by: Matt Welch

This weekend's Wall Street Journal, in the course of sketching out the fiscal contours of Stimulus II, makes that claim. Excerpt:

Remember how $200 billion in federal stimulus cash was supposed to save the states from fiscal calamity? Well, hold on to your paychecks, because a big story of 2010 will be how all that free money has set the states up for an even bigger mess this year and into the future.

The combined deficits of the states for 2010 and 2011 could hit $260 billion, according to a survey by the liberal Center on Budget and Policy Priorities. Ten states have a deficit, relative to the size of their expenditures, as bleak as that of near-bankrupt California. The Golden State starts the year another $6 billion in arrears despite a large income and sales tax hike last year. New York is literally down to its last dollar. Revenues are down, to be sure, but in several ways the stimulus has also made things worse.

How's that? Read on:

First, in most state capitals the stimulus enticed state lawmakers to spend on new programs rather than adjusting to lean times. They added health and welfare benefits and child care programs. Now they have to pay for those additions with their own state's money.

A few governors, such as Mitch Daniels of Indiana and Rick Perry of Texas, had the foresight to turn down their share of the $7 billion for unemployment insurance, realizing that once the federal funds run out, benefits would be unpayable. "One of the smartest decisions we made," says Mr. Daniels. Many governors now probably wish they had done the same.

Second, stimulus dollars came with strings attached that are now causing enormous budget headaches. Many environmental grants have matching requirements, so to get a federal dollar, states and cities had to spend a dollar even when they were facing huge deficits. The new construction projects built with federal funds also have federal Davis-Bacon wage requirements that raise state building costs to pay inflated union salaries.

Worst of all, at the behest of the public employee unions, Congress imposed "maintenance of effort" spending requirements on states. These federal laws prohibit state legislatures from cutting spending on 15 programs, from road building to welfare, if the state took even a dollar of stimulus cash for these purposes.

The upshot?

This is the opposite of what the White House and Congress claimed when they said the stimulus funds would prevent economically harmful state tax increases. In 2009, 10 states raised income or sales taxes, and another 15 introduced new fees on everything from beer to cellphone ringers to hunting and fishing. The states pocketed the federal money and raised taxes anyway.

Now, in an election year, Congress wants to pass another $100 billion aid package for ailing states to sustain the mess the first stimulus helped to create.

by: Tad DeHaven

Huge deficit spending, a supposed stimulus bill, and financial bailouts by the Bush administration failed to stave off a deep recession. President Obama continued his predecessor’s policies with an even bigger stimulus, which helped push the deficit over the unimaginable trillion dollar mark. Prosperity hasn’t returned, but the president is persistent in his interventionist beliefs. In his speech yesterday, he told the country that we must “spend our way out of this recession.”

While a dedicated segment of the intelligentsia continues to believe in simplistic Kindergarten Keynesianism, average Americans are increasingly leery. Businesses and entrepreneurs are hesitant to invest and hire because of the uncertainty surrounding the President’s agenda for higher taxes, higher energy costs, health care mandates, and greater regulation. The economy will eventually recover despite the government’s intervention, but as the debt mounts, today’s profligacy will more likely do long-term damage to the nation’s prosperity.

Some leaders in Congress want a new round of stimulus spending of $150 billion or more. The following are some of the ways that money might be spent from the president’s speech:

• Extend unemployment insurance. When you subsidize something you get more it, so increasing unemployment benefits will push up the unemployment rate, as Alan Reynolds notes.”

• More infrastructure spending. This will lead to misallocation of resources since only markets can allocate resources efficiently. Governments allocate capital on the basis of politics instead of economics.

• “Cash for Caulkers.” This would be like Cash for Clunkers except people would get tax credits to make their homes more energy efficient. Any program modeled off “the dumbest government program ever” should be put back on the shelf. 

