The Flat Tax

What could possibly be bad about a lower tax rate on work, savings, investment, risk-taking, and entrepreneurship?

Why didn't they say something before!

From the WSJ:

In the wake of Washington's health-care overhaul, some companies are taking big one-time charges for anticipated costs, fanning tension with the administration over the legislation's impact on corporate America.

Three companies that were among vocal opponents of the legislation have warned they would see an immediate impact on their earnings as a result of the loss of deductions on tax-free subsidies they receive for providing retiree prescription-drug benefits.

On Thursday, Deere & Co. said it would take a $150 million one-time charge in the current quarter related to the loss of deductions. Earlier in the week, Caterpillar Inc. reported a $100 million charge and AK Steel recorded a $31 million charge.

Beginning in 2006, companies have received a 28% federal subsidy, up to $1,330 per retiree, tax-free, to help pay for prescription-drug coverage. Until now, companies could deduct the subsidy from their taxes, essentially getting a second benefit from the money. Under the new law, companies will no longer be able to deduct the subsidy, but it remains tax-free.

Although the changes don't go into effect until 2013, companies say they have to take the charge to earnings now, to reflect the loss of the future tax deductions. In all, the S&P 500 companies will take a combined hit of $4.5 billion to first-quarter earnings, estimates David Zion, an analyst with Credit Suisse.

Administration officials say companies are exaggerating the impact of the loss of the deduction because of their general unhappiness with health reform.

VH: Henry Waxman of California, chairman of the Oversight and Investigations panel, announced plans to hold a hearing on this issue. This means that he wants to put the CEO's of these companies under the hot lights and intimidate them. You have to love Chicago politics.

Assorted links and news

1) We keep hearing that our government wants "affordable" housing yet it continues to attempt to prop up housing prices by using money it doesn't have. What a waste. Let prices fall already. The sooner they do, the sooner the economy bounces back. Instead, we have the Obama regime trying to reverse a waterfall.

2) Fidel Castro endorses Obamacare. Great minds think alike.

3) If you haven't heard the latest from Venezuela, liberal icon and Code Pink fave, Hugo Chavez arrested Guillermo Zuloaga, president of Globovision Television, the only remaining television station on public airwaves critical of Hugo Chavez. Also arrested was lawmaker Wilmer Azuaje for being a critic of the Chavez regime.

Today's post...

Is a guest post at The Bobo Files.

Hoping for a rich uncle, part two

From the WSJ:

A sudden drop-off in investor demand for U.S. Treasury notes is raising questions about whether interest rates will finally begin a march higher—a climb that would jack up the government's borrowing costs and spell trouble for the fragile housing market.

For months, investors have focused their attention on the debt crisis in Europe, but there are signs the spotlight is turning to the ability of the U.S. to finance its own budget deficit.

This week, some investors turned up their noses at three big U.S. Treasury offerings. Demand was weak for a $44 billion 2-year note auction on Tuesday, a $42 billion sale of 5-year debt on Wednesday and a $32 billion 7-year note sale Thursday.

The poor demand, especially from foreign investors, sent the bonds' prices sharply lower and yields higher. It lifted the yield on the 10-year note to 3.9%—its highest since last June, and approaching the psychologically important 4% mark. That mark has been pierced only briefly since the financial crisis in 2008.

Investors' response marked a big shift from auctions in recent months in which major foreign buyers, such as central banks, had snapped up Treasurys. It could spell trouble for the U.S. housing market; the rates on many mortgages are linked to the yield on the 10-year note.

The move up in its yield coincides with the impending end of the Federal Reserve's program to support the mortgage market. The Fed has bought $1.25 trillion of mortgage-backed securities, bolstering their prices and thus holding down their yields.

Concerns about the U.S. budget deficit are beginning to hurt the Treasury market, says Steve Rodosky, head of Treasury and derivatives trading at bond giant Pacific Investment Management Co. He says he is increasingly worried about the U.S. fiscal outlook. "The government needs to take real action rather than pay lip service" to addressing the fiscal problems.

