Tax Surplus Isn't Spending Money

To the editor:
In the Friday November 11, 2011 edition of your publication was an article on South Carolina’s state budget surplus. http://www.thestate.com/2011/11/11/2041941/panel-adds-400-million-to-states.html.

In the article, Mr. Beam’s opening paragraph frames the dilemma inherent in South Carolina government when he says, “SC Lawmakers will have an extra 920.5 MM to spend.” It isn’t extra. And the idea that this is lawmakers’ money to spend is exactly what is wrong today in government at all levels.

Mr. Beam goes on to describe the problems in the SC economy: “The state’s labor force is growing faster than new jobs are created. Permits to build single family homes are at 30-year lows. And inflation is increasing faster than wages.” Given these concerns in the economy, how can the legislature simply look at the people’s money and decide that it’s theirs to spend. No amount of government spending will solve these problems. In fact, citizens may be better off getting some money back in their pockets to help with these economic concerns instead of state government keeping all of it to spend. Unfortunately this won’t happen.

The article editorializes on programs that “provide vital public services”. Our problem is that we haven’t made any difficult choices on what is truly “vital”. We can’t provide all things to all people. Nor can we look to our government as the sole source to solve problems in the economy. The legislature has a tendency to overcommit and the current dilemma in social program funding is one of several budget areas where we have borrowed from the future revenues by not being willing to make the tough choices today on what is “vital”.

Having been involved in analysis of the state’s pension crisis, I can testify that our state government has already made promises to state employees it can’t keep. The first iteration of the hard choices associated with this crisis came last week as the Budget and Control Board voted to reduce the annual cost of living adjustments for retired state employees. A $20 Billion shortfall in pension dollars will come home to roost at some point. These promises preclude spending on Medicare, road construction, education, or the mental health programs Mr. Beam mentions in his article and are an example of legislators not deciding on what is vital. The dollars we spend today instead of paying down these debts will only further hurt the economy in the future and cause a downgrade in South Carolina’s credit rating. Legislators must make the hard choices on what is actually vital for the future prosperity of our state, beginning with not viewing tax surpluses as “spending money”.

A reader writes about "the message of conservatism"

Walker McKay, my good friend, wrote me the other day as a follow up to my last entry, "Are we just now figuring this out?" He is exactly right when he says:

"Bill: I don’t think we have lost the message of conservatism for a generation, but maybe the Republican party has lost conservatives for a generation. I think the message of conservatism is stronger now than ever, there just isn’t a viable “party home” for it."

Thanks to Walker for the input.

Are we just now figuring this out?

Recently, I received an email from Republican U.S. House member Joe Wilson (SC-2) discussing the fact that "Spending is out of cotrol in Washington." http://joewilsonforcongress.com/home/2009/06/spending-is-out-of-control/

(This realization is only slightly later than his endorsement of John McCain for President.)

http://www.fitsnews.com/2008/01/22/joe-wilson-is-tardy/
http://shotpolitics.com/wilson-staff-loses-release-endores-mccain-anyway.htm

Below is the reply I sent regarding his correspondence:

Dear Mr. Wilson:

Thank you for your recent email correspondence entitled, “Spending is out of control.” As I read it, I was struck by the fact that if we as Republicans had simply had this outlook on spending during the period when we were the majority party we wouldn’t be facing the spending crisis you discuss in your correspondence. Because you chose not to stand up to the Bush administration on the expansions of government under their watch, or to the appropriators within our own party, we lost the faith of many of the voters even within our own party. I fear that your request for action may be too little, too late, and that we may have lost not only the majority, but also the message of conservatism for a generation.

Power vs. Principle

The recent government takeover of General Motors and various financial institutions is distasteful to the business community and political conservatives. However, the nature of our national demographic means that this type of government intervention is more likely. Politicians will come under increasing pressure to meddle in the private sector to protect the financial well-being of the baby boomers as they reach their “golden years.”

If the speech given by Senator Lindsey Graham at the South Carolina Republican convention is any indication, then we will see more politicians willing to compromise principle to get reelected. Senator Graham vehemently challenged the delegates that “if you want to win, you’d better decide to moderate on issues to get something done.” Senator Graham went on to mention that because President Obama is such a likable guy that conservatives will have a tough time defeating his agenda.

