Equal Pay for Equal Work?

We hear a lot of talk about the fact that women on average make less than men.  That brings out calls by Democrats for new legislation.  And it's used to portray Republicans as anti-woman when they oppose the legislation.  To really understand the topic, you have to look past national averages.

Equal Work:  By the very nature of national averages you don't get results that reflect equal work.  Look to most any school and you'll find more female teachers than male teachers.  Look to a construction site and you're likely to see more men than women.  Look to any hospital and you're likely to find more male doctors than female and more female nurses than male.  Look to the NFL and MLB and you find more males than females (especially since they're exclusively male.)
So to get an accurate reflection on pay statistics based on equal work you need to look to a particular profession, say physicians.  But even that doesn't give you "equal work" results.  The last time I worked in a hospital female physicians were more likely to be primary care doctors while specialties like surgery were more likely to be filled by males.  Should a pediatrician and a surgeon be paid the same?

Should there be any allowances made for why someone doing equal work might be paid less?  Let's take the case of basketball players.  We have professional women's and men's basketball leagues.  They both play basketball, a competitive game for a season.  Should the women be paid the same as the men?  If the case for Equal Pay for Equal Work demands it in any case, it would seem to be most applicable in the case of professional basketball.  However other factors create an environment where the pay differential between the two leagues is HUGE!

So how do you measure "equal work" with national level statistics?  You can't.

Equal Pay:  It's currently against the law to pay men and women unequally for the same job.  We no longer have different pay scales for women and men.  So the question really isn't related to that issue, there are already laws that apply.  The real issue is how do you set a value for differing types of jobs since there is a natural tendency for females and males to gravitate towards different work.

I came from a family with six children, five females and one male.  I gravitated towards a degree in accounting, became a CPA and served most of my career in senior management positions.  Four of my sisters became teachers.  Each got a masters degree in education and were good teachers.  How do you value their "work" verses the "work" I did.  Since none of us were paid by the hour, did we work the same number of hours a year?  Should we have gotten equal pay per hour or equal pay per year?  To ensure "Equal Pay for Equal Work" on a national average you have to ignore hours worked in salaried jobs and assign all work, regardless of what is involved, equal pay.  Until that happens there will be an "Equal Pay for Equal Work" issue.

It's just one more way Democrats attempt to maintain an advantage in the women's vote.

NC Senate Debate (10/7/14): Questions Sen. Hagan Should Have Been Asked

Sen. Kay Hagan and Speaker Thom Tillis debated on a variety of subjects, many of which they would have little control over as a Senator.  But some of the most important topics never came up.  Topics like Budget Deficits, National Debt and Social Security.  For a Republican to leave them on the table is like leaving your best players on the sidelines in your state championship football game.

- Sen. Hagan took office in 2009 and has watched Majority Leader Harry Reid violate law by refusing to pass a budget in the Senate.  What is Sen. Hagan's position on her party leader's refusing to pass budgets?

http://washingtonexaminer.com/with-elections-looming-and-debt-rising-senate-democrats-wont-put-out-fiscal-2015-budget/article/2544889

- Sen. Hagan took office in 2009 when the National Debt had just exceeded $10 trillion.  By the end of December it will exceed $18 trillion.  Yet according to the 2014 National Journal Almanac of American Politics (page 1239) Sen. Hagan voted "No" in the 112th Session on a Balanced Budget Amendment bill.  (As did every other Democrat.)  $8 trillion in additional debt adds between $400 billion and $480 billion per year in additional Interest Outlays at normal interest rates.  What is Sen. Hagan's position on rapidly increasing debt, interest outlays and a Balanced Budget Amendment?

- Each year since Sen. Hagan took office the Social Security Trustees have urged Congress to act in a timely manner in passing reforms to the program.  They've included that urging in the conclusion section of their annual Trustee Trust Fund report every year beginning in at least 2005.  Yet Senate Majority Leader Harry Reid is on record saying he won't allow the Senate to consider reforms until 2031 (2011 + 20 years).  With the WH OMB's projections for the next 10 years showing that Social Security Outlays will exceed Social Security Payroll Tax Receipts by $2.1 trillion, what is Sen. Hagan's position on Social Security reforms and how would she keep it solvent for future years?

http://www.thefiscaltimes.com/Articles/2011/03/28/Hands-Off-Social-Security-Harry-Reid
http://www.ssa.gov/oact/tr/2014/index.html
http://www.ssa.gov/oact/tr/2005/index.html

Aren't these the questions that Sen. Hagan should be asked to answer in their third debate?  But I won't hold my breath waiting for that to happen.

"If it's not broken, don't fix it."

I was listening to my local radio station which carries news by Fox News.  They had a piece on the LA Senate race with comments from two voters.  One of them said he had made up his mind and his decision was based on the saying "If it's not broken, don't fix it."  That seems to mean he thinks two things:

1. That he has a Senator who is voting on his behalf.
2. He will be supporting Sen. Landrieu.

After hearing that, I couldn't help but wonder what it would take for him to think things were broken? I also wondered what kind of race the Republicans are running.  After all, just a few of the things that someone might think are broken include:

- The national debt is approaching $18 trillion and there is no sign of a balanced budget coming soon.
- Senate Democrats refused to pass a Balanced Budget Amendment in the 112th session.
- The Social Security Disability Trust Fund is scheduled to run out of money in 2016.
- Democrats are waging a "war" on fossil fuels.
- Obamacare has driven up the cost of healthcare for millions of families.
- Millions of more families were kicked off their health insurance plans after Obamacare took effect.

