What Does the Federal Government Actually Do?

Lovers of big government like to highlight police officers, teachers, fireman, roads and bridges, and even the TSA as evidence of the importance and value of government.  The problem with this is that the federal government spends very little on all of these things as a percentage of its total budget.  Many of these are paid for by state and local governments, and others are minor line items in the budget.  The federal government will spend approximately $3.6 trillion this year.  Approximately $2.0 trillion of that budget is made up of transfer payments, which means one taxpayer gives money to the federal government that it then give to someone else.  Approximately $750 billion of those transfers are for social security, a similar amount is for Medicare, Medicaid and other health programs, and $500 billion is for other aid to the poor.   The other big line items of the budget are defense (about $700 billion), and interest on debt we already have (about $250 billion).  This leaves only $600 billion of the $3.6 trillion deficit for other programs, and only some of that goes to any of those headline areas.  On education, the largest line item is $20.1 billion for “Accelerating Achievement and Ensuring Equity”.  The next largest is $14.3 billion for “Special Education”.   On transportation, the amount allocated to federal highways is $38.6 billion.  “Transportation Investments” are only $4.9 billion.  Regarding the TSA and airport security, the budget is $5.2 billion.  Regarding protection generally, law courts have a budget of $21.6 billion and prisons are $8.3 billion.  So let’s assume that all of these budgets go to the headline areas and are valuable, which is a generous assumption.  Even still, that adds up to $113 billion, or only approximately 3% of the federal budget.  Defenders of a big federal government can’t do it on the backs of the police, teachers, and firemen.

Top 3 Capitalist Candidates for President in 2016

This blog does not concern itself with social issues.  So a politician’s stance on gay marriage, abortion, gun control, prayer in school, etc. is not factored into any recommendation.  What is strongly considered is a candidate’s view of the appropriate size of the federal government, government regulation of business, and a candidate’s view of the importance of free markets, free enterprise, competition, personal responsibility, and individual liberty.  Finally, electability is also considered, as there is no point in recommending anyone who is either not interested in running or would have no chance of winning if they did.  So with that said, this blog’s current top 3 choices for 2016, in order, are: 1. Marco Rubio, 2. Rand Paul, and 3. Paul Ryan.  I have posted videos of Ryan and Rubio on this blog already, so below I post a recent one with Rand Paul talking about the budget (which I think is pretty fantastic).  I will periodically post a new top 3 if I think the rankings should change.

http://video.foxnews.com/v/2181286666001/ 

Barron's This Week

Krauthammer on the Sequester

http://www.washingtonpost.com/opinions/charles-krauthammer-call-obamas-sequester-bluff/2013/02/07/5f64a24e-7150-11e2-ac36-3d8d9dcaa2e2_story.html

Some Fiscal Cliff Observations

1. 1.  The success or failure of the agreement reached yesterday will be determined over the next two months.  Several prominent conservatives are upset about the deal because it only includes tax increases with no spending cuts.  But the spending cuts from the sequestration remain, just two months delayed.  So Republicans have the leverage from that and the upcoming debt ceiling to try to reduce spending.  I think it will be very difficult for the President to distract from that debate with talk of any more taxes, since he just got his bill on taxes signed.  Of course, Republicans may still drop the ball, but I am willing to wait to see what happens over the next two months before passing final judgment.
   
   
   2.  We just had the first defining moment of the Republican primary race for 2016.  Marco Rubio and Rand Paul voted against the fiscal cliff agreement, and Paul Ryan voted for it.  This may be a defining vote for the Republican nomination.  Since I am reserving judgment on the vote, I am not 100% sure who this helps or hurts, but I was definitely surprised that Ryan voted for it after Rubio and Paul both voted against it.
   
   
   3.  Democrats continue their dishonesty with the American people.  We have over $16 trillion in debt, significantly more in unfunded entitlements, and we have run annual deficits of over $1 trillion for every year of the Obama presidency.  Democrats, whether Obama or Reid or others, continue to sell this notion that somehow this can all be fixed without raising taxes on middle class Americans or cutting entitlements.  This is quite simply an outright lie.  The math does not work, not even close.  Republicans, whether you like their position or not, at least have taken a position.  They want to cut entitlements.  But whoever you are, you must make a decision, do you want to cut entitlements, or do you want to increase taxes on everyone, not just “the rich”.
   
   
   4.  All politicians come out of this looking terrible, whether Republican or Democrat.  Is there seriously a more dysfunctional group than politicians?  It took them until January 1st to get this done, when they had over a year of advanced notice.  And the bill is completely without courage.  No difficult decisions were made, and just for good measure, a bunch of additional pork was added to the bill.  Boehner looked ridiculous with his “Plan B” efforts, and as for Democrats, see point #3.  Why anyone wants to trust these bozos with our money is beyond me.
   
   
   
   
    

Fiscal Cliff

Another fabulous article from George Will.  This excerpt alone makes it a gem: 

"Liberals’ strenuous objection to vouchers is that vouchers, as the functional equivalent of cash, empower individuals to make choices. It is the business of the liberals’ administrative state, staffed by experts, to make choices for inexpert individuals."

http://www.washingtonpost.com/opinions/george-will-a-cliff-of-democrats-choosing/2012/11/28/0320513c-38ce-11e2-8a97-363b0f9a0ab3_story.html

A Compromise Solution to the Fiscal Cliff

Here is my take on what a good compromise solution to the fiscal cliff might look like:

• Increase the top rate to 39.6% for incomes above $600,000, not $250,000 as the President wants, and keep other income tax rates as they are.
• But also add a cap to total deductions, say at $40,000, for all income groups.
• Replace the Alternative Minimum Tax with a simple schedule, with perhaps a minimum tax rate of 5% for the first $100,000 and 18% for every dollar above $100,000.
• Means test Social Security, so the wealthiest get less.
• Modestly reduce annual cost of living adjustments for Social Security (perhaps by 0.5% per year using a different index).
• Keep Dividend and Capital Gains taxes where they are.
• Allow Payroll Taxes to go back to previous levels.
• Instill a maximum of 12 months total for Unemployment Insurance, effective in 3 months.
• Allow forced spending cuts on the military and discretionary spending, but at only 1/4 the amount in the upcoming sequester.
• Place a cap on future increases in discretionary spending at 1% less than inflation.
• In a separate bill, promise an up or down vote in the Senate and House on a Medicare block grant solution (to be written later by the House).