So we already see the death of fiscal responsibility as there is no strident opposition to the Obama administration and influential members of Congress like Senator Graham have adopted the go-along-to-get-along mentality. If there isn’t the political will today to try to stop the taxpayer funded bailouts (with no union concessions) then how will there be any political will to ask for stewardship on any other issue that affects the boomer retirement hopes. Who will argue the other side for the future generations who have to pay for the government bailout of the pensions of the current retirement generation? The silence on government takeovers will allow the “likable” liberals to enact an agenda that erodes any hope of a resilient American economy in the future. Conservatives need to get the guts to answer the question, “What hill are we willing to die on,” and then stick to the principles of our founders.

The Rule of Law and Liberal Hypocrisy

This past week, President Obama cut a deal to save General Motors that cast aside the existing contracts between the company and the companies bondholding creditors. Normally these moves could only take place in a rightly constituted bankruptcy court. However, in the current economic environment, we have obviously suspended the rule of law in an effort to return political favors to labor unions while hiding behind the stalking horse of saving the economy.

While unions were given concessions for their investment stake in the company at a dollar-to-dollar basis, including preferred stock paying a 9% dividend, bondholders were told to accept equity stakes at ten-cents-on-the-dollar or get nothing. This level of government intervention into capital market contracts is growing almost by the day as the current administration, with no business experience, plays with taxpayer money to make politically driven decisions about whom to save in the recessionary economy.

As The Wall Street Journal reported today,

Even after nine months of extraordinary government intervention, the scope and complexity of the General Motors Corp. rescue present a thicket of conflicts unlike any seen before in Washington.

The federal government is likely within weeks to emerge as the principal owner of a storied U.S. corporation whose factories and products touch the lives of tens of millions of Americans. It will simultaneously serve as the company's regulator, tax collector, customer, pension backstop and lender.

The Obama administration is making up the rules as they go. The only hope to keep the federal government from continuing to become increasingly entrenched in the affairs of private enterprise is for state pension funds and other large institutional creditors to stand up and say enough of the Obama administration running roughshod over creditors’ rights.
At this point we have put significant taxpayer funds into dying business models. Why should the taxpayer expect anything different when we continue to see the Washington attitude of “it’s our money to use as we see fit, and we’ll do what it takes to maintain power.” The Obama administration seems to have added the sentiment, “So whatcha gonna do about it; we’re in charge now.”

Punishing a true stimulus

Recently, a bill was introduced by California Representative Henry Waxman that, if passed would effectively raise the marginal tax rate on oil and gas companies. What amounts to a punitive measure by a liberal member of the U.S. House is in keeping with the policy measures of an overly ambitious Democratic Party majority. The repeal of the Section 199 deductions for oil and gas companies will hurt our interests in three key ways.

First, a tax increase on oil and gas will pass through to consumers at a time when we can least afford to see consumer spending on goods and services erode further. According to the Bureau of Labor Statistics, we have seen the steepest drop in consumer spending since the beginning of the measurement. Further taxes on energy will only prolong this downturn.

Second, U.S. national security is undermined when we raise taxes on U.S. oil and gas companies. The issue of energy independence is not one where we have an option; we must allow our oil and gas companies use their resources for research and development for new sources of energy, not for tax dollars to be spent on government programs that have little or no return on investment.

Third, it is wrong for Congress to give money to industries that are struggling and pay for it by raising taxes on those that are healthy. Such measures move us philosophically backwards in encouraging companies to produce more profit through more efficient operations. Instead it seems that Mr. Waxman and The White House have decided that in order to support out-of-control spending and government intervention in dying business models they are going to tax everything they don’t like, even if it hurts the nation as a whole. In an effort to pay for “stimulus” by raising taxes on oil and gas companies, they are actually hurting a crucial underpinning of economic recovery; low energy prices.