While this is just a small list of the things that are "broken", it seems like there is enough there to make anyone wonder.  Senate Democrats haven't been helping solve these problems. 

So voting for a Democrat for the Senate won't help, no matter how nice they are or how conservative they act.

I wish I could have a few minutes of that voter's time to share some thoughts on this with him!

Three Important Facts for the 2014 Elections

The 2014 elections are nearly on us and three of the most important topics have hardly been covered. At least not in a way that voters can tell who to vote for.

Using the WH OMB Historical Table 1.1 we find we've only had five budget surpluses since 1965. Matching those results with who controlled the House when the budget was passed we find the last time Congressional Democrats were responsible for a surplus was 1969. Our National Debt was only $367 billion at the end of 1969! They've been responsible for 30 of the last 45 budgets, all finishing with deficits. And they continue to fight attempts to bring deficits under control while calling for more spending!

With our National Debt well on the way to $18 trillion, how do voters decide who to vote for? Looking at the how Senators have voted on a Balanced Budget Amendment would help. Senators had the opportunity to vote for one in the 112th session of Congress. Using the NJ Almanac of American Politics as my source, I found that every Democrat Senator voted against it and every Republican Senator voted for it. There just weren't enough Republicans or it would have already gone to the states for ratification.

Since at least 2005 the Social Security Trust Fund trustees have been warning us that Congress needs to act in a timely manner in passing reforms. Democrats stopped reforms from being enacted back in 2005 and again in 2011. Sen. Harry Reid is on record saying that he won't allow reforms to be considered until 2031, just two years before the trust funds run out of money. So as long as Democrats control the Senate and Sen. Reid is their leader, Social Security reforms won’t be passed.

So Democrats have a terrible record in regards to deficit spending, they rejected a Balanced Budget Amendment and they aren't willing to consider reforms to Social Security despite the fact they are desperately needed.
Knowing that makes your decision pretty easy to make, doesn't it?

No Eyes on the Real Crisis?

Have you noticed how no one in Washington or the media has paid any attention to the real crisis lately.  That's the fiscal crisis that our Nation faces.  All the attention is on ISIS, Immigration and Ferguson.  All those are important, but they are meaningless unless we very quickly fix our budget crisis and the crisis in Social Security.

 

Budget Crisis:

We've seen the WH OMB MS, the CBO update and the Social Security Trustee Trust Fund Report all came and went with little attention.  Was there anything worth noting in them?

 

WH OMB Mid Session Review:

When comparing the MSR to the original 2015 Budget we see an increase in the 10 year deficit projections of $594 billion.  That's a pretty sizable increase in just 6 months.  A close look at the summary categories shows Outlays down by $167 billion and Receipts down $761 billion.  So the economy is slowing causing tax receipts to drop sharply, accounting for all but $3 billion of the total.  The drop in Outlays is accounted for by a $180 billion reduction in the projection for Net Interest Outlays and a decrease Defense Outlays offsetting a $39 billion in Appropriated - Non Defense.  What accounts for the drop in Net Interest Outlays?  They're now using 4.8% for the maximum 10 Year Treasuries instead of $5.1 in the 2015 Budget.  Have we really seen the 10 year environment change that much or did they change the assumption for purely political reasons so they wouldn't show such a huge increase in the projected 10 deficit.  I think you know which I would vote for.  Both the Public and Gross debt are projected at over $500 billion more in the 2015 MSR.

 

CBO Review:

The Baseline analysis update shows an even more gloomy picture with a 10 year projected deficit of $7.2 trillion, $1.7 higher than the WH OMB MSR.  The big differences are $1.1 less in Outlays, but also a huge $2.8 billion less in Receipts.  Since the CBO is based on current law, the difference in large part reflects proposed tax receipt increases of $1.9 trillion!

But what is scariest about their update is they put out an Alternative Scenario. Since they call it that, no one pays attention to it.  But they should since I call it the realistic since its based on the assumption that Congress will continue its practices.  The biggest one involves the "doctor fix".  Since law requires a reduction in payments to physicians if the total physician reimbursement under Medicare goes up more than inflation.  There is just one problem.  Each year Congress passes the doctor fix FOR THE COMING YEAR!  That means they don't have to make the required cuts in that year, but the projections assume they will in the following year and each year after.  But they never have allowed the cut to take place and now the required cut is ~30%.  So the last 9 years have the cut in it though they have never allowed it to go into affect?  The CBO Alternative Scenario shows a projection `10 deficit of over $9 trillion and that is using lower than can really be expected interest rate assumption values!  If they used realistic one's and Congress' actual practices the projected deficits would be closer to $12 trillion or an average of more than $1 trillion per year.

 

As is their practice, the CBO does not show Gross (or Total Debt) but rather only Public Debt!

 

So while Democrats talk about the low deficit (~$500 billion) and the media loses interest in covering the topic, the projections are taking a serious turn for the worse!

 

Of course the real problem with fixing our Nation's deficits is clearly shown on Schedules 11.1, 11.2 and 11.3 of the Historical Tables.  They show that "Payments for Individuals" reached 69% of our Nation's Outlays in 2013 up from the previous high of only 66%.  Not that long ago (2005) it was 60% and back in 1970 it was only 33%.  Pretty easier to see that we are bankrupting ourselves by letting Congress buy votes with benefits!

