Americanly Yours

Im sure that everyone has heard about the “Cash for Clunkers” program.  This is another one of those government programs that sounds like a good idea until you really think it through.

In an effort to both stimulate the economy and aid the environment, Congress and the Obama Administration enacted a $1,000,000,000 [$1 billion] which allowed people to trade in old cars with low gas mileage and receive a discount of up to $4,500 on new cars with high gas mileage.

Because protecting the environment was one of the goals of this program (and to protect against fraud), dealers were required to pour a solution into the engine of the car that was traded in which permanently disables the car.  The car is permanently taken off the road and is recycled.

Sounds good, right?  Not quite.

Who buys new cars?  People with money, of course.  The rest of the driving population buys their cars used from people who feel the need to buy a new car every few years.  By disabling used cars, the government is permanently removing their supply from the market.  Doing so prevents lower and middle class Americans from buying that vehicle, and has the net effect of raising the prices for used cars.

Someone who is still driving the 1995 Cadillac DeVille that they bought from their neighbor 7 years ago probably isnt very likely to go out and buy a 2010 Honda Accord, even under this program.  But, they would be much more likely to purchase the 2003 model DeVille that their neighbor bought after selling the 1995 DeVille 7 years ago.

But, rather than allowing the market to work in this fashion, the “Cash for Clunkers” program removes the 2003 DeVille–a perfectly good car–from the market and makes it tougher for the person still driving the 1995 DeVille to find a used car that fits his budget.

My personal opinion was that one of the reasons that this bill was passed was to protect the United States’ “investments” in [read:  theft of] General Motors and Chrysler.  It is clear to all that Congress and the Administration intended for this program to stimulate the economy and help the environment.  But I also believe that the government wanted to use this program to inflate the revenues at GM and Chrysler to make the American people less uneasy about the bailouts of those firms.  Think about it.  If you had just made a hugely unpopular move like taking over two iconic American automakers, you would do anything possible to convince the public that it was a good decision.  This includes funneling money to those companies to make their revenues look good.

My guess is that this program will actually hurt GM and Chrysler as compared to their competitors, namely Ford.  Why?  Well for one, a new Rasmussen poll found that 66% of Americans have at least “a somewhat favorable opinion of Ford.”  The same poll found that “General Motors is viewed favorably by 38%… and unfavorably by 56%”  It also found that 34% have at least somewhat favorable opinion of Chrysler “while 55% see the company unfavorably.”  The American people are angry at the other two companies for taking taxpayer funds, and Ford is now perceived as the only American automaker that isnt owned by the government.

They also make much better cars now than they used to.  I love my 2007 Ford Fusion.

In another poll that was published on the same day, Rasmussen also found that 46%of Americans are more likely to buy a Ford because they did not take a government bailout (13% said they were less likely and 37% said it didnt make a difference).  41% OF Americans also believe that quality of GM’s cars will get worse now that the government owns the company, while only 19% think it will get better.

[Investors like me know this.  For the sake of disclosure now that the FTC has announced that it is going after bloggers, I am a proud stockholder of Ford Motor Company and have seen the stock rise by about 18% in the last week.  Still, I am 100% opposed to this program.]

Additionally, the government’s intention was to get people to purchase cars with much better fuel efficiency and the new Ford Fusion Hybrid gets 41 MPG and was rated higher than the Toyota Camry Hybrid, making it an attractive choice for anyone who decides to trade in their clunker.

If the intention was to increase the revenues at GM and Chrysler, this program will backfire, as do most government programs.  My prediction is that the market shares of Ford, Toyota, Honda, Hyundai, and Kia will rise at the expense of GM and Chrysler.

This program also raises further questions about the competency of the government.  Love or hate this program, it was administered poorly.  No, this doesnt “prove that government cant run our health care system.”  It should, however raise at least some concern about the capability of government to administer programs.  It should also serve as a warning that when the government offers people a massive discount to use a service, people will take advantage of it (people respond to incentives).  The government and taxpayers should at least use the example of this program to think about what the effects of what will be perceived by many to be free health care will have on an already strained system.

This program should remind us to be weary of government estimates.  The $1,000,000,000 [$1 billion] allotted for this program was expected to last at least until the program’s anticipated end date of November 1st.  Instead of lasting for 4 months as estimated, it lasted less than one month before it exhausted its funding.  If the government was this wrong–way wrong–on estimates for its costs of giving out coupons for discounts on cars, can you imagine how far off could its estimates of the costs of administering a $1,000,000,000,000 [$1 trillion] “free” health care program be?

Its worth thinking about.

Americanly Yours,

Phred Barnet

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The non-partisan Congressional Budget Office recently released a report saying that the President’s healthcare plan would be very costly–the CBO estimated that the plan would cost around $1,000,000,000,000 [$1 trillion] in new debt and would only decrease the percentage of people without health insurance by around 1/3.  From the CBO director’s blog:  “According to our preliminary assessment, enacting the proposal would result in a net increase in federal budget deficits of about $1.0 trillion over the 2010-2019 period. When fully implemented, about 39 million individuals would obtain coverage through the new insurance exchanges. At the same time, the number of people who had coverage through an employer would decline by about 15 million (or roughly 10 percent), and coverage from other sources would fall by about 8 million, so the net decrease in the number of people uninsured would be about 16 million or 17 million.“

In other words, this plan is extremely expensive and will only accomplish around 1/3 of its goal.