Someone, stimulate leadership

This week, I had the opportunity to hear an elected official holding statewide office address a group of business people on the state of the economy. In the room were owners of companies who never have the luxury of just looking at the problem, but who must get up every morning and figure it out and pray for provision. The government official gave grim news on declining tax receipts, oversized state government and stated that there was “no good news.” I kept waiting for the proposal, “So here’s what I’m meeting with leaders about…” There was none. I left confused, having admittedly missed the point.

Today, Peggy Noonan summed similar sentiments in The Wall Street Journal:

Politicians keep saying, "People have to begin to understand we're in bad shape," and "People should realize it's a crisis." I think they know, Sherlock. Do you? Our political leaders are like a doctor who rushes to the scene of a terrible crash, bends over a hemorrhaging woman and says, "This is serious, lady, you can't take it lightly." She looks up at him: "Help me, do something, I'm bleeding out!" The doctor, to the local TV cameras: "I hope she knows she's in trouble."

No longer can we afford to have politicians who castigate the others with whom they share power as a way to pass the buck. You were elected to work together to solve the problems that arise, not simply report the news.

Leadership is the willingness to say, “If it goes well, it’s time to credit everyone else. If it goes poorly, it’s time to look in the mirror.” Unfortunately, we’re not seeing many examples of that today because maybe the only safe thing in the economy is to keep accruing years on a government pension by being reelected. Getting reelected today seems to mean making sure you’re showing people the problems, not proposing solutions. Solutions are messy. If it doesn’t work, it’s easier to be on the outside passing judgment and placing blame.

The wonderful thing about the people in that room is that they will survive, and they will lead, even if the public as a whole never gives them accolades. They can’t afford to simply diagnose. They have to stop the bleeding and get the patient on her feet again. They will provide the examples of leadership for the next generation and maybe even the politicians.

We aren't likely to spend our way out of this

What the Democrats would have us believe is that they are on a crusade of economic statesmanship when really it is simple legislative consumerism designed to protect political turf. I believe President Obama is sincere when he says we are in a dire situation, but it seems that he has simply given Congress a license to continue to do what they do best; spend.

Why is spending really a concern? Why shouldn’t we fund all these initiatives out of the federal coffers? Why shouldn’t we just send our Congressman up the hill to get our share?

Because according to David M. Walker former Comptroller General of the Untied States, we can’t afford to do so. In an article published last spring in Politico, Mr. Walker wrote:

"The current federal fiscal policy has created a disconnect between today’s citizens and future taxpayers. Baby boomers and current retirees benefit from today’s government spending and tax policies, while our children, grandchildren and generations to come will be expected to pay the bill for today’s excess consumption.

From a broad perspective, many in Congress think that since the U.S. is currently the world’s sole superpower, we will always be able to borrow from foreign countries whenever necessary at attractive interest rates. Unfortunately, the government — like too many Americans — has become addicted to debt.

With a federal deficit in the billions, government appears numb to running large operating budgets every year, irrespective of the state of the economy or the existence of wars. The resulting deficits and related debt burdens are set to escalate dramatically when baby boomers retire in big numbers.

To put things in perspective: Absent meaningful reforms, income tax rates would have to more than double from today’s levels for the federal government to deliver on its promises and pay its bills."

In his March 15, 2008 editorial in The Wall Street Journal, South Carolina Governor Mark Sanford expressed a similar concern when he wrote, “Since 2000, the federal budget has increased 72%, to $3.1 trillion from $1.8 trillion. The national debt is now $9 trillion -- more than the combined GDP of China, Japan and Canada. Add in Medicaid, Medicare and Social Security commitments, and as a nation we are staring at more than a $50 trillion hole -- an invisible mortgage of $450,000 for every American family.”

These concerns were being voiced before we began to consider spending an additional $4 Trillion on “stimulus measures” in the form of industry bailouts, interest rate cuts and spending measures. The currently debated stimulus package is supposed to be the new and improved version of the economic stimuli we have had over the last 11 months that add up to $1 Trillion. We keep spending hoping that we can maybe return to the heyday of 2006 when anyone could get a house for nothing, everyone was comfortable and consumers had their wallets open. The risks that came along with that environment have come to roost. Are we really trying to get back to those “good old days?”

