From USA Today:

Retirement programs for former federal workers — civilian and military — are growing so fast they now face a multitrillion-dollar shortfall nearly as big as Social Security’s, a USA TODAY analysis shows.

The federal government hasn’t set aside money or created a revenue source similar to Social Security’s payroll tax to help pay for the benefits, so the retirement costs must be paid every year through taxes and borrowing.

The government paid a record $268 billion in pension and health benefits last year to 10 million former civil servants, military personnel and their dependents, about $100 billion more than was paid a decade earlier after adjusting for inflation. And $7 billion more was deposited into tax-deferred accounts of current workers.

(more…)

Governor Rick Perry of Texas is being attacked by two rivals in the GOP presidential race. His sin, if you can believe it, is that he told the truth (as acknowledged by everyone from Paul Krugman to Milton Friedman) about Social Security being a Ponzi scheme.

Here’s an excerpt from Philip Klein’s column in the Examiner, looking at how Mitt Romney is criticizing Perry.

Mitt Romney doubled down on his attack against Texas Gov. Rick Perry this afternoon, warning in an interview with Sean Hannity that his critique of Social Security amounted to “terrible politics” that would cost Republicans the election. Romney’s decision to pile on suggests that he’s willing to play the “granny card” against Perry if it will help him get elected, a tactic more becoming of the likes of DNC chairwoman Debbie Wasserman Schultz than a potential Republican nominee.

And here’s a Byron York column from the Examiner looking at how Michele Bachmann is taking the same approach.

…another Republican rival, Michele Bachmann, is preparing to hit Perry on the same issue. “Bernie Madoff deals with Ponzi schemes, not the grandparents of America,” says a Bachmann adviser.  “Clearly she feels differently about the value of Social Security than Gov. Perry does.  She believes Social Security needs to be saved, that it’s an important safety net for Americans who have paid into it all their lives.” … “She strongly disagrees with his position on that…”

Shame on Romney and Bachmann. With an inflation-adjusted long-run shortfall of about $28 trillion, Social Security is a Ponzi scheme on steroids.

(more…)

America is in shambles from sea to shining sea. Unemployment is at Great Depression levels. Real Estate is collapsing. The stock market is crumbling. Retail sales are vanishing. Consumer confidence is plummeting. Inflation is skyrocketing (on the products that matter- energy and food prices). And of course, our U.S. Triple A credit rating is gone for the first time in history.

America is staring at economic disaster- Obamageddon. We are the Titanic, headed straight for the iceberg. Even delusional 500 point up days on Wall Street will not change the frightening long term picture. The iceberg is straight ahead.

Obama and his socialist cabal have channeled Hoover and FDR, who turned an ordinary bust into The Great Depression with a toxic strategy of more government, more spending, more debt, more entitlements, more rules and regulations strangling business, higher minimum wages, more power to unions, higher taxes, more printing of money by Fed, and trade tariffs. This is the Obama blueprint squared.

Here’s where the story gets downright frightening. This time the results are going to be dramatically worse than 1929. This time we are facing The Greatest Depression ever. Obamageddon.

Why? Because The Great Depression had NONE of problems and obligations we are now facing.

(more…)

Steven Malanga in City Journal:

Pensions are an enormous part of the problem. New Haven’s $475 million budget, for instance, is projected to grow by just $4 million this fiscal year, but the city’s pension and health-care costs will rise $12 million, forcing cuts elsewhere. In San Francisco, pensions consume about 14 percent of the budget, and rising retirement bills for city workers accounted for one-third of this year’s $306 million deficit. Pension and health benefits account for 20 percent of the $500 billion that the nation’s nearly 14,000 public school districts spend annually. In a recent National League of Cities survey, nearly 80 percent of municipal finance officers listed rising pension payments as one of their most significant budgetary problems.

Here again, the problem is disproportionately local. Yes, state-sponsored pension funds have accumulated anywhere from $750 billion to $3 trillion in unfunded pension and retiree health-care liabilities, depending on how the calculations are made. A huge portion of those liabilities, however, is actually owed by cities, towns, and school districts. States employ just 5.2 million of the 13 million active workers participating in state-sponsored pension funds; the rest are local employees, often teachers, who work for districts too small to manage their own pensions. Experts agree that pension costs for both states and localities are going to skyrocket. But states currently spend just 4 percent of their budgets on pensions, while many municipalities already spend 15 to 20 percent.