$1,000,000,000,000 [$1 trillion] over 10 years comes out to $100,000,000,000 [$100 billion] in new debt per year from this program.  If you divide that up amongst the $304 million people living in this country, the cost of this program in new debt per person per year is $328.95… BUT…

Not everyone pays (ie, the poor) or even files for taxes (ie, children) .  According to the IRS, 132,276,000 individual tax returns were filed in 2006.  Of these returns, 43,400,000 had no tax liability (and many actually had a negative tax liability).  This means that taxes were paid on 88,876,000 tax returns. [Note:  i used the 2006 IRS numbers because I was unable to find a percentage of returns that didnt pay taxes in 2007]

Now, if we take the $100,000,000,000 [$100 billion] and divide it up among the 88,876,000 income tax returns that paid taxes, we find that those Americans who do pay taxes will be forced to pay an average of $1125.16 per person per year to finance President Obama’s healthcare plan. Remember, this is an average–many Americans will be forced to pay much more than this.

And remember, this $1125.16 per taxpayer will only cover about 1/3 of those Americans who do not currently have health insurance.  Covering the other 2/3 will undoubtedly be much more expensive.

As a taxpayer, are you OK with the government telling you that you HAVE TO pay $1125.16 per year to pay for someone else’s healthcare?  If not, you need to call or email your representative and tell them that you oppose this plan–before it is too late.

Americanly Yours,

Phred Barnet

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I am livid.

I started off writing about income tax rates.  It was turning out to be quite a good article (in my opinion).  I decided to cite that tax burden chart from the CBO that I referenced in my cigarette taxes article.  Go ahead and click the link there for the chart. Notice anything?

Its gone.

Then I went to the CBO’s website and the chart was nowhere to be found.  I searched for it by its name: “tax liability shares,” in quotes like they recommend.  The only thing that came up was a list of the tax brackets.  Not what I was looking for.

Then I went to the internet archive which stores records of all websites and there was no record of that page having ever existed.

Did anyone happen to download that file before the government removed it?  If so, could you please send it to me?

So much for open government and transparency.

Americanly Yours,

Phred Barnet

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The nonpartisan CBO made a disturbing announcement in regards to our future budget deficits yesterday.

“President Barack Obama’s budget would produce $9.3 trillion in deficits over the next decade, more than four times the deficits of Republican George W. Bush’s presidency.” Remember that Mr. Obama criticized President Bush for sharply increasing the deficit which Mr. Obama inherited.  Well, Mr. Obama’s ambitious plans will leave his successor with a much much larger debt to inherit.

President Obama inherited a deficit of about $1,000,000,000,000 [$1 trillion] from President Bush’s administration–and the Democratic Congress.  He then added another $800,000,000,000 [$800 billion] to the budget by passing his gargantuan “stimulus” plan.

Mr. Obama did inherit a large annual deficit from the Bush administration, however, trillion dollar deficits were by no means emblematic of the Bush administration’s record.  President Bush’s deficits peaked at $412,700,000,000 [$417 billion] in 2004, but dropped down to $162,000,000,000 [$162 billion] by 2007– a drop of over 60% from its peak.  In 2008, the deficit did soar to record heights, however this was mainly due to the massive stimulus bill that sent every working American a check and was championed by President Bush and the Democratic Congress.  However 2008’s record deficit is still 1/4 of the size of this year’s deficit and less than half of the projected average annual deficit for the next decade!

And, the $9,300,000,000,000 [$9.3 trillion] in deficits projected by the CBO is $2,300,000,000,000 [$2.3 trillion] higher than the total deficits projected by President Obama back in February.  As you may recall, I previously wrote about Mr. Obama’s plans to “cut the deficit in half” by 2013 and criticized that statement as a distortion of the facts.  However, the CBO is now projecting that Mr. Obama’s deficit for that year will be $139,000,000,000 [$139 billion] higher than the numbers that he announced in February!  “Obama’s budget promises to cut the deficit to $533 billion in five years. The CBO says the red ink for that year will total $672 billion.” And, following that year, the deficits will begin to climb again, ageraging just under $1,000,000,000,000 [$1 trillion] each year for the next ten years!!!

The avergae deficit for the next ten years will be as large or larger than the one that President Obama criticized President Bush for leaving behind.

The large increases in spending in 2008 and 2009 have been justified by Presidents Bush and Obama and Congress as temporary measures that are “necessary to end the recession and stabilize the economy.”  But economists, the Foderal Reserve, and the CBO are all saying that the recession will end in late 2009 or early 2010.  Why then is the President proposing budgets that continue to promote reckless deficit spending after the crisis has ended?

Americanly Yours,

Phred Barnet

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A year ago, America was completely different than it is now.  In the last year, the government has nationalized the banking industry, taken over the worlds largest insurer (