes with this frightening comparison: “Twenty-three TRILLION dollars is 32 percent of the present value, also measured over the infinite horizon, of Social Security’s future revenues. Hence, Social Security is 32 percent underfinanced, which means it is in significantly worse financial shape than Detroit’s two pension funds taken together.”
• This $23 TRILLION deficit is $10 TRILLION more than the Federal government’s current public debt level and more than $5 TRILLION more than the total national debt.
• That 2013 estimate of $23 TRILLION has already grown to $24.9 TRILLION in the first half of 2014 according to another official Social Security report for this year.
• Kotlikoff’s conclusion: Social Security cannot “sustain projected long-run program costs in full under currently scheduled financing, and legislative changes are necessary to avoid disruptive consequences for beneficiaries and taxpayers,” as the trustees state.
• Kotlikoff also testified that Social Security is now in “worse financial shape today than when the Greenspan Commission ‘fixed’ it” 31 years ago.
• He also had some harsh words for the political types that operate the Trustees Board: “To their great credit, Social Security’s actuaries have been reporting the system’s infinite horizon fiscal gap every year since 2002. And to their great shame, Social Security’s Trustees have been ignoring this comprehensive measure of the system’s insolvency every year since 2002.” In other words, experts knew twelve years ago that we were heading down a path of financial destruction and those in charge did nothing about it, wasting twelve years and making the situation even more dire than it had to be. 

If we assume that the GDP of the entire nation is about $16 TRILLION, we would have to take the entire economic output of every citizen and every company for about one and a half years to cover the $24.9 TRILLION deficit of Social Security. Depressing. Things are so bad that Kotlikoff testified that “nothing short of a fundamental reform of the system” will save it.

How would he save the system? Here are his numbers that are quite devastating to either the economy via higher taxes or retirees via lower Social Security benefits:

• To pay the current level of promised benefits, payroll tax revenues must immediately be raised by 32%.
• If this tax rate is not an option politically, then there needs to be a 22% across the board decrease in benefits.

Neither of these are politically attractive to the less than courageous politicians sitting in office in Washington today. Thus, it is highly unlikely that an action that is bold and displays leadership in tough times is likely anytime soon, which will make the problem get even worse. 

There is another approach, a three step approach that was proposed in “Love my Country, Loathe My Government:”

• Step 10: Uncap the maximum amount of income that is subject to the Social Security payroll tax but reduce the overall tax rate to more equitable across all income levels.
• Step 11: Prohibit any citizen with more than three million dollars in wealth or asset from drawing a Social Security check until their asset levels fall below that level in order to save scarce Social Security funds and resources for those that truly need it for the basic of living.
• Step 12: Raise the retirement age over time to seventy years ago to reflect the longer life spans of current citizens.

These steps would save the limited revenue for those that truly need it. However, as with Kotlikoff’s recommendations, these steps would require leadership and courage in Washington, assets that are sorely lacking.

By the way, if you were thinking that government surplus revenue in other government budgets could be used to stave off the collapse of Social Security, think again. According to Kotlikoff, while Social Security is woefully under funded at 32%, the overall Federal government is far worse. 

Based on his calculations, the entire government is under funded by 58%, which brings the total Federal government revenue and financial shortfall to a min numbing $205 TRILLION. To put this number in context, let’s do some simple math:

• $205 TRILLION is more than 12 times the size of our annual GDP numbers, meaning that raising taxes a little bit would do absolutely nothing to cover the large and growing $205 TRILLION gap.
• Every American family would have to write a check for about $1.8 million to cover the shortfall. Obviously, no way that is going to happen.

Back to Snoopy. Ignoring this fiscal problem since at least 2002 is like knowing you were overweight twelve years ago and did nothing to change that situation. You are probably that much more overweight and putting that much more stress on your heart that any jogging we do now will have no impact on our health, cardiac or financial. 

Like Snoopy’s heart, if the fiscal integrity of the country is allowed to continue down this path to ruin, other issues (i.e. Snoopy’s other body parts) will totally become insignificant since the country will be gone along with the freedom we have enjoyed for well over two hundred years. 

And the really scary part: name me one Washington politician that has the understanding, the political courage, the personal integrity, and the smarts to fix what these same people have broken. Trying to answer that futile question is enough to give anyone a heart attack, regardless of how much they jog. 