 

Social Security:

The WH OMB MSR updated the projected shortfall of SS Payroll Taxes shortage compared to the SS Outlays.  Just to remind you in the 2010 Budget the shortfall was $200 billion.  By the 2015 Budget it had grown to $2 trillion.  And the 2015 MSR is now projecting it at $2.1 trillion.  It's been a steady growth in the shortfall and one the Department of Treasury told me I should expect to see continue until Congress tackles and passes reforms.  The problem will come to a head in 2015 as the Disability Trust Fund is projected to run out of funds in 2016, just two short years from now!  some fix will be needed or benefits will be cut.  But Sen. Reid is on record that he won't act on legislation to reform SS until at least 2031, just 2 years before the combined funds are due to run out of funds.

 

Wake up America!

The Nation's Real Crisis

The summer updates to the Federal Budget are out and once again it looks like the WH OMB is playing games to keep from admitting the real status of our Federal budget.

2015 MSR vs 2015 Budget:

The WH OMB's MSR showed an increase in the 10 year projected deficits of $594 billion ($$5,524 vs $4,930).  That's not good news, but the news gets worse when you look at the details.

First, the increased deficit comes from a combination of lower Receipts ($761 billion) and lower Outlays ($167 billion).  The lower Receipts is spread among the three tax categories reflecting slower economic growth and personal incomes.  This follows recent news.  The decrease in Outlays is more than accounted for by a decrease in Net Interest Outlays ($180 billion) offset by an increase in Non-Defense Appropriated ($39 billion). 

Unfortunately it appears the WH OMB is back to playing games with the economic assumptions to achieve the savings.  They have decreased the maximum interest rate assumptions for both the 10 Year and 91 Day Treasuries.  The 10 Year rate was decreased from 5.1% in the 2015 Budget to 4.8% in the 2015 MSR.  Since 1961 (last 52 years) there have only been 17 years in which the 10 Yr Treasury averaged under 5% for the year.  5 of those years occurred in the early 1960's and the remaining 12 occurred since 2001.  Not one year in between (34 years) averaged 4.8% or lower.  In fact the average for those years was 7.9%.  Taking out the extremely low and high years the average since 1961 would be between 6.5% and 7.0%.  So how do those in Washington think 10 year Treasuries won't exceed 4.8% in the next 10 years when it was never that low from 1967 - 2001?  (The same problem exists with the inflation assumption values!)  When you use higher interest rate assumption values, the Interest Outlay projections increase significantly because of our high levels of debt.

 

2015 MSR vs CBO August Update:

The CBO put out an update to their Baseline estimates that is quite different from the 2015 MSR projections.  The 10 year deficits for the two are $7.196 billion (CBO) and $5,524 (WH OMB MSR).  The CBO projections have $1.1 less in Outlays, but $2.8 trillion less in Receipts.  So the WH is counting on significantly higher tax revenues to offset somewhat higher spending?

 

CBO Alternative Scenario:

The CBO put out an "alternative scenario" in which they projected what the 10 deficits would be if Congress followed their past actions, rather than what current law requires.  (I would call that scenario the REALISTIC SCENARIO.)  That scenario shows projected deficits for the next 10 years of over $9 trillion!

 

"Debt to GDP" and Others:

Washington continues to attempt to fool the world regarding its fiscal crisis.  The WH OMB, CBO and CRFB all quote that our debt to GDP level is currently ~73%.  That's the level of Public Debt to GDP and totally ignores the debt owed to the trust funds.  They also talk about the debt being at post WWII levels.  However following WWII, 90% of our total debt was Public Debt while at the end of 2013 only 71.6% of our debt was "Public" debt.  The Federal Government has used the trust funds to finance a much greater portion of its spending that it had at the end of WWII.

 

Finally, the WH OMB continues to include meaningless ratios in their presentation.  Just how meaningless?  If I told you that they show a deficit of only $128 billion over the next ten years you'd be confused AND MISLED!  But that's what they did when they included the ratio labeled "Primary Deficit".  They've began including that ratio in their summary presentations in the 2012 Budget projections.  It  had become clear they had no intention of eliminating the deficit, so they began using a ratio that would do it for them.  The "primary deficit" eliminates the Net Interest Outlays from the calculation.  This is important as Net Interest Outlays are ready to increase dramatically in future years exploding the size of our deficits.  Coming up with a ratio that takes Net Interest Outlays out of the picture takes the focus off of the real crisis, the size of our debt!

Unfortunately the Illegal Immigrant, ISIS and  Ferguson, MO crisis have taken the Nation's focus off of our pending financial crisis.  That makes it easy for all politicians, both Democrat and Republican!

Mystery of the Missing Social Security Trustee Report

Laws governing the Social Security program and Trust Funds require the trustees to release a report on the status of the Trust Funds.  It’s supposed to be released by March 31^st of the year following the period being reported on.  So the 2014 Trustee Report was due to be released March 31^st, 2014 covering 2013.  But it wasn’t released on time.  And it wasn’t released in April or May.  And as of June 29^th, it still hadn’t been released.

Why is it important for the report to be released in a timely manner?  Any changes that might be indicated could be considered during the current year’s budget cycle. 