• More Small Business Administration lending. A little noticed SBA program created by the stimulus bill offered banks an “unprecedented” 100 percent guarantee on loans to small businesses. The program has an anticipated default rate of 60 percent. Small businesses need lower taxes and fewer regulations, not a government program that perpetuates more moral hazard.

• More aid to state and local governments. State and local government should be using the recession to implement reforms that will prevent them from going on another unsustainable spending spree when the economy recovers. Also, we need fewer state and local government employees – not more – as they’re becoming an increasing burden on taxpayers.

The president said his administration was “forced to take those steps largely without the help of an opposition party which, unfortunately, after having presided over the decision-making that led to the crisis, decided to hand it to others to solve.” Mr. President, nobody has forced you to do anything. You’ve chosen to embrace – and expand upon – the big spending policies that were a hallmark of your predecessor’s administration.

by: Thomas Craig

As a Libertarian-Republican, I am strongly opposed to almost every tax out there (especially the income tax).  While taxes are necessary to keep our Country functioning, they are too often imposed and way too high.  There is one tax that I do support, a "war surtax".  In the budding days of our Nation, Thomas Jefferson proposed that we implement a war surtax so that we know the financial cost of our actions, we don't bury ourselves in debt to pay for it, and most of all, so our Leaders are that much more motivated to end any war.  Jefferson wanted us to avoid war and the idea of a surtax would be a strong deterrent.  Unfortunately, Jefferson was not in the majority with this belief.  Skip forward over 200 years later and we find ourselves borrowing billions of dollars from our competitors and enemies to finance a war where the objective is becoming more and more blurred.  The wars in Iraq and Afghanistan are being paid for with borrowed money and that money is going to have to be paid back sooner or later.  Instead of sacrificing and paying for the wars with our money, we have chosen to sacrifice our children's economy. 

Rep. Obey (D-Wis) and Sen. Levin (D-MI) both have proposed legislation which would impose a tax on a percentage of your income (tax would vary from 2% for middle class and low income to 12-15% for high income) to help pay for the wars.  This is a logical idea and dramatically help the debt we are accumulating fighting these wars.  There is an alternative, however, and it is simply to end the wars and bring our troops back home.  It is perfectly acceptable to support the war effort and to support sending in reinforcements.  Keep in mind, however, that if President Obama sends the requested 40,000 troops to Afghanistan, it will cost an estimated $40 Billion according to the Office of Management and Budget. 

Is it worth the cost of human lives and if so, is it worth crippling our Nation under debt?

by: Trevor Bothwell

Only the government can give people back their own money and then claim that truthfully they do not deserve to keep all of it. And only a brainwashed people who has been taught that taxation is not theft would allow the government to get away with this. Thanks to an accounting "error", many taxpayers who received a tax credit last spring will have to repay the money.

More than 15 million taxpayers may owe the government $250 or more because of how the IRS last spring set up President Barack Obama's tax break that was designed to help consumers spend the U.S. economy out of recession.

Individuals with more than one job and married couples in which both spouses work may have to repay the government $400, either through a smaller tax refund or a larger tax bill, according to a report released Monday by the Treasury Department's inspector general for tax administration. Social Security recipients who also earn taxable wages may have to repay $250.

Perhaps this is why our government likes tax credits rather than flat tax cuts. An individual has a much higher chance of incorrectly filing a tax return given the red tape involved to claim a tax credit than a simply seeing a lower rate of tribute to extract from his earnings. Moreover, the red tape involved in creating a tax credit permits "errors" of this sort which then benefit the State.

Below is a link to the NextTEN Budget Challenge.  Very interesting and worth taking.  I ended with a deficit of over $13 Trillion!  See if you can do better.

