We’ve directed a lot of attention to the deficiencies of the House version of the highway bill ( here and here ). We must also work to defeat the Senate version, which is even worse. The 2-year $109 billion Senate bill ( S.1813 ) offers no reform to mass transit and continues to mandate that states use 10% of their funding for wasteful “enhancement projects.” As bad as the House bill is for conservatives, the Senate bill is absolutely indefensible. Yet, amazingly, it was reported out of the Senate Environment and Public Works Committee with unanimous support from Republican members last year. Last night, it was approved by the Finance Committee. The Senate bill will spawn even larger deficits in the long-run. Even for the two-year authorization period of the bill, there will be a $35 billion deficit between trust fund outlays and gas tax revenue. Both the House and Senate versions rely on drawing down all existing funds in the trust fund to cover some of the gap ( to the extent that those funds really exist outside of an accounting gimmick). However, there will still be a $13 billion shortfall over the next two years (and much more in the long-term). The House bill relies on new royalties from oil exploration (that will never be approved by Democrats), but the Senate bill relies on phantom savings (from revenues that are already used to offset other expenditures) plus…you guessed it; tax increases. After the EPW committee approved the underlying provisions of the bill, the Senate Finance Committee voted last night to approve $7 billion in sundry tax increases to fund this terrible bill. One of those provisions includes a tax hike on inherited “stretched” IRAs and 401(k)s. Here are the details from the horse’s mouth ( Baucus Chairman’s Mark ). Require Distributions of Inherited IRAs within 5 years . Under current law, holders of IRAs and 401(k)-type accounts are required to begin taking taxable distributions from those accounts once they reach age 70-1/2. However, they can stretch those distributions over many years if they leave their account to a very young beneficiary. When the account holder dies, the taxation of the account is then spread over the life of the beneficiary. The Chairman’s Modification would require the retirement savings accounts to be treated, for tax purposes, as distributed within five years of the death of the account holder, unless the beneficiary is the account holder’s age, a child with special needs or older than 70. This provision is estimated to raise $4.648 billion over ten years. Hence, if someone bequeaths a retirement savings account to his grandchild, the beneficiary will have to liquidate the fund within 5 years and pay full taxes on the distributions. This applies irrespective of how young the grandchild would be at the time of the grandparent’s death. This ridiculous bill also transfers some revenue on tariffs from imported cars to plug the hole in the trust fund. The problem is that this revenue is already accounted for and is used for other purposes. This bill merely spread the same money around and uses the savings for multiple expenditures; not unlike the effort to use “war savings” as pay-fors. The committee report passed with 17 ayes, 6 nays, and 1 present vote . Here is the breakdown of the vote: Ayes: Baucus, Rockefeller, Conrad (proxy), Bingaman, Kerry (proxy), Wyden, Schumer, Stabenow, Cantwell, Nelson, Menendez, Carper, Cardin, Snowe, Crapo (proxy), Roberts (proxy), Thune Nays: Hatch, Grassley (proxy), Enzi, Cornyn (proxy), Coburn (proxy), Burr (proxy) Present : Kyl (proxy) Snowe, Crap, Roberts, and Thune were the 4 Republicans who voted for this travesty. The full Senate will vote for cloture on the tax hiking, deficit-spending highway bill on Thursday afternoon. We must defeat both bills, especially the Senate version. Nevertheless, the House bill is almost as offensive. Once we agree to the premise that we must overspend the level of gas tax revenue purveying the trust fund, we will always be exposed to future tax increases and bailouts to bridge the gap. Call your Senators and tell them to vote no on cloture for S.1813 – the highway bill with tax increases. Cross-posted from The Madison Project [ Follow @RMConservative ]
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Alert: Senate Republicans Vote to Raise Taxes With Highway Bill
Here we go again. Republicans talk incessantly about the need to cut the deficit, yet they are once again proposing a policy that will actually augment the deficit. On March 31, authorization for transportation spending, along with its accompanying revenue source – the federal gasoline tax – is set to expire. Republicans in the House and a bipartisan group in the Senate have introduced dueling proposals to fund long-term transportation projects, in lieu of the short-term bills that have been enacted since 2007. Unfortunately, the Republican House bill is not much better than the Senate bill. One need not be a staunch conservative to appreciate how inane it is to collect gasoline taxes from all 50 states into one pool, only to be doled out randomly for every state’s personal transportation project. Ever since the Interstate Highway System was completed almost 20 years ago, there has been no rational purpose for the current top-down federal control over transportation. Successive congresses have diverted as much as 38% of the gas tax revenue to mass transit projects and wasteful endeavors for specific states. The net result is that some states are donors (contribute more), while other states are recipients (receive more in funding than they contribute). We need to abolish the federal gas tax, and devolve all responsibility and taxes for transportation projects to the states. The two bills percolating through Congress will double down on failed policies, add to the debt, perpetuate inefficiencies in highway construction, continue to encumber traffic, and preclude any devolution of responsibility to the states. The Senate bill, S. 1813 , funds transportation at $109 billion over two-years, $54.5 billion per year. The House bill, despite accolades from Republican leadership, is