In all, the U.S. government is expected to sell $1.6 trillion in debt this year, including the $118 billion sold this week.

VH: Those little green pieces of paper that the government pumps out is looking a lot less attractive nowadays. Helicopter Ben must be thanking his lucky stars that Greece came in to save his arse. BTW, the latest news on Greece is that the responsible E.U. countries and the American taxpayer (surprise!) via the IMF are going to float the spendthrift Greeks some moolah if it fails to pay its debt. This is going to get interesting.

Hoping for a rich uncle

From Boston.com:

WASHINGTON — Social Security will pay more in benefits than it receives in payroll taxes in the current fiscal year, six years earlier than expected, the Congressional Budget Office reported yesterday.

Last spring, Social Security trustees reported that expenses would exceed revenue beginning in 2016. Since then, applications for benefits have increased because people are retiring early due to the recession, and that, combined with high unemployment, means fewer workers paying taxes.

“There’s so much unemployment,’’ said Robert Pozen, chairman of Boston-based MFS Investment Management. “There’s less going in, and more people are taking early retirement.’’

The CBO projects that the trust fund will be $29 billion in the red during the fiscal year ending Sept. 30, and will run deficits for the next three years. After projected surpluses in 2014 and 2015, the trust fund again would have deficits from 2016 onward.

VH: I'm shocked.

Treasury yields are higher than Corporate yields. Opps!

From Bloomberg:

Two-year notes sold by the billionaire’s Berkshire Hathaway Inc. in February yield 3.5 basis points less than Treasuries of similar maturity, according to data compiled by Bloomberg. Procter & Gamble Co., Johnson & Johnson and Lowe’s Cos. debt also traded at lower yields in recent weeks, a situation former Lehman Brothers Holdings Inc. chief fixed-income strategist Jack Malvey calls an “exceedingly rare” event in the history of the bond market.

The $2.59 trillion of Treasury Department sales since the start of 2009 have created a glut as the budget deficit swelled to a post-World War II-record 10 percent of the economy and raised concerns whether the U.S. deserves its AAA credit rating. The increased borrowing may also undermine the first-quarter rally in Treasuries as the economy improves.

“It’s a slap upside the head of the government,” said Mitchell Stapley, the chief fixed-income officer in Grand Rapids, Michigan, at Fifth Third Asset Management, which oversees $22 billion. “It could be the moment where hopefully you realize that risk is beginning to creep into your credit profile and the costs associated with that can be pretty scary.”

This of course means that our government is having to sweeten U.S. Treasury bonds to investors in comparison to corporate bonds; I don't know what this means in the short run but it is disconcerting since the federal government has run the credit card to very high levels. Something to think about.

Self-execution!

Maybe it should be the country in the hot seat.

The cost of "flimsy" lending

From the L.A. Times:

Though signs of recovery in the housing market are emerging, thousands of people throughout the Southland are still in a precarious position on the brink of foreclosure, struggling with monthly bills and mortgage payments.

Duchemin and Ashraf are an extreme example because they've gone through foreclosures on two homes and are in danger of losing a third. They aren't alone: Flimsy lending practices mean that thousands of other borrowers face the prospect of repeated foreclosures, mortgage and foreclosure experts said.

The problem is especially visible in areas that attracted speculative buyers during the boom. In Maricopa County in Arizona, which includes Phoenix, at least 283 individuals have received a foreclosure notice on two or more properties since 2006, according to data provided by RealtyTrac Inc.

Multiple foreclosures are "probably more common in this decade than they've ever been because everyone was running to get into the real estate investing business," said Rick Sharga, a senior vice president at RealtyTrac.

Clark County in Nevada, another area that attracted house flippers, had at least 179 buyers who were foreclosed on more than once over the same period, the data show...

Because people thought the price of real estate would keep climbing, O'Toole said, they figured that the more homes they bought, the more they'd earn eventually.