Beginning with at least the 2005 report, the Trustees have been urging “The projected trust fund (future) deficits should be addressed in a timely manner to allow for a gradual phasing in of the necessary changes and to provide advance notice to workers.  The sooner adjustments are made the smaller and less abrupt they will have to be.”  Source: 2005 Trustee Report

But one party has been standing in the way of those meaningful reforms.  That party won’t even recognize that there is a problem, let alone work towards a solution.  With Democrat Sen. Harry Reid acting as the Majority Leader in the Senate, he issued the following claims while holding a “Hands Off Social Security” rally.

‘“Social Security has not contributed one penny to the debt or the deficit.”
“It’s in great shape for the next many decades.”
“ Let’s worry about Social Security when it’s a problem – today it’s not a problem.”’

"Reid’s remarks on MSNBC last week that he would only be open to changing Social Security in 20 years.”
Source: March 28, 2011; The Fiscal Times; article by Michelle Hirsch

The 2014 Trustee Report included some concerning information.  The Social Security Disability Trust Fund was expected to run out of funds in 2016.  All the Social Security Trust Funds were projected to run out of funds by 2033.  By themselves those are alarming, but a look back to the 2005 report showed the projection was for the trust funds to last till 2041.  So in just eight years of time, the timeframe for the trust funds to run out of money has gotten sixteen years closer.  Will that trend continue in the 2014 report?

Another source for alarming news about Social Security is the WH OMB budget projections.  In President Obama’s 2010 Budget Social Security Outlays were projected to exceed Social Security Payroll Tax Receipts by $200 billion over the ten year projections.  In the 2015 Budget the shortfall was projected to be $2 trillion.  So as the Senate Democrats hold up any meaningful reforms and as President Obama’s administration fails to put forth any recommendations, the day that Social Security will run out of funds gets much closer.

Possibly this helps explain why the Social Security Trustees haven’t issued their mandated Trustee report on the Trust Funds in what looks like an already tough election year for Congressional Democrats.  It’s reasonable to project the timeframe for the trust funds to run out of money will be even sooner than in the last report.

It’s time for us to demand the trust fund report be released.

The Disappearance of Proposition 2

Here in Ohio the Democrats and media are “hammering” Gov. Kasich and the Republicans for the cuts in the Local Government Funds that they passed in 2011.  It’s becoming a major campaign issue as even many local Republican mayors and council members are asking for the cuts to be restored.  Will it have an impact on the 2014 elections?  It’s beginning to look like it will.  And all the while, Republicans hardly offer a defense.

So let’s look back at 2011.  Ohio was facing an $8 billion dollar deficit.  Ohio towns and cities were finding themselves saddled with huge employee benefit expenses.  And cities and towns were on their own until the hole they were in would qualify under the “Emergency” definition.  It was only at that point that the State Auditor’s office could step in to help.

So the legislation took action at the behest of Gov. Kasich.  They addressed the issues in three ways:

1.      They cut the Local Government Fund payments to towns and cities (helped reduce the states deficit)

2.      They passed legislation (Senate Bill 5) giving cities and towns more control over their employee’s benefits costs (designed to help them deal with the cuts in funding)

3.      They added monitoring for “fiscal caution” status to the State Auditor’s office (giving it greater ability to help towns and cities who were having issues)

This looked like a good set of solutions to the issues that both were facing.  But that’s not where things stopped.

In 2012 Ohio’s public unions worked with Democrats in an attempt to repeal Senate Bill 5. They got a proposition on the ballot and conducted a campaign to convince voters to vote in favor of repealing Senate Bill 5.  Their main message was that Police and Fire staffing levels would be cut if Senate Bill 5 wasn’t repealed.  Voters took the bait and Proposition 2 was passed by a large majority.

But that left Ohio’s towns and cities with cuts to the Local Government Funds, but without the added flexibility to deal with the lost revenue that came with Senate Bill 5.  As a result, cities and towns have had to cut services, including in some cases Police and Fire protection.

So now the very same individuals who pushed for repeal of Senate Bill 5 are blaming the Republicans for the impact that their proposition caused.  And cities and towns are left with growing employee benefit costs that are well out of line with what the private sector would pay.

Unfortunately Republicans are so scared of the term “Senate Bill 5” that they refuse to tell citizens the truth.  It looks like November elections in Ohio will be much more interesting than they need to be. 

This may just be a case of Ohio Republicans snatching defeat from the jaws of victory!

 

The World’s Biggest Ponzi Scheme

Ponzi Scheme: “A Ponzi scheme is a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned by the operator.”  Source: Wikipedia

http://en.wikipedia.org/wiki/Ponzi_scheme

Liberals are upset if you call Social Security a “ponzi scheme”.  But what do you call a program where individuals are “encouraged” to contribute and the returns aren’t based on investment principles and market returns.  If you want to see an extreme historic example of that in action check out Ida May Fuller.  She was the first official recipient of Social Security (Old Age) benefits.

http://en.wikipedia.org/wiki/Ida_May_Fuller

According to the article, Ida contributed $24.75 into Social Security over 3 years prior to retiring.  She received benefits from 1939 until her death in 1975 (age 100).  Over that period of time she received $22,888.92 in benefits. 

 The Social Security Act was passed into law in 1935 at a time when there were 322 Democrats and 103 Republicans in the House of Representatives and 69 Democrats and 25 Republicans in the Senate.  From 1935 until 1982 Democrats controlled the House of Representatives in all but one term (average majority of 83 seats) and the Senate in all but two terms (average majority of 21 seats).  So the fate and future of the Social Security program was firmly in the hands of the Democrats.