only slightly smaller than the Senate version. The House bill, HR 7 , will authorize $260 billion over 5 years, $52 billion per year. Both bills continue to divert about 20% of the gas tax revenue to fund liberal mass transit projects. But here’s the kicker: according to CBO, the Highway Trust Fund will only take in $187 billion in revenue over 5 years. Both bills rely on using all unspent funds in the trust fund, totaling about $20 billion. We will still incur a $30-50 billion deficit over 5 years, and at least $136 billion over 10 years. Remember we already bailout out the trust fund in 2008 with general fund revenues to the tune of $35 billion. But, fear not, Republicans plan to attach three bills authorizing drilling in ANWR, offshore, and in the western states. They pledge to use the revenue from the royalties to offset the deficit engendered by general fund transfers to the Highway Trust Fund. The problem is that these proposals are dead on arrival with the Democrats. Once we agree to the premise of higher transportation spending, and the Democrats jettison the drilling royalties, we will be left with a deficit once again. This position mirrors the cycle of capitulation with the budget bills. Democrats propose some profligate legislative budget bill. Conservatives advocate that we uproot the entire premise by drawing a line in the sand on the principles that got us elected. Republican leaders eschew conservative principles and acquiesce to the premise that the Democrat budget is a priority too big to fail. They telegraph the message to Democrats that they will never let the budget bill fail, but promise to make them pay for it with reforms or other spending offsets. Democrats balk at the offsets. Finally, we are left agreeing to the spending without the offsets. Moreover, if we run a perennial deficit in the trust fund, we will be permanently exposed to future hikes in the gas tax. The Chamber of Commerce and Big Labor are already joining in an unholy alliance to support a gas tax hike. We must defeat the 847-page highway bill , and call upon Congress to devolve transportation authority to the states . At the very least, they should stick with the original House proposal to peg the cost of transportation spending to revenues from the gas tax. Why are we negotiating with ourselves again? Cross-posted from The Madison Project
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Defeat The Highway Bill
It’s another week in the Senate, and there’s another battle over earmarks. Senators Toomey and McCaskill are proposing an amendment to the STOCK Act (“insider trading bill”S. 2038) to permanently ban earmarks in the Senate. Not surprisingly, there is pushback from Harry Reid…and a number of Republicans as well. As always, there are those who argue that earmarks are just inconsequential “drop in the bucket” expenditures; that we must focus on more impactful issues. This from Senator Cornyn : He continued, “I wish we would focus on what the American people are most concerned about rather than some of these other issues that have their importance but are tangential to the main issues we ought to be focused on.” “I think we ought to [instead] be looking at other ways to … address people’s concerns about jobs and the debt,” Cornyn said. Yes, there are more pressing issues, but we can walk and chew gum at the same time. We can spend a half hour voting on one amendment to scrub earmarks from the Senate once and for all. Moreover, it is precisely because eliminating earmarks is such an easy, low-hanging fruit that we should deal with it immediately. If senators are unwilling to relinquish millions in pork projects, how will they have the courage to cut billions from welfare programs and reform entitlements? There are also the usual suspects who hold earmarks to be a moral and constitutional responsibility. “It’s just stupid, it’s childish, it’s demagoguery,” Sen. James Inhofe (R-Okla.) said. “There is not a lot of courage in our conference [on the issue.] They all know better. They all know by banning earmarks … they are just giving the authority to the president. But they are afraid of it because people don’t understand the issue out there.” “We have an obligation as Members of Congress to fulfill our Constitutional duty. One of those duties is to make sure that we do Congressionally directed spending. I object and do not believe that all these decisions should be made at the White House,” Reid said. Then there’s this gem from the esteemed Majority Leader : “I’ve done earmarks all my career, and I’m happy I’ve done earmarks all my career. They’ve helped my state and they’ve helped different projects around the country.” Toomey’s amendment would permanently ban all earmarks, defined as any congressionally directed spending item, limited tax benefit, or limited tariff benefit. It would also create a point of order against any legislation containing an earmark, requiring a two-thirds vote to waive the point of order. If this is really such a small issue, then we should bury it this week – once and for all. Find out if your senator is supporting the bipartisan amendment to ban earmarks. Cross-posted from The Madison Project
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The Earmarxists are Back