"In a lot of cases, you had folks in this gold rush mentality: 'Real estate is going up, the more houses I buy, the more money I'll make.' "

The article mentions "flimsy lending practices" but doesn't explain how the lending industry came to offer easy credit in which speculation was encouraged. Instead, it builds sympathy for the Duchemin's without really looking into the big picture, like the politicization of the mortgage lending industry in which lenders were coaxed into providing credit to borrowers it would never have under normal circumstances. Why anyone would lend the Duchemin's funds for three homes is beyond me. Also, notice how the article never mentions the Duchemin's bad decision to "buy" three houses?

Run out of oil, eh?

Shell discovers a large oil reserve in the Gulf of Mexico. Don't build those bunkers yet.

90 seconds to ObamaCare

The CBO scores the latest vesion of ObamaCare

1) 3.8% in new taxes for medicare unearned income.
2) Not indexed for inflation.
3) New Social Security tax to pay for ObamaCare.
4) Lot's of double counting too.

My lord, what a massive weight on our economy.

The "Jobs" Bill makes it through the Senate

From NPR:

Companies that hire unemployed workers will get a temporary payroll tax holiday under a bill that easily won final congressional approval Wednesday.

The bipartisan 68-29 vote in the Senate sends the legislation to the White House, where President Barack Obama has promised to sign it into law.

It will be the first of several election-year jobs bills promised by Democrats to be enacted into law, though there's plenty of skepticism that the measure will do much to actually create jobs. Optimistic estimates predict the tax break could generate perhaps 250,000 jobs through the end of the year, but that would be just a tiny fraction of the 8.4 million jobs lost since the start of the recession.

The measure is part of a campaign by Democrats to show that they are addressing the nation's unemployment problem...

Here we go again. More political running in place to "do something" about the weak job market. Congress sure has passed many laws to move the economy into a positive place with little, if not weak, results. But here we are again with half measures and soap box speeches. That's OK, it's not like they're spending their money anyway. And besides, the farce of "pay-go" was once again obliterated by reality. Liberal economists are hoping that a cyclical recovery and low interest rates by the Fed move the economy along--we can already see plenty of postive indicators--so that soon to be laws like the "Jobs" bill, will look like it was just the right thing to do. Sorry, but any recovery will not be due to a "Jobs law" or a massive pork program like the "stimulus." It will be due to the business cycle and the private economy. So for those that voted for this bill and the stimulus, thanks for nothing.

Welcome Back!

The Chef is back to blogging at The Economist's Cookbook. This is a great free-market blog and well worth visiting often. The more free-market bloggers, the better.

Does spending more on school lunches benefit kids?

Benjamin Burr at The Independent Bloghorn has first hand experience on this matter. Here is the crux of his argument:

...the government spends $2.68 a day per child, while only spending $.93 a day on food. The problem isn’t that the government isn’t spending enough money. $1.75 per meal per day on operations is an absolute pathetic joke that reflects an egregious example of government incompetence. When I was catering school lunches, we charged $2.50 (less then the government pays), spent $1.60-1.75 per meal on average on food, covered our operational costs including labor, and still made a decent profit. Sorry, Chef Ann Cooper, the problem isn’t that we aren’t spending enough money, the problem is that people like you fail to recognize the broken nature of this system, and despite its flaws still advocate that the government should be involved in something that clearly sucks at doing.

You are never going to increase the overall nutritional value of lunches as long as the Department of Agriculture, (a massive, entrenched, worthless government bureaucracy that has worn out its usefulness) uses the National School Lunch program for dumping all the excess commodities that it is responsible for creating through inefficient subsidies.

You want to see the quality of school lunches increase? Privatize the whole thing.

VH: I agree with Benjamin, privatize school lunches. The core mission of schools should be teaching and not running an expensive unionized cafeteria; Mr. Burr runs a school lunch software business that deserves your attention.

Where are the jobs?