And the fiscal bad news continues tomorrow.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at:

www.loathemygovernment.com

It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Please visit the following sites for freedom:

Term Limits Now: http://www.howmuchworsecoulditget.com
http://www.reason.com
http://www.cato.org
http://www.robertringer.com/
http://www.youtube.com/watch?v=08j0sYUOb5w

Why Raising Taxes On Any American, Rich Or Poor, Is Still A Stupid Idea - Part 1

Many times we have reviewed how the Washington political class wastes hundreds of billions dollars a year through waste, fraud, criminal activity, inefficiencies and redundancies. This annual obscene waste of taxpayer wealth is the main driver behind our $15 TRILLION national debt level, a level that is quickly driving the country into financial insolvency. We have also showed that raising taxes on rich Americans, no matter how large those tax increases are, up to and including the confiscation of all of the wealth of America's richest citizens, would have minimal effect on that national debt.

But there are additional reasons not to raise taxes on any American including our richest citizens, reasons and nonpartisan economic studies that have already been completed and which were summarized in the an article written by Veronique de Rugy. Her article appeared appeared in the November, 2011 issue of Reason magazine. The article was titled: "Upgrading The U.S.A. - How To Fix The Country's Debt To GDP Ratio."

Recall that we discussed our country's debt to GDP ratio earlier this week in our December 12, 2011 post. At that time, with our national debt breaking through the $15 TRILLION level, we estimated our debt to GDP ratio to be about 103%, believed to be the first time in our history that the country owed more in debt than it produced annually in goods and services. We also estimated that within two short years, under Obama's proposed budgets in the near future, the U.S. debt to GDP ratio would be about 120%, comparable to the crumbling financial situation in Italy today.

This article reviews a number of detailed, university-based and other economic studies that reviewed the best ways for countries to get their debt load under control. These studies represent analyses of actual historic events, not economic theories and economic models built by some economist somewhere, detached from the reality of a nation's actual debt situation.

The first study cited in the article involves two Harvard economists, Alberto Alesina and Silvia Ardagna and a paper they published two years ago for the National Bureau of Economic Research. They reviewed in detail 107 efforts by 21 developed nations to reduce their national debt from 1970 to 2007. Again, these are actual results, not theoretical economic models and forecasts.

They found that several nations were quite successful in bringing down their too high national debt levels including  Austria (2005), Finland (2005), and Sweden (1997 - 2004). When considering all of the nations that were studied, the authors of the paper concluded that nations who focused on reducing spending were far more successful in significantly bringing down their debt to GDP ratio than nations that relied more heavily on raising taxes than reducing spending.

A similar study executed by the American Enterprise Institute, done by Andrew Biggs, Kevin Hassett, and Matthew Jensen, looked at more than 100 cases in which countries took steps to bring down their national debt levels. They defined successes as those situations where the debt to GDP ratio was reduced by at least 4.5% within three years after the effort began.

Their conclusions after studying the 100 nations were the same as the Harvard study: "Countries that addressed their budget shortfalls through reduced spending were far more likely to reduce their debt than countries whose budget balancing strategies depended upon higher taxes." They found that on average, the typical failure to reduce a nation's debt relied on 53% tax increases and 47% spending cuts while, on average, the countries that successfully reduced their debt load relied on 85% spending cuts and 15% tax hikes.

A third effort in this area, this one also from 2010, confirms these findings that spending cuts are far more effective in avoiding a national debt crisis than raising taxes. This effort comes from two University of California - Berkeley economists, David Romer and Christina Romer. As a side note, recall that Christina Romer is the former chairwoman of President Obama's Council of Economic Advisers, i.e. she probably does not have Tea Party or Republican Party leanings.

The Romer study concluded that increasing taxes by 1% of GDP, targeted to reducing a nation's debt load, actually reduces GDP by 3%, worsening the debt to GDP ratio and making a country's economic picture worse. The Harvard study authors agree that both their work and Romers' work, while taking substantially different analysis approaches, result in the same conclusion: raising taxes is not as effective in reducing the debt to GDP ratio than reducing spending.

Three different, detailed studies based on actual, real world results, the same conclusions: spending cuts are much more effective in getting national debt crises under control than raising taxes. The American Enterprise Institute study went on to analyze what types of spending cuts are most effective in solving a debt crisis. They found that reducing entitlement spending and reducing the the size of what they call the government wage bill, i.e. reduce the number of government employees, provide the best payback for getting debt under control.