“The rosy predictions for revenues and reduced healthcare spending can come to fruition, but not with the current socialist policies as the baseline.” The budget season has officially commenced today with CBO’s release of its annual budget and economic outlook. Here are some of the major takeaways from the report: FY 2012 Budget The topline figure that the media will focus on is the projected $1.070 trillion budget deficit for FY 2012, down from $1.3 trillion last year. However, as CBO notes several times throughout the report, the reduction in this year’s deficit is predicated on several assumptions. 1) Revenues : The entirety of this year’s deficit reduction comes from higher projected revenues, roughly $220 billion. CBO is forced to score current law, which assumes that the payroll tax cut will expire at the end of February. Another 10-month extension, which is almost a forgone conclusion, would cost over $100 billion. Also, the CBO baseline does not include a likely AMT patch, and extension of many annual “tax extenders,” such as the credit for research and development. It’s very likely that the extensions will wipe out the entire revenue gain from this year over 2011, thereby eliminating the reduction in the deficit. 2) Outlays : CBO is projecting $3.601 trillion in spending, up just $3 billion from last year. Obviously, this projection does not account for a full-year extension of unemployment benefits and doc fix, which could add as much as $70 billion to this year’s spending total. 3) Defense : Outlays for defense will be reduced by another $20 billion. When these factors are accounted for, it is clear that non-defense discretionary spending will not decrease significantly, while mandatory spending will continue to rise. If you assume the alternative scenario, in which most of the temporary tax and spending measures are extended, the deficit should be about the same as last year; around $1.3 trillion. In other words, there will be slightly more revenue this year, but increased spending as well. 10-Year Budget Frame: 2013-2022: Over the next 10 years, CBO is projecting $41.179 trillion in spending and $44.251 trillion in revenue, for a deficit of $3.072 trillion. The $3 trillion figure is a real lowball estimate of our projected debt for several reasons. Under that scenario, our annual deficits would dip to $450 billion in just two years, and stay below $400 billion indefinitely. They are assuming rosy pictures of revenue increases, along with the expiration of the Bush tax cuts. Furthermore, CBO notes, that Medicare and Medicaid spending have always increased above expectations, and with Obamacare taking effect, the real cost of healthcare spending will blow out the budget deficits – way beyond $3 trillion. Another important long-term factor is interest on the debt. At present, interest rates are at historic lows, but they will eventually revert back to their historic norms. That could add several trillion more to the 10-year deficit. The rosy predictions for revenues and reduced healthcare spending can come to fruition, but not with the current socialist policies as the baseline. Economic Outlook CBO is projecting more stagnation for the next few years. For 2012, they are seeing 2% GDP growth and 8.9% unemployment. For 2013, they are projecting a pullback to just 1.1% growth and a spike in unemployment to 9.2%. With these bleak economic figures, it’s hard to envision a scenario in which revenues increase substantially and spending on welfare programs decline (as projected by the report). How can revenues go from 16% of GDP to 20% in just two years, even without the extension of tax cut provisions? Then again, it’s all a moot point. Budget deficits tend to be much higher than the figures projected in CBO reports, in part, due to some of the aforementioned factors. Social Security Social Security is, by far, the largest expenditure for the foreseeable future. This year, SS outlays will top $770 billion, accounting for 21.3% of the entire federal budget for FY 2012. From 2013-2022, SS spending will top $10.5 trillion, almost 24% of the budget. On the revenue side, Social Security taxes will only rise $627 billion this year and $8.9 trillion over 10 years. Once again, this projection does not factor in any future payroll tax cuts. Another noteworthy point is that the Social Security Disability Insurance trust fund will be exhausted in 2016. Remember that the Social Security Trust Fund is a notional accounting gimmick and is nonexistent. Consequently, every penny of SS benefits that is not covered from the payroll tax will augment our deficit. The real question is why one quarter of the budget is consumed by a program that should be controlled by the individual. Why are we bankrupting our future for a program that offers a worse rate of return than private accounts, which would not cost the government and future generations of Americans a penny? Medicare Gross Medicare spending, the second largest domestic spending program, will reach $560 billion this year and $7.8 trillion over 10 years. Net Medicare spending (subtracting $1.2 trillion in offsetting revenues from premium payments from seniors) will be about $6.55 trillion. This year’s outlays would have been higher if not for a shift in certain payments from fiscal year 2012 into fiscal year 2011 because the first scheduled date for payments to health plans in 2012 fell on a weekend. Revenues from the Medicare payroll tax will only bring in roughly $2.8 trillion – and that is including the payroll tax increases under Obamacare. As such, the Medicare hospital insurance trust fund, which is funded by payroll taxes, will be exhausted in 2022. Now that it is incontrovertibly clear that government has failed at controlling healthcare and retirement costs, is it too much to ask that we allow personal ownership and the free-market to get a bite at the apple? Liberals always complain that seniors will be left to their own devices under our policies. Judging by the future debt figures, I think we would all rather be on our own, as opposed to shouldering the burden of crushing debt payments. Cross-posted to The Madison Project
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CBO’s Budget Report: Perennial Debt for Generations
In his diaries, Ronald Reagan wrote that Newt Gingrich “would cripple our defense program .” Elliott Abrams, key Reagan lieutenant on defense and foreign policy, writes that “Gingrich was voluble and certain in predicting that Reagan’s policies would fail, and in all of this he was dead wrong .” (Gingrich did, however, propose to bust the budget by increasing the spending at the State Department — not exactly a bastion of conservatism — by an astonishing 50 percent!) Of course, Gingrich’s anti-Reaganism was nothing new. Back in 1968 he had helped run the southern effort in favor of Nelson Rockefeller to block Reagan’s late bid for the GOP nomination.
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Gingrich the Defense Weakling