Some California counties posting Depression era unemployment numbers. Where are the "green" jobs, Mr. Obama?

Need tax revenue? Collect it from social security benefits! What fun!

A little–noticed law could soon result in smaller Social Security checks for hundreds of thousands of the elderly and disabled who owe the U.S. money from defaulted loans and other debts more than a decade old.

Social Security benefits are off–limits to creditors, such as credit–card companies and banks. But the U.S. can collect debts to federal agencies by "offsetting," or withholding Social Security and disability payments.

The Treasury currently withholds benefits of 3.1 million Social Security recipients to recover defaulted student–, farm– and small–business loans, unpaid income taxes, amounts veterans owe for health care, and other debts to the government.

Previously, the U.S. hasn't been able to withhold Social Security payments to recover most debts delinquent for more than ten years.

But a provision in the 2008 Farm Bill lifted the ten–year statute of limitations on the government's ability to withhold Social Security benefits in collecting debts other than student loans—for which the statute of limitations was lifted in 1997—and income taxes, where the limit remains 10 years.

A provision in the 2008 Farm Bill? I can only think that this was added as a revenue generator to offset the cost of Farm subsidies

This means that a person who defaulted on a small–business loan in 1995, for example, and who is receiving Social Security could be notified that his benefits may be reduced each month until the debt, with interest, fees, and penalties, is paid. The Treasury can withhold 15% of the benefit, though it can't be reduced to below $750. Tax debts have no floor.

The change will add more than $6 billion to the $75 billion in delinquent debt individuals owe the government, according to the Financial Management Service, the Treasury's debt collection unit.

In 2003, the U.S. began withholding $173 a month in Social Security benefits from Annie Brown, a paralyzed 75–year–old widow living in a nursing home to repay a defaulted $8,823 student loan the Education Department says she took out in 1989. The offset reduced Mrs. Brown's benefit to about $980 a month.

Mrs. Brown said a granddaughter had forged her signature on a loan application. Her daughter and a lawyer spent more than four years disputing the debt with the owner of the loan, United Student Aid Funds, a student–loan guarantor that also was acting as one of the Education Department's 21 debt collectors.

Read it all here.

VH: I don't know what to think about this except to repeat my thoughts on entitlement programs: Citizens that freely allow themselves to be wards of the state will reap what they sow. The state can and will hold your livelihood and well-being hostage to its greater political ends. Ask yourself, why the hell does the 2008 Farm Bill have anything to do with Social Security? It only does when one group is deemed worthless enough to be thrown under the bus for another group that is better connected and has better lobbying: The whims of the State change with the political winds. Who in their right mind wants to take a chance in their golden years with the state holding your livelihood in its grubby hands while listening to apologists for social security utter: "mistakes can happen, but over all, the process works?" I'm afraid too many. It is very sad that some of the senior citizens in this story have had to deal with the perniciousness of raw bureaucracy.

He is also fiscally challenged

A Disgruntled Republican asks, "Is Obama a Harvard educated financial illiterate?"

Let them fall

While defaults on homes rise (people are now just walking away from mortgages they can't afford), the Obama administration continues to burn through billions of taxpayer dollars to prevent the unavoidable. I say that if the government wants "affordable" housing as they have been telling us for decades, then let housing prices fall and stop blowing through tax payer funds in an attempt to buy votes by looking compassionate. Does anybody else notice that being "compassionate" with other peoples' money is far too easy for politicians?

Coming soon: The spin on raising taxes

From CNN:

If President Obama's 2011 budget were put into effect as proposed, the U.S. federal government would add an estimated $9.8 trillion to the country's accrued debt over the next decade, according to a preliminary analysis from the Congressional Budget Office.

Of that amount, an estimated $5.6 trillion will be in interest alone.

Yes, fiscal conservatives know that the budget proposal's from the Obama administration are simply not sustainable. But the analysis doesn't stop there:

The CBO cited two big contributors to the jump in debt.