Contrast these findings with what many in the inane political class, specifically President Obama, wants to do or have already done:

1. A primary reason the Congressional Super Committee failed is because the Democrats on that committee, with Obama's backing, insisted on a "balanced" approach to reducing our nation's debt, i.e. raise taxes the same amount as reducing spending. We now know, based on detailed empirical data and analysis by the experts listed above, that this is a sure fire formula for failure.
2. Since he became President, Obama has allowed the Federal civilian payroll to increase by more than 200,000 employees, making it, by far, the largest Federal government workforce in the history of the country, exactly the opposite of what is recommended by the American Enterprise Institute findings listed above.
3. No politician has had the courage to address the needed reduction in spending on entitlement programs such as Social Security and Medicare, one of the most important ways to get a debt crises under control.

Maybe they should have read some of the recommended steps put forth in "Love My Country, Loathe My Government:"

• Step 1 - reduce spending across the Federal government bureaucracy by 10% a year for five years by using attrition, reducing inefficiencies, reducing fraud, eliminating redundancies, and temrinaiitng poorly performing departments..
• Steps 10, 11, 12 - three steps needed to get Social Security spending under control by changing the funding parameters, raising the retirement age (with hardship exceptions), and not providing payments to those Americans that have over $3 million in wealth at their disposal for retirement.
• Step 39 - impose term limits so that we possibly get politicians into office that have the brains and the courage to do what is likely to work rather than what is likely to most get them reelected.

Anything else is just plan stupid.




Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.


Please visit the following sites for freedom:


http://www.cato.org/
http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment/

The Disgrace and Waste That is Medicare Fraud

Many times we have talked about how the American political class allows hundreds of billions of dollars to be lost to waste, fraud, and other criminal activity every year from major and minor U.S. government programs. One of the biggest Federal programs that wastes taxpayer wealth is the Medicare program. Our research has found that most unbiased estimates of waste usually put the annual figure for Medicare waste between $60 billion and $90 billion.

If you take the lower number and assume that crooks are trying to defraud the Medicare program 365 days a year, 24 hours a day, then you find that the political class losses almost $7 million an HOUR to fraud, waste, and criminal activity just in this one Federal program. That is $7 million an hour, 24 hours a day, 365 days a year. Unbelievable.

The details on how this happens were recently laid out in an excellent, well researched article by Peter Suderman writing in the October, 2011 issue of Reason magazine. The article starts with a compilation of expert estimates of how much Medicare wastes and loses from various means every year:

• The Government Accounting Office issued a report this year which estimated the Medicare process makes an estimated $48 billion in "improper payments" (i.e., wasted taxpayer wealth) every year. However, this is a low ball estimate since it does not include "improper payments" made through Medicare's prescription drug program.
• An executive Director from the National Health Care Anti-Fraud Association told Congressional members last March that the nation's total health care fraud losses likely range from $75 billion to $250 billion each year.
• Senator Tom Coburn, an Oklahoma Senator, has estimated that the Medicare fraud in the $80 billion a year range.

Certainly a wide range of estimates but they all have one thing in common: the amount of mismanagement in the Medicare program wastes tens of billions (at least) of dollars every single year.

Some more Medicare statistics:

• Unfunded, future liabilities of the Medicare program are estimated to be $36 TRILLION so any reduction in fraud and waste today would make future funding requirements of this huge unfunded liability requirement less onerous.
• At the current rate, Medicare's financials will be insolvent around 2024, a mere thirteen years from now, given the current growth rate in the program and the current fraud rate in the program.
• Medicare is currently, and will continue to be the largest driver of our out sized national debt, which is currently over $15 TRILLION.
• In 2010, American taxpayers shelled out over $500 billion in Medicare expenses and reimbursements, or over $4,000 for every American household, money that could not be spent on expanding the economy and creating jobs.
• If we use the conservative estimate of fraud listed above of $60 billion, then the program wastes 12% of its budget every year on fraud, waste, and criminal activity. Any business in the private sector that wasted 12% of its budget every year would not be in existence very long.
• Between 2007 and early 2011, the Federal government claims to have won convictions against 990 individuals in fraud-related operations that ripped off $2.3 billion from the Medicare processes.