(more…)

The Democrats in Congress are crowing about the upset victory by Kathy Hochul in the special election to fill a Congressional seat in upstate New York, which has been consistently held by Republicans.  Ms. Hochul based almost her entire campaign attacking Paul Ryan’s plan to fix Medicare by giving every taxpayer a voucher to purchase his or her own health insurance in a competitive marketplace.  While it is not clear that Ms. Hochul’s victory was solely attributable to that issue (there was in fact a well‑known third candidate in the race) we will assume for purpose of this essay that the Democrats are correct.

As a result of the outcome in this special election Democrats, and the entire political left think they have a winning issue, which will allow them to take back control of the House of Representatives in 2012.  Frightening seniors and those who are close in age to being eligible for Medicare might actually work unless the GOP can demonstrate that Medicare is imploding and that the Democrats are prepared to let it continue to implode for the crassest of reasons − short term political gain.  Many Democrats seem to prefer that for political expediency.

The Washington Post in its May 24^th edition editorialized, “ . . . the threat is that this victory will carry an enormous cost for the country, with both sides taking the lesson that bravery in tackling entitlements is foolhardy.”  Former President Clinton who attended a summit on fiscal responsibility hosted by the Peterson Foundation last week said “I hope Democrats don’t use this as an excuse to do nothing.”  He and a bipartisan group of past and present government officials and academics all warned that we are approaching a permanent fiscal deficit (emphasis added.  Senator Mark Warner of Virginia put it very succinctly “Congress is Thelma and Louise in that car headed for the cliff.”  Peggy Noonan reported about the same conference in the May 29^th weekend edition of the Wall Street Journal, noting “no one said we can grow our way out of this, or that the negative effects of chronic debt are exaggerated.”

(more…)

This new video from the Center for Freedom and Prosperity discusses a proposal to solve Medicare’s bankrupt finances by replacing an unsustainable entitlement with a “premium-support” system for private insurance, also known as vouchers.

This topic is very hot right now, in part because Medicare reform is included in the bold budget approved by House Republicans, but also because Newt Gingrich inexplicably has decided to echo White House talking points by attacking Congressman Ryan’s voucher plan.

Narrated by yours truly, the video has two sections. The first part reviews Congressman Ryan’s proposal and notes that it is based on a plan put together with Alice Rivlin, who served as Director of the Office of Management and Budget under Bill Clinton. Among serious budget people (as opposed to the hacks on Capitol Hill), this is an important sign of bipartisan support.

The video also notes that the “voucher” proposal is actually very similar to the plan that is used by Members of Congress and their staff. This is a selling point that proponents should emphasize since most Americans realize that lawmakers would never subject themselves to something that didn’t work.

(more…)

Under current law, Social Security is supposed to be an “earned benefit,” where taxes are akin to insurance premiums that finance retirement benefits for workers. And because there is a cap on retirement benefits, this means there also is a “wage-base cap” on the amount of income that is hit by the payroll tax.

For 2011, the maximum annual retirement benefit is about $28,400 and the maximum amount of income subject to the payroll tax is about $107,000.

It appears that President Obama wants to radically change this system so that it is based on a class-warfare model. During the 2008 campaign, for instance, then-Senator Obama suggested that the programs giant long-run deficit could be addressed by busting the wage-base cap and imposing the payroll tax on a larger amount of income.

For the past two years, the White House (thankfully) has not followed through on this campaign rhetoric, but that’s now changing. His Fiscal Commission, as I noted last year, suggested a big hike in the payroll tax burden. And the President reiterated his support for a class-warfare approach earlier this week, leading the Wall Street Journal to opine.