One is the president's proposal to extend the 2001 and 2003 tax cuts for the majority of Americans. The other is the proposal to protect middle- and upper-middle-income families from having to pay the Alternative Minimum Tax (AMT).

Together those proposals would cost $3 trillion between 2011 and 2020.

Ahh, here is the meat of the matter. You see, the Obama administration has skilfully had the CBO score their proposed budgets (with bloated new entitlements like ObamaCare and Cap and Tax) along with the Bush tax cuts. What a better way to explain to citizens that taxes must rise in order to avoid a fiscal train wreck sometime in the future.

The administration has also called the budget trajectory unsustainable and the president has created a fiscal advisory commission to recommend ways lawmakers can get annual deficits down to 3% of GDP by 2015.

Yes, a blue ribbon commision will tell us what we already know...that taxes must go up and the Bush tax cuts must end. The commision runs interference for the administration and for liberal democrats who hate anything George W. Bush did. Wait for it, folks...wait for it.

Milton Friedman - The Social Security Myth

Not an Austrian but still great.

The unpopular truth about ObamaCare

Jeff Perren writes the following regarding health care:

...the health care bill(s) are not bad chiefly because they're too costly. That's true, but far from fundamental. They're bad because they restrict liberty, they violate rights — to freedom, property, and voluntary trade.

They do so on the ever-useful excuse that it's morally mandatory to "help the poor obtain medical care," which is not merely false, but pernicious. We are no more obligated to "insure the uninsured" than we are to provide food, housing, or anything else to those who can't afford them.

Apart from all the other arguments that might be made, one has to wonder why altruists refuse to make any distinction between those who deserve assistance — even privately — and those who do not. All 'poor people' are somehow presumed to be that solely through no failure of their own.

But that, too, is not essential. Even those who find themselves in need of medical care they can't afford after trying their utmost have no moral or legal claim on the public coffers.

VH: Truer words have rarely been written on the subject: Health care is not a "right." In order for some to get it, others have to be compelled, by force, to provide it. There is no difference between bailing out AIG and ObamaCare. Additionally, in either case, we whistle down the primrose path towards fiscal ruin.

Williams with Sowell - Academic Intellectuals

Worth a listen.

Happy Birthday, Murray Rothbard

He would have been 84 today.

Ah, Unions...

The transportation union in San Francisco is doing what unions do best--drive the city into bankruptcy.

The terror of Global Warming

A suicide pact hatched by parents that feared Global Warming. Why do the children have to suffer this insanity?

Make your vote count

Grade Obama on his job performance thus far. So far, the results are as I expected.

The Fannie Mae monster needs to burn more cash

OK, hang on to your hat's, dear friends. The vacuum cleaner known as Fannie Mae is about to swallow gobs of taxpayer dollars again---$15 billion worth of it:

Fannie Mae needs another $15.3 billion in federal assistance, bringing its total to more than $75 billion. And worse, the mortgage finance company warned that its losses will continue this year.

The rescue of District-based Fannie Mae and sister company Freddie Mac is turning out to be one of the most expensive after-effects of the financial meltdown. The new request means the total bill for the duo will top $126 billion.

And the pain isn't over. Fannie warned Friday that it will need even more money from the Treasury, as unemployment remains high and millions of Americans lose their homes through foreclosure.

Fannie Mae reported Friday that it lost $74.4 billion, or $13.11 a share, last year, including $2.5 billion in dividends paid to the government. That compares with a loss of $59.8 billion, or $24.04 a share, a year earlier.

Fannie Mae, which was seized by federal regulators in September 2008, has racked up losses totaling $136.8 billion over the past three years.

The WaPo article fails to mention that Fannie Mae debt is NOT added to the federal budget. So it is essentially "off the books." Anyone that is following the financial crisis in Greece knows how dangerous and dishonest it is to have massive government debt hidden away from public view.

BTW, remember how Barney Frank defended Fannie Mae? Now, he wants to eliminate Fannie and Freddie. Incredible.