Democrats have proudly proclaimed that Social Security was a “Pay As You Go” program.  That meant that current workers contributions were used to pay current retirees.  This seemed to work fine until 1982.  That year the Social Security Trust Fund balance dropped to only $12.5 billion or $112 for each individual contributing to the program that year.  Many of those workers had been contributing for their entire careers, but the funds weren’t there.  They had been paid out to retirees.  The trust fund had paid out 99% of what had been contributed since its inception, leaving nothing to pay the worker’s future benefits with. 

At that point Congress did two things to “save” Social Security.  They raised the percentage of earnings being “contributed” into the trust fund and the maximum income level that withholdings came out of.  What started out in 1935 as a very minor “contribution” to help senior citizens became a major drain on the middle class’s income to support the Social Security and Medicare programs.  Individuals not only had to pay for the benefits of retirees, but contribute what was to be for their own benefits.

Democrats have consistently rejected any attempts to actually reform the program and put it on sound footing.  In recent years they’ve resorted to lying about the program’s impact on the Federal Budget.  While they claim that Social Security isn’t in the Budget, it appears in each of the WH OMB’s budget projections.  And while they tell people that it doesn’t add to the deficit, the 2015 WH OMB Budget projections show that Social Security Outlays ($11.7 trillion) will exceed Social Security Payroll Tax Receipts ($9.7 trillion) by $2 trillion over the next ten years.

There is one big difference between Social Security and a normal “ponzi schemes”.  Since Social Security was established by Congress, it’s “legal”.  And since the Social Security rules were set up by Congress, Congress can change them at any point in time.  And based on the current discussions on how to “fix” the Social Security program, for many Americans their contributions to a retirement plan is about to be turned into nothing more than a different name for a Federal Income Tax.

But Democrats still insist Social Security is the most successful program Congress has ever established.  The rest of us know it’s been nothing but a huge “ponzi scheme”.

http://en.wikipedia.org/wiki/Social_Security_(United_States)

Patriot's Day

I sent the following email to "Washington".  I think its self explanatory:

 

 

Dear members of the House and Senate and staff members,

 

Patriot's Day.

 

In Massachusetts it's still a major holiday.  It doesn't celebrate the Boston Marathon, though the marathon is run on Patriot's Day each year.

 

 

Does Patriot's Day mean anything to you?

 

"On the 18th of April in seventy-five,

Hardly a man is now alive,

Who remembers that famous day of the year,

The midnight ride of ..."

 

Patriot's Day celebrates the events that truly started the American Revolution.  It started with the British decision to march to Concord to confiscate the colonist's powder and arms.  Two lights were seen from a church steeple.  Seeing them, Paul Revere and others road that night to spread the alarm.  Patriots gathered on the common in Lexington, MA ready to risk their lives confronting the British regulars.  The fight broke out.  Then the British marched to Concord and were confronted at an old bridge.  They failed to go further and had a long bloody march back to Boston.

 

That's what Patriot's Day is in remembrance of.

 

Many of us in the "tea party" are just common folk who honor the memory of those first patriots by attempting to bring some sense of sanity back to our Federal Government and Nation.

 

$18 billion in debt (projected for the end of calendar year 2014) and trillion dollar deficits (when you factor in the known increase in interest expense that will occur when interest rates return to normal) are surely signs that some sanity is needed.  So as they answered the call on the original patriot's day, some of us are attempting to answer the call today.

 

Yet we are despised, ridiculed and targeted?  For what?  Asking our leaders to use common sense and to do what is right.

 

We're attempting to answer the call, will you?

 

They Answered the Call:     http://www.youtube.com/watch?v=VlvMO7qNBuY

 

Here’s to you Mr. Jefferson:  http://www.youtube.com/watch?v=CLAg8a0vCZQ&feature=related

 

Alan Davis

The Chicken or the Egg

President Obama and the Democrats are proposing a 39% increase in the minimum wage from $7.25 per hour to $10.10 per hour.  They don’t explain how they came up with that number, but they think it is only fair.  They justify the increase by claiming it’s required to keep up with inflation. 

So it brings up the interesting question “Which comes first?  The chicken or the egg?”  But in this case it’s slightly different.  “Which comes first?  Inflation or an increase in the minimum wage?”

The United States Department of Labor website has information on both topics.  They keep track of changes in the “Consumer Price Index’ (inflation) and on the minimum wage. 

http://www.dol.gov/whd/minwage/chart.htm

http://www.bls.gov/data/inflation_calculator.htm

The Federal minimum wage was instituted in 1938 at $0.25.  Congress has acted multiple times since then to increase it to its current level of $7.25 (Jul, 2009).  Using the government’s inflation calculator we see that $0.25 in 1938 would be the equivalent of $4.15 stated in 2014 dollars.  So by that measure the increase in the minimum wage has outpaced the rate of inflation over the past 75 years.  In 1991 the minimum wage was $4.25 which would be the equivalent of $7.30 per hour in current dollars.  So we find that even on a shorter time horizon the minimum wage has kept up with inflation.