Speaking Tuesday in Annandale, Virginia, Mr. Obama came out for lifting the cap on income on which the Social Security payroll tax is applied. Currently, the employer and employee each pay 6.2% up to $106,800, a level that rises with inflation each year. …Mr. Obama didn’t hint at specifics, though he did run in 2008 on a plan to raise the “tax max” by somewhere between two to eight percentage points for the top 3% of earners. …most of the increase could be paid by the middle class or modestly affluent—i.e., those who merely make somewhat more than $106,800. A 6.2% additional hit on every extra dollar they make above that level is a huge reduction from their take-home pay. If the cap is removed entirely, it will also mean a huge increase in the marginal tax rates that affect decisions to work, invest and save. In a recent paper for the American Enterprise Institute, Andrew Biggs calculates that this and other tax increases Mr. Obama favors would bring the top marginal rate to somewhere between 57% and 68% when factoring in state taxes. Tax levels like these haven’t been seen since the 1970s.

Obama is cleverly avoiding specifics, largely because the potential tax hike could be enormous.

(more…)

The mind-numbing, esoteric mumbo jumbo that dominates so much of the reporting and commentary on public-sector pension funds seems designed to cause the tax-paying public to surrender and acquiesce to letting their civil servants or elected officials iron it out.  Well, unfortunately, that’s how we got into this mess in the first place. Fact is though; it isn’t really all that confusing.

Trudge through the technical thicket of defined compensation versus defined benefits, or unfunded liabilities versus deferred compensation, or present-value discount rates predicated on zero-risk returns versus discount rates predicated on highly leveraged exchange-rated funds and we find a rather simple issue.  Will there be a fund with enough money to pay the workers’ pensions when they retire? And if not, do the voters understand that the typical public employee pension fund has, in effect, an open call on their checking or savings account through a contractual agreement that requires the local or state government to raise taxes (or lower government services) in order to cover fund deficiencies?

Yes, we understand that the state can go into additional debt to cover the shortfall, but that ultimately becomes the responsibility of the taxpayer too.  If the voters are fine with that, then they have no complaint.

We don’t mean to pick on public-sector pension funds.  Certainly, private sector pension funds can be just as underfunded as public-sector pension funds. There is, however, a big difference.  An unrealistically generous private-sector pension fund (one with over zealous return-on-investment assumptions, or too small an employer/employee contribution) may simply put a company out of business. At some point, the company may not be able to pass along the high cost to its customers (think pre-bail-out General Motors). An unrealistically, generous public-sector pension fund, on the other hand, doesn’t really ding the government that employs its members. It simply dings the taxpayer.

(more…)

There are two crises facing Social Security. First the program has a gigantic unfunded liability, largely caused by demographics. Second, the program is a very bad deal for younger workers, making them pay record amounts of tax in exchange for comparatively meager benefits. This video explains how personal accounts can solve both problems, and also notes that nations as varied as Australia, Chile, Sweden, and Hong Kong have implemented this pro-growth reform.

Social Security reform received a good bit of attention in the past two decades. President Clinton openly flirted with the idea, and President Bush explicitly endorsed the concept. But it has faded from the public square in recent years. But this may be about to change. Personal accounts are part of Congressman Paul Ryan’s Roadmap proposal, and recent polls show continued strong support for letting younger workers shift some of their payroll taxes to individual accounts.

Equally important, the American people understand that Social Security’s finances are unsustainable. They may not know specific numbers, but they know politicians have created a house of cards, which is why jokes about the system are so easily understandable.

President Obama thinks the answer is higher taxes, which is hardly a surprise. But making people pay more is hardly an attractive option, unless you’re the type of person who thinks it’s okay to give people a hamburger and charge them for a steak.

(more…)

On March 23rd, 1775 in Virginia, the largest colony in America at that time, a meeting of the colony’s delegates was held in St. John’s Church in Richmond to vote on resolutions of defense for the colony as the war with England loomed and on its participation should war break out.

Patrick Henry, before a vote was taken on resolutions he presented in support of joining the other colonies in a war for freedom, spoke without any notes in a voice that became louder and louder, climaxing with the now famous ending,

“Is life so dear, or peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, Almighty God! I know not what course others may take; but as for me, give me liberty or give me death!”

Have we come so far from those words and the meaning of liberty itself, that we are now a nation of people who would accept chains in return for a government providing for our every need?  Are we a people who would give up our principles and perhaps most of our own sovereignty in exchange for peace defined as not having to take any individual action or responsibility?