American consumers have already gotten the message and begun tightening their belts. Personal consumption is down by 3.5% and savings rates have doubled year over year to 2% (the 60 year average is 7%). If only we could get government to follow suit. Sales tax and income tax will be down, but state and local governments tend to lag in dropping tax receipts so they are just now figuring out that spending like it’s 2006 won’t work. State governments from both parties are looking to the federal government for a rescue. It seems like we’re determined to treat an economic hangover with more liquor.

If over-leverage is what got us into this mess, then more spending and increasing leverage isn’t likely to be the long-term solution. Some of the stimulus might actually be worthwhile, but no one has the willpower to flow it in over time to see what actually works. What we are likely to be left at the end of it all is higher taxes, higher inflation, a weaker dollar and higher energy prices. The prevailing attitude seems to be, “As long as we get ours as the entitled society today, our progeny can figure all that out for themselves.”

The gift we have yet to open

In spite of the economic turmoil facing the world this Christmas, there are many blessings for which to be thankful. I remember Christmas when I was young and a sort of game my parents and grandparents used to play with us and with each other. On Christmas morning some gifts had to be reserved for last and invariably, they were always the best gifts; the biggest gifts; the gifts no one expected. Even as economies and governments stumble, we are reminded of a higher hope at Christmas that God’s plan has not failed despite our limited perspective of not having opened all the gifts.

God’s gift of His Son is in itself beyond our comprehension. That God would come to Earth as a baby is most difficult for our minds to conceptualize. That He would die to purify us from our sin is no less fantastic to our reason. That He would rise up from death is also an amazing gift of hope. These gifts foreshadow the gift that only Jesus could make possible through His willingness to sacrifice.

How often do we simply look at the packaging of the gift? It’s actually still somewhat politically correct to talk about Jesus as a baby, but the gift God gives us through His Son is so much more. The gift is a God who reaches out to us in the form of a servant; subjecting himself to the law He created so that in fulfilling the law and dying though blameless we might be able to open the greatest gift of an eternal relationship with God.

The gift of eternity in Heaven with Our Creator Father is the gift we look at under the tree and wonder what it holds while the giver smiles, knowing that it is beyond all we can ask or think.

Trampling Posterity

Who was Jdimytai Damour? He was a temporary worker in a Wal-Mart on Long Island, New York who was trampled to death by shoppers as he unlocked the door on “Black Friday.” His family must be in shock, that someone who showed up to work chasing the American dream was instead trampled by it.

In the current economy, it appears that the desperation of consumers to buy continues. Have we really become a group of people whose mindset is the ultimate in short-term? Have we really descended into a lack of manners in our conduct and an outlook of, “Have to have it now regardless of whom I have to trample to get it?”

We need look no further than government for the answer. Short-term thinking has ruled our nation from the highest levels. The attitude to often seems to be, “As long as I have my power, and as long as voters have what they want today, we’ll trample anything we have to, including the future financial stability of the nation to get it.” Legislative spending initiatives have grown at rates that no reasonable person could expect an economy to sustain. We have put our future at risk by avoiding the hard issue of reform of government-run entitlement systems of Social Security and Medicare/Medicaid which are threatened with insolvency. We have refused to balance our federal budget and continued to spend more than we make each year with no plan for repayment

The most recent example is the possibility of loaning money to automakers for the sole purpose of keeping people at work in a failed system. Thankfully, the U.S. Congress didn’t acquiesce at the auto executives’ first visit to Capitol Hill, but now the loans to a group of auto manufacturers who can’t seem to make money is being labeled as an economic stimulus. It is not economic stimulus to bailout the least efficient players in an industry. It would actually be a stimulus to give money to the successful companies and let the failed business models go by the wayside, but in either case the capital markets should make those decisions, not government.

A “loan” with no anticipated repayment is a “gift”. Our government seems to understand this well. If we aren’t able to repay our national debt, then why should we expect industries to be able to do so? Unfortunately, in the interest of providing gifts today, the future generations are likely to be trampled by the rush for short-term gratification of political interests.