But as the minimum wage has increased, what else has increased?  A trip back in time will help demonstrate it.  I can remember back to 1956 when a first class stamp was a pink Abraham Lincoln and cost $0.04.  January 2014 the first class postage rate increased to $0.49.  During that same period the minimum wage has increased from $1.00 to $7.25.  Another example is the price of a gallon of gas.  In 1972 I could buy a gallon of gas for $0.49 at my neighborhood gas station.  Now a gallon of gas costs approximately $3.55.  During that same period of time the minimum wage has gone from $1.60 per hour to $7.25 per hour.

Since salaries and benefits are often the largest component of a business’s cost, it’s easy to see that the increase in the minimum wage has been a major contributor to the increase in prices.  The increase in the cost of benefits (mainly driven by government policies) has also driven up employers’ costs resulting in even more of an rise in prices.

President Obama and the Democrats are proposing that the minimum wage be increased by 39% over a three year period.  So if wages make up a significant portion of the cost of products, doesn’t that mean that we will see much higher prices as a result of the increased minimum wage?  It seems quite logical that we would. 

The late 1970’s to early 1980’s was a period of some of the highest inflation our country has faced in recent years.  During that time the minimum wage increased from $1.40 per hour in 1967 to $3.35 per hour in 1981.  That was an increase of $1.95 per hour or nearly 140% in just 14 years.  Is it any wonder why prices (inflation) increased dramatically too?  So we find that a rising minimum wage drives up costs which in turn drives up prices (inflation) requiring an increase in the minimum wage.  It can be a never ending cycle. 

But we also find is the price of some of the most important parts of our lives (i.e. housing and taxes among many others) can vary dramatically in different states.  We find the highest prices for those items on the east and west coasts and in large cities.  A minimum wage of $7.25 buys much less in those parts of our country than in rural and Midwestern/Southern states.  So does it make sense to have the same minimum wage in those less costly areas of our country as in the high cost cities and coast states?  If not, that would call for regional or area specific minimum wages rather than a national minimum wage.

The problem with regional minimum wages is, as high cost areas of the country raise their minimum wages, they become even more costly.  And at some point they become unattractive to businesses and individuals.  Just look at cities like Detroit and states like California if you want good examples.

So in the meantime President Obama and the Democrats want to raise the minimum wage 39% in just three years.  We already have experience as to what that will cause.  That’s a rapid rise in prices or inflation!  Yet the WH OMB is projecting that inflation won’t increase more than 2.3% a year between now and 2024?  That hardly reflects the reality of the policy they propose.

 

Social Security: The Latest from Senate Democrats

 

http://www.dailykos.com/story/2014/02/14/1277624/-Bernie-Sanders-Leads-15-Other-Senators-in-Letter-Urging-Obama-Not-to-Cut-SS-Medicare-or-Medicaid

The Daily KOS carried a story about the letter 15 Senate Democrats delivered to President Obama.  In it they ask the President not to include cost cutting to the Social Security program as part of his budget proposal.  They claimed:

"Social Security has not contributed one penny to the deficit. Social Security has a surplus of more than $2.7 trillion and can pay every single benefit owed to every eligible American for the next 19 years."

But they failed to mention that the Social Security Trustees have been warning Congress since at least 2005 that they need to make timely reforms to the program.  What reforms do these Senators propose in their letter?  None.

So while it may be true that Social Security hasn't contributed to the deficit, it's not true that it won't be.  The WH OMB 2014 Budget showed Social Security Outlays exceeding Social Security Payroll Tax Receipts by $1.8 trillion dollars over the next ten years.  And while the trustee report showed that Social Security benefits could be paid at current value until 2033, it also said that after that there would need to be a substantial reduction in benefits.  Substantial as in 23%.

Each year Congress delays in making necessary reforms to Social Security the consequences are that the required reforms are larger than if made before.

So why do the 15 Senators want us to wait?  I don't think they will be changing their minds any time soon.  So it appears that the best way to make sure that Social Security is saved is to make sure as many as possible of the 15 Senators are defeated in this year's elections. 

The 15 Democrats who co-signed the letter are the following:
Tammy Baldwin (D-WI)
Mark Begich (D-AK)
Barbara Boxer (D-CA)
Richard Blumenthal (D-CT)
Al Franken (D-MN)
Kirsten Gillibrand
Mazie Hirono (D-HI)
Tom Harkin (D-IA)
Patrick Leahy (D-VT)
Edward Markey (D-MA)
Jeff Merkley (D-OR)
Jack Reed (D-RI)
Brian Schaz (D-HI)
Elizabeth Warren (D-MA)
Sheldon Whitehouse (D-RI)

Gross Negligence

The Case Against Washington’s Handling of the Federal Budget

by Alan R. Davis

 

(Written in 01/31/2012, still valid today.) 

Those in Washington aren’t dealing with the budget seriously.  In fact, some in DC are doing their best to convince the country the problem isn’t nearly as bad as it really is.  My concerns fall into five main areas:

-          Washington has invented terms to help ignore the extent of the crisis

      -          The budget includes unrealistic assumptions
      -          There is an oncoming tidal wave of Interest Outlays
      -         The budget is built on legislation that won’t stand
      -         The extent to which individuals depend on the Federal Government

“Invented” Terms:

One of the most frustrating things for me is the fact that rather than face the crisis, Washington has come up with new terms to make the budget crisis look less severe.  Those terms are:

Primary Deficit: The deficit excluding Net Interest Outlays. It allows Washington to claim that they have balanced the budget when they have made little progress in doing so.