We are burdened with crushing debt and even heavier unfunded liabilities necessary to support an expanding central government that is attempting to control every aspect of the lives of the American people.  Social Security, Medicare, Medicaid, education, the environment, health care and business regulation are not found in the Constitution as powers of our central government.  However, liberal interpretation – false interpretation if one reads the Federalist Papers – of the Commerce Clause and the Social Welfare Clause of the Constitution opened a back door for the central government to assume powers well beyond the seventeen outlined in the enumerated powers specifically granted therein.  Each time a new power was taken, it was in return for some form of entitlement or relief from self-reliance.  It has reached a point today where it is difficult to distinguish who has the greater hand, the central government or the people.

(more…)

The Chicago Sun-Times provides this glimpse into our nation’s future:

The state’s miserable bond rating has driven up borrowing costs for state government by more than $500 million since last year, a government watchdog group says.

The nonpartisan, Chicago-based Civic Federation analyzed the near-record borrowing that the state has undertaken since last September and looked at similar borrowing during the same period in other states that have higher bond ratings than Illinois.

The result was a staggering $551.3 million extra that state taxpayers are having to devote to support the state’s thirst for debt because of a series of rating downgrades, the group says in a report being released today.

“This is an actual quantification of what the cost of the state’s fiscal irresponsibility has been because of the Illinois General Assembly and governor’s failure to stabilize state finances and to allow our credit rating to drop so low we are now the lowest credit-rated state in the country, with California,” said Laurence Msall, the Civic Federation’s president.

(more…)

General strikes in Greece have brought much of the country to a halt as trade unions and government workers stage more protests over austerity measures.  A 24-hour work stoppage  last week closed much of the country’s public sector and shut down  ferries, trains and public transport.

So here  is one unfunded social utopia’s score card so far:  Three have died already this month in massive riots  in the streets of Athens which are in danger of re-erupting anew.  Paralyzing strikes from civil servants, so used to getting so much largess for doing so little for so long.   A  $145 billion bailout is in jeopardy with the big dogs of the EU, Germany chief among them, expressing serious concerns that the austerity measures demanded of Greece as a condition to merit the loans will ever come to fruition.  Given the revised deficit projections and a public that seems unwilling to admit that their free ride brand of socialism as expressed in a financially unsustainable pension structure is collapsing, who can blame Europe?

Greece is bankrupt.   Their debt is 108% of GDP and will climb to almost 150% by 2013 when the bailout loans would come due.  25% of Greek taxes will go to service its debt — to mostly foreign investors.  Currently that nation’s government spending amounts to 50% of its GDP.

Consider then that in 2009 US debt was 86% of GDP and climbing.  It will go past 100% by 2012.  20% of U.S. federal taxes go to service the interest on the national debt.  That number too will rise.  Our major social entitlement programs of Social Security, Medicare and Medicaid, are bankrupt.  We are waging foreign wars almost entirely on our own—so that Europe doesn’t have to.  And now we have just enacted the mother of all entitlements in Obamacare  that only the most wishful of thinkers (or a cynical Democratic Congress and White House) would argue is anything but a multi-trillion dollar debt dog pile on top of an already strained budget.

(more…)

Recent financial headlines provide a remarkable glimpse into America’s future if we stay on the same track we are now.  From Bloomberg news we learned:  “US Stocks fluctuate amid concerns European debt crisis hasn’t run course.”  Meanwhile, the IMF predicted that the “US national debt will soon reach 100% of GDP.”  Sadly, the World’s, the United States’ and California’s (16% of the US Economy and the 9th largest economy in the world) financial prospects are far worse than those headlines recognize.

The US economy is nearing $15 trillion in gross domestic product (GDP) per year.   The national debt it carries on the books is nearly that high and will certainly reach it, and far surpass it, within 2 years given the trillion dollar deficits that are predicted as far as the eye can see.  Of course, off the books, in accounting that would make Enron blush, the US government has $75 trillion or more in long term unfunded liabilities.  On a more short term basis consider this: the US Government revenues are running below $3 trillion dollars per year – yet its debt is over $13 trillion and growing.  In other words, the existing US debt is 4 to 5 times its current revenue.