These numbers are certainly mind boggling. But it gets worse. The article reports on a typical crime effort, this one run by a Fred Dweck, a surgeon in two Broward County, Florida hospitals who also ran his own health care business in Miami. Mr. Dweck pleaded guilty to Medicare fraud but for four years before he was arrested, he ran the following operation:

• He cheated Medicare out of at least $24 million or about $6 million a year or an amazing $500,000 a month, on average.
• He put in claims for prescription drugs, insulin injections, in-home visits by nurses, and many other treatments for 1,279 patients, none of whom actually needed any of these treatments that the good doctor was reimbursed for.
• He had five nurses conspire with him to create fake patient records and payment forms.

One would have hoped that someone in the Medicare organization would have grown suspicious of this one doctor generating so much work over the years or the $500,000 a month he was billing. Unfortunately, it took many years to figure out this one scam, too many years.

And according to the article, this  is not an unusual case, especially in Florida where the fraud is most rampant and most outlandish. Again, one would have hoped that decades ago, the political class and the Federal government would have focused a little more intently on fraud in general and fraud in Florida especially since Florida Medicare fraud seems so obvious. But alas, hope is all that existed vs. criminal investigations.

The Federal government actually manages a website dedicated only to Medicare care fraud examples that occur only in the state of Florida. The site has reported on fraud cases that involved $200 million in claims for unnecessary mental health services, $24 million for a fraud scheme based on AIDS injections, $61 million in taxpayer dollars paid to a man running a network of false health clinics, and the fact that the criminals perpetrating the fraud own fine homes, expensive cars, and a report that one of the criminals had purchased half a million dollars worth of jewelry with Medicare fraud money.

The practice has gotten so lucrative in Florida that the article reports that Medicare fraud is now the preferred form of crime, overtaking illegal drugs. And the scam operators run the gamut from small time hoods to large organized crime syndicates.

These numbers are certainly unbelievable and a disgrace but even worse than the magnitude of the numbers, is the ease in which the fraud is executed. According to a a convicted fraudster, one who illegally defrauded Medicare out of almost $10 million in just four years, all you need is basic computer date entry skills, someone to recruit fake patients for you, and someone who can falsify patient and prescription records.

Once you can perform these simple tasks, then Medicare's incompetent, antiquated, and bureaucratic data systems take over and start spitting out fraudulent checks. It is so bad that several years ago, the General Accountability Office set up a Medicare sting operation with fake names, fake offices, fake bank accounts, etc., actually using an official government telephone number in the General Accountability Offices as the contact number.

Shortly after applying to Medicare, the sting operation was granted  Medicare billing privileges and billing numbers. This approval was granted even though no one in the sting operation was required to prove they were in the medical field or that they actually could provide the medical services they listed on their application.

What a mess, surely part of the government waste sewage example we discussed in yesterday's post. The article concludes with some ideas on how to fix the problem including better data systems, better coordination between health care providers and law enforcement, and certainly more realistic payout schedules for Medicare disbursement. The article contains examples where Medicare sometimes pays out more than ten times more for a piece of equipment or a medicine then the private sector, making these outlandish payment practices ripe for criminal activity.

However, the biggest thing needed to curtail this waste of taxpayer wealth is courage. The article correctly points out that cracking down on Medicare fraud may impose some impositions on honest doctors who submit legitimate bills for reimbursement. These honest
doctors are likely to complain to their political representatives and get their honest patients involved and complaining to their elected representatives.

And we all know what is likely to happen once our uncourageous politicians start hearing complaints. They will stop the necessary anti-fraud efforts lest they tick off a voter or two who are slightly inconvenienced by stronger anti-fraud activities.

Thus, as always, we again see the need for two of our favorite steps from "Love My Country, Loathe My Government:"

1. Step 34 would remove all politicians from their Congressional committees that do not adequately fulfill the duties of their committee posts. Wasting $7,00,000 an hour of taxpayer money certainly would fall into that category of duty dereliction. Thus, if Step 34 was in effect today, all members of Congressional committees with Medicare oversight would be replaced for incompetence and their inability to contain the fraud and waste.
2. Step 39 would impose term limits on all Federal politicians, they would all be "one and done." The hope is that with no chance of ever getting reelected, sitting politicians would finally grow some backbone and take the courageous and necessary steps to rein in the rampant Medicare fraud and waste. There would be no need to pander to doctors and patients who face some inconveniences due to the crackdown on criminal activity in the program. Better to have some inconveniences with Medicare today rather than have no Medicare program at all in the future due to its insolvency.