Publicly Held Debt:  While this isn’t a new term, using it as the bench mark as opposed to Total Debt is new.  This allows Washington to ignore the fact that it has used intra-government debt (borrowing from the trust funds) as a major source of funds for the general fund.  We’ve seen Non-Public debt grow from ~10% to~ 35% of total debt since WWII.  Comparisons to Post WWII are erroneous for two reasons.  First, we started WWII with relatively low levels of debt compared to the size of our economy.  Second, our current debt was largely built up during times of relative peace, rather than during a major worldwide conflict.  You won’t even find Total Debt in last year’s budget analyses put out by the CBO!

Unrealistic Assumptions:

I first looked at the WH OMB (summary tables) in 2009 after the 2010 budget proposal was released. I was interested in seeing how they calculated Interest outlays.  (Tracking interest rate trends is a hobby of mine.)  I started with the Economic assumptions and was surprised.  The values for each of the five key assumptions appeared to be overly optimistic making the projections meaningless.  I’ve been following the budget ever since.  This year I concentrated on the inflation assumption values.  I found that both the WH OMB and CBO are using assumptions that can’t be supported by historic trending or basic economic principles.  In the original budget projections the WH OMB projected 2.0% and 2.1% as the average and maximum inflation assumption values.

Understating the values for the inflation assumptions has two significant impacts:

Compounding:  Low values compound much slower over ten years than higher values do.  That results in lower “out year” outlays and deficits.

Interest Rates:  Understating inflation allows them to use lower values for interest rates as there is a correlation between the two over the long run.  Each 1% understatement of the “effective rate” (Net Interest Outlays divided by average debt) understates Net Interest Outlays by $200 billion in a year when the National Debt (Total) is $20 trillion.  The original budget included 7 years where debt exceeded $20 trillion.

Interest Rate “Tidal Wave”:

In the early 1990’s we became concerned over the size of the debt as we saw Net Interest Outlays increase dramatically.  This occurred as interest rates decreased to “normal” levels.

90's Average:  $216 billion Net Interest on $4.6 trillion debt (Fed Fund Rate of 5.2%)

In 2010 we incurred less Net Interest Outlays on nearly three times the level of debt. 

2010:               $197 billion Net Interest on $13.4 trillion debt (Fed Fund Rate of 0.18%)

The Treasury Dept. has been utilizing a substantial amount of short term maturity instruments to finance our debt. Even long term maturity instruments have been issued at unsustainably low rates.  Once the FRB increases rates (they have indicated that will occur in 2014) it will dramatically increase the interest we’ll be paying on our Debt.  It means we have a built in “tripling” of Net Interest Outlays at current debt levels that is not being properly considered by Washington.

Legislative Assumptions:

Budget projections are built on current legislation.  The best example of how this distorts the projections is the Medicare “Doctor Fix”.  It is addressed for one year each year so as to allow the cost cutting impact of the law to be used in projections.  But the intention is to not allow the dramatic cut to physician payments to ever take effect.  There are several other items like this that allow the projections to reflect much smaller deficits than would otherwise be shown.

“Individuals” & the Federal Budget:

I ran across a historic schedule on the WH OMB website that broke out Outlays in much different categories than I had previously seen.  That schedule showed the following for 2010 Outlays:

National Defense:                      20.0%

            Net Interest:                                 5.7%
            Payments for Individuals:          66.5%
                          Subtotal                         92.2%
             Other Grants:                               5.8%
             All Other:                                     2.0%
                          Total                            100.0%           

With so much of the Federal Budget going to individuals (directly or indirectly through state and local governments) any serious cuts to the Federal Budget will have serious consequences for towns like Chillicothe. Add in the fact that soon we will see a dramatic increase in Net Interest Outlays and the size of required cuts to balance the budget are staggering!  Yet this isn’t being properly discussed in Washington.

Unless the real extent of our Nation’s financial crisis is brought forward for public debate, we won’t see it properly addressed and financial collapse becomes more likely.  Addressing it appropriately will result in real hardship for many.  But unfortunately hardship comes either way.

 

“There are two ways to conquer and enslave a nation.

One is by sword.  The other is by debt.”

John Adams 1826

“The battle, sir, is not to the strong alone; it is to the vigilant, the active, the brave.”

“Eventually Increasing the Risk of a Fiscal Crisis”

By Alan R. Davis

“Such large and growing federal debt could have serious negative consequences, including restraining economic growth in the long term, giving policymakers less flexibility to respond to unexpected challenges, and eventually increasing the risk of a fiscal crisis.”  CBO Director Douglas Elmendorf to Senate Budget Committee 2/11/2014

See more at: http://cnsnews.com/news/article/susan-jones/cbo-director-large-and-growing-federal-debt-could-produce-fiscal-crisis#sthash.JVxpfDmA.dpuf

On Tuesday February 11, 2014 Director Elmendorf of the Congressional Budget Office warned the Senate that the Nation’s increasing federal debt “could have serious negative consequences” including “…increasing the risk of a fiscal crisis”.  His choice of words was intriguing. It’s a lot like watching someone’s house on fire and saying that it “could have the serious negative consequence of increasing the risk of having to find alternative housing”.  If someone’s house catches fire they WILL have to find alterative housing, at least for awhile.  And having already run deficits for all but four years since 1969 we already have a fiscal crisis.