Imagine if you will, if your credit card debt was 4 times your current income and the income you are likely to earn in each of the next 4 years.  There is not a bankruptcy attorney in the country that would not tell you that it is time to declare bankruptcy.  For its part, California is projected to have unfunded liabilities as high as $600 billion or 6 ½ times it current revenues.   Sadly for the US and California taxpayers, bankruptcy is simply not an option.

All of which brings us to the European debt crisis – which has anything but run its course.  Indeed, German Chancellor Merkel said this about the recent bailout of Greece: “We didn’t do more than buy time . . .” to get their collective government houses in order.  Meanwhile, USA Today, whose financial reporting is rather blunt at times, featured this headline: US “Investor fears ignite sell-off.”

(more…)

For years, employers in the private sector have been moving in the direction of versatile, 401(k) style retirement accounts. However, a vast majority of the 20 million state and local government workers in the U.S. have kept their generous, defined-benefit pension plans.

Despite the lofty promises made by policymakers, public employee retirement plans have been neglected over the years and have become huge liabilities that severely threaten the financial health of many states. If legislators do not properly address the crisis in public pensions, they will make current state budget problems look trivial. In fact, as of 2006, states had accumulated nearly $360 billion in unfunded pension obligations, according to a new 50 state study conducted for the American Legislative Exchange Council (ALEC). The report entitled “State Pension Funds Fall Off a Cliff,” is co-authored by Dr. Barry Poulson of the University of Colorado and Dr. Arthur P. Hall of the University of Kansas.

Much of the current data regarding liabilities in public employee pensions was taken before the recent economic downturn, and the study’s authors warn the problem is much worse today since stock market losses have not been fully realized in many official government pension statistics. Other estimates with recent data place the unfunded pension liabilities at $1 trillion nationally.

(more…)

It is apparently a mystery to a lot political insiders why the Tea Parties have become so popular with so many Americans in state after state across the nation.

Many have simply tried to dismiss the phenomena as the ranting of a relatively small number of angry right-wing zealots. They are dead wrong but one gets the feeling the political class finds this easy dismissal far more comforting than the unsettling truths driving angry and vocal dissatisfaction by people from across the political spectrum.

“Real people” like me resonate in politics right now because of the growing chasm between what the political elites of both parties see as the best course for the nation—and for themselves– and the hopes and fears of the average American man and woman. In China that difference might mean very little to government as we saw in Tiananmen Square but, according to the Founding Fathers, such a division should not even exist here in the United States.

Those who are passionately protesting at Tea Parties and making themselves felt at the polls have rightly detected more than a hint of contempt for the average citizen. If everything were going well such elitist arrogance might be accepted, as it has been in the past. But things are not going well for our nation and more and more people are challenging the performance, ideas and motivations of those who hold themselves out as smarter and better than the rest of us.

(more…)

The Centers for Medicare & Medicaid Services (CMS) released their annual report this week on total healthcare spending in the U.S. for 2008. To the limited extent that this release was even reported, the headline was that the growth in healthcare spending “slowed” from the prior year. From a growth rate of 6% in 2007 to only 4.4% in 2008. This in fact represented the lowest rate of growth since the CMS first started reporting this data in 1960. Given all the hyperbole about exploding healthcare costs this past year, this would seem to be wonderfully good news, worthy of national media attention. Might the cost curve be bending down (gasp) without government intervention?

Not surprisingly, media coverage of the report – and even the press release from the CMS itself – convey a less positive interpretation of the underlying data. By focusing on the fact that healthcare spending as a percentage of GDP continues to rise (if only slightly), from 15.9 percent in 2007 to 16.2 percent in 2008. And by attributing the decline to the economic downturn, implying that it is only temporary, even though the co-author of the report acknowledged that “health-care spending is usually somewhat insulated from the immediate impact of a downturn in the economy”.

Why the glass half-empty view? I believe the answer can be found in this accompanying statement from CMS Director Jonathan Blum (emphasis mine):

This report contains some welcome news and yet another warning sign. Health care spending as a percentage of GDP is rising at an unsustainable rate. It is clear that we need health insurance reform now.

(more…)