Just in case... the link address is www.federalbudgetchallenge.org/budget_challenge/sim/budget_master.html

by: Peter Suderman

The New York Times' health-care blog has a long post going over the fuzzy numbers House Democrats have used to make their recently released, 1,990-page health-care bill more palatable. The post covers a lot of the same territory as I did last Friday: It's only $900 billion if you look at the net rather than the gross; the score doesn't account for the doctors' Medicare "fix"; the bill increases Medicaid costs for states by $34 billion (which isn't counted in the score). And, the post adds, it's not clear that the bill "bends the cost curve," in other words, that it reduces the rate of rise in health-care spending. 

The post ends, however, with a response from Florida Democrat Alan Grayson, who takes issue with the idea that Democrats should be talking about budgeting or cost-curves at all:

Representative Alan Grayson, Democrat of Florida, who has earned himself a reputation recently as a rabble-rouser, said that Democrats had done themselves a disservice by focusing on economic arguments.  “We have wasted so much time talking about bending the cost curve, people have no idea what that means,” Mr. Grayson said. “Why would you want to bend a curve? It’s already bent.” So Mr. Grayson is focusing on another number — the 44,789 Americans that he says die every year for lack of insurance. “The messaging was just wrong, and now it’s right,” Mr. Grayson said. “We are saving people’s lives and saving money. That’s what really matters.”
Now, some may think it's useful for a Democrat to be adopting an aggressive, moralistic tone on health-care reform, but the problem is that at least half of Grayson's primary claim just isn't true. 

Let's leave aside for a moment Grayson's blustery claim that the bill will save lives (which is impossible to verify: even if you accept his lives-lost statistic, there's no way to account for long-term future losses due to reduced medical R&D); his idea that the bill will save money is just wrong, at least by the traditional definition in which "saving money" means "spending less." Even if you take the CBO at its word that reform will cut the deficit (a sketchy claim that even the CBO seems to know is unlikely) cutting the deficit isn't the same as spending less. It's entirely possible to cut the deficit and yet still spend more. 

It's true that the reform bills, as written, produce some savings by cutting certain types of Medicare expenditures. But that money is then repurposed to help pay for subsidies so that lower-income people can buy insurance. And that money only pays for some of the new expenditures in the bill. The rest comes from either a surtax on expensive insurance plans (in the Senate plan) or a new tax on couples who earn more than a million dollars a year and individuals who earn more than $500,000 a year (the House plan). Either way, what these bills do isn't save money. Instead, they spend more, but also bring in more revenue through new taxes, theoretically resulting in a lower deficit over the long haul.

by: Andrew Moylan

Today, NTU released a coalition letter that we circulated that was signed by 20 state and national groups in opposition to an attempt to deceive the American public about the true costs of health care reform. Tomorrow evening, the U.S. Senate will vote on S. 1776, the so-called "Medicare Physicians Fairness Act." This legislation, worth $247 billion (all racked up on the deficit, of course, as it contains no spending reductions elsewhere) is, plain and simple, an attempt to reduce the apparent costs of the comprehensive health care reform bills before Congress.

Here's how they plan to do it. Remember the Baucus bill, which received a CBO score of $829 billion in cost over ten years? The CBO said that legislation would actually reduce the deficit by a small amount. I'm sure that was music to President Obama's ears, as he has stated time and again he wouldn't sign a bill that increased the deficit.

But S. 1776 would immediately reverse a portion of the Baucus bill that was included specifically to reduce its apparent cost for analyses like what the CBO did. It would increase reimbursements to physicians through Medicare by a whopping $247 billion over the next ten years, reversing cuts to those reimbursement rates the Baucus bill used to artificially deflate its score.

So, by splitting this provision off into a different piece of legislation, leaders in Congress are trying to have their cake and eat it too. If they were to pass the Baucus bill, the President would sign it and rightly claim that it didn't increase the deficit (because they raised taxes slightly more massively than they raised spending). But at the same time, S. 1776 would pass into law and ring up another quarter trillion dollars in deficit spending on the side, outside the context of the "comprehensive" health care bill.

Put it this way, when the Washington Post agrees with NTU on something like this, you know something's awry.