Washington is full of tricks to keep from recognizing the size and immediacy of the crisis.  Just a few of them are:

-          Using unrealistically low values for the inflation and interest rate assumptions in their projections.  Both the CBO and WH OMB have made a habit of using artificially low assumption values.  The CBO is projecting inflation won’t exceed 2.4% and the WH OMB used 2.2% in their 2014 Budget.  We’ve only had nine years of inflation that low or lower since 1965.  Each of those were years of recession or extremely low economic growth.  Using low inflation values allows them to use low interest rate values since they are in large part based on inflation.

-          Using current law even when Congress makes a habit of ensuring that some of current laws’ provisions don’t get implemented.  There's no better example than the required reduction in physician Medicare payments.  Each year Congress passes the “doctor fix” which applies to only one year leaving the required reduction in the remaining nine years of projections.  I believe that’s gone on for 15  years and the current value for the reduction is 24%.

-          Using newly defined ratios.  Look back prior to the WH OMB’s 2012 Budget and see if you can find any reference to “Primary Deficit”.  I didn’t.  But now they calculate the deficit without Net Interest Outlays because Net Interest Outlays are about to explode.  They also use Public Debt to compare to GDP rather than using Gross Debt because we've already exceeded 100% of GDP when Gross Debt is used.  100% is the "point of no return."

-          We all know how Washington also used the Government Trust Funds as a “free” source of funds.  There's no better example than the Social Security Trust Funds.  Individuals were required to contribute into the trust funds so there would adequate funds to pay future benefits.  But the money has already been borrowed to offset General Fund Deficits.

The CBO’s baseline projection report starts by showing a graph of budget results from 1974 through the 2023 projections.  There are only four out of those forty one years in which we've had surpluses.  For a Nation that had more than twice as many surpluses than deficits in its first 140 years of existence that’s a terrible record.  We once believed we should run surpluses in times of peace and prosperity so we could run deficits in times of war and economic difficulty.  Now we accept deficits just because we've happened to run them in the past.  That’s a sure sign of a significant fiscal crisis.

 

When is Waiting the Wrong Answer

By Alan R. Davis

Sometimes some caution is a good thing.  And I’m usually not the first to rush in and do something.  But other times you have too.  When the neighbors log pile was on fire I couldn’t wait to see if it got bigger or possibly went out on its own.  I acted quickly.  And that kept the action necessary to resolve the problem from getting larger, like bringing in multiple fire trucks.

Well, I can’t help but wonder why Congress is waiting to pass necessary changes to Social Security?  Do they think that the Trustees are just calling “Fire” for the fun of it?  Ever since at least the 2005 trust fund report they have included some reference to making changes soon!  In 2005 they added the following:

“The sooner the adjustments are made the smaller and less abrupt they will have to be.”

That year the projection showed the trust funds running out of funds in 2041.  Eight years later they showed the trust funds running out of funds in 2033.  So as eight years passed with no Congressional action, the exhaust year got sixteen years closer.  If things continue at that rate the real exhaust year will be 2023, not 2033.

In the same period of time the trustee report’s estimate of the increase in withholding rate that would be required to maintain the trust funds’ viability has gone from 1.92% to 2.72%.  That’s quite a jump.  And it will only get bigger the longer Congress delays.

Under President Bush changes were proposed, but Democrats in the Senate and House said “NO!”  And in 201,1when it looked like President Obama and House Republicans might be willing to work a deal, Democrats in the Senate held their “Hands Off Social Security” rally.  They helped stop changes from being implemented with statements like Sen. Reid’s when he said

“Let’s worry about Social Security when it’s a problem – today it’s not a problem.”

Reports on his appearance on MSNBC just a week before quoted him as saying

“he would only be open to changing the program in 20 years.”

What will it take to change the mind of Senate and House Democrats?  It’s hard to tell.  But it’s not hard to determine the consequences of any further delays in implementing changes.  This is one time this type of extreme caution before acting is a real problem!

The Federal Budget's "Hidden" Surprise

By Alan R. Davis

The Federal Budget is hiding quite a surprise and it’s not going to be one that any of us will like.  The best way to see the surprise is to look up historic spending.  Look up the Net Interest Outlays for 2000 and you’ll find the number $232 billion.  That year we had an ending debt of $5.6 trillion dollars.  Now jump forward to the year 2012.  You’ll find we had Net Interest Outlays of $232 billion with an ending debt of $15.4 trillion.  Nearly three times the debt with the same level of interest?  Yes.

The Federal Reserve Board has lowered interest rates in hopes of spurring on economic growth.  The 10 Year Treasury rate averaged 6% in 2000 and only 1.8% in 2012.  But you don’t have a healthy economy maintaining artificially low interest rates over the long run.  At some point in time they will be raised to more normal levels.  What the more normal level might be is still being debated.

So if we know rates are lower than can be expected then we also know that Interest Outlays are lower than they will be, even if the National Debt would remain at its current level.  Historic trending would indicate that both short term and longer term rates will increase by 3% to 4%.  That’s if they adjust to “normal” rates rather than increasing more than that.  Then the math is pretty easy.  3% times $18 trillion equals $540 billion. 

$540 billion per year is the “hidden surprise” already built into the budget.  So when members of the DC establishment talk about a $700 billion deficit, they aren’t factoring in this hidden surprise.  The real size of the deficit problem is the current deficit plus $540 billion.  So it’s more like $1.2 to $1.3 trillion. 

So much for President Obama’s statement that he’s brought down the deficit by 50%.  Once rates increase we’ll be back to trillion dollar deficits like before.