The waste that exists in Medicare, and other government programs, today, is a disgrace. Politicians that have ignored this problem and have allowed it to grow to insane levels of waste, both today and in the past, or no less disgraceful.








Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.


Please visit the following sites for freedom:



http://www.cato.org/
http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment/

Does Anyone Here Know How To Run An Economy? Part 2, Illinois State Government

Fascinating and scary article from Business Week in its July 4, 2011 issue. The article reviewed the current status of the Illinois state government financial situation and included the following facts:

• The state government is $4 billion behind in paying its bills to companies that have already provided goods and services to the state.
• The state owes IBM over $1 million , Office Depot over $660,000 and the 17th Street Bar and Grill, located in Sparta, Illinois, $340.
• At least 114 companies are already owed over a $1 million.
• The backlog in unpaid bills in Illinois is larger than the entire state budget of Delaware's state government.
• Illinois had to borrow money just to make its last two annual contributions to its pension system.
• Illinois is tied with California for the lowest credit rating.
• The state legislature raised the personal income tax rate 67% and the corporate income tax rate 46% in January.
• These tax rates will raise an additional $7 billion in revenue for the state but is just over half of what is needed to cover the $13 billion shortfall in the 2011 budget. This assumes that no businesses and families leave the state to avoid the new tax burden, and thus reducing the expected incremental $7 billion, a very shaky assumption.

Certainly a catastrophic situation. It is very obvious that a long string of failed political management has led to a state in the death spiral of financial insolvency.

But you may ask how does this have anything to do with mismanaging and economy. These are obviously political screw ups but what is the economic impact? The article points out that the large creditors like IBM can probably cover the state payment delays quite easily, the smaller companies that do business with state might be at a far greater risk.

The article reports that some of the smaller companies have had to lay off workers to stay solvent in the absence of getting paid by the state. Some of had to take out loans to stay afloat because of the late payments, resulting in expenses that those businesses cannot now use to hire workers or expand their business operations. Some businesses also report that they have not been able to get a loan to continue operations because the banks are now suspicious that the state may never pay some of its bills.

As an example, the state of Illinois owes the nonprofit South Suburban Council on Alcoholism and Substance Abuse about $1.4 million in back payments. To keep afloat, the Council had to lay off nearly a third of its 155 employees and also take out a loan. Delayed payments are also affecting hospitals, universities, school districts, funeral homes that bury the indigent, health care providers, and social service providers. By not getting paid by the state, many of these organizations will eventually have to start laying off workers also.

More unemployment is a direct economic calamity of the Illinois' political class inability to to operate efficiently. Thus, political incompetence leads directly to economic chaos. And the political class has driven the state government so far into the red that taxes had to be raised, money that could have gone to spurring economic growth now goes to paying down debt. As economic growth slows because of the tax increases, tax revenues go down and the debt further accumulates. A classic death spiral.

Illinois is a perfect example of what happens when we trust too much of our lives, jobs, and financial situation to the political class. By becoming so large in the state economy through reckless spending, when the state begins to go belly up, it drags the rest of the economy with it. Given that the political class at all levels has proven time and again that it cannot operate a large bureaucracy efficiently and effectively, at some point in time that inefficiency, and the wasteful spending that goes with it, will impact the whole economy with Illinois being a text book example.

That is what we are seeing today at the national level. Government has gotten so large and sucks up so much private capital and tax wealth, that the private economy struggles to expand and grow. At some point in time, the fact of having such an inefficient operation, the Federal government, taking up or effecting so much of the economy, at some point in time the inefficiency and political incompetency catches up with reality and we get the Illinois effect, a death spiral towards insolvency.

That is why Step 1 from "Love My Country,Loathe My Government" is so important. Step 1 would reduce Federal spending by 10% a year for five years. This would significantly downsize the Federal government bureaucracy and inefficiency, resulting in two positive events. As a much smaller entity, the Federal government could focus on doing just a handful of things really well.  Currently, politicians and the government it runs try to do everything but they do everything pitifully bad. Second, by reducing spending and eventually reducing taxes, the Federal government becomes a much smaller factor in the overall economy which reduces the risk of an Illinois-like fiasco infecting the entire country.






Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at http://www.loathemygovernment.com/. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Please visit the following sites for freedom:


http://www.loathemygovernment.com/
http://www.cato.org/
http://www.robertringer.com
http://realpolichick.blogspot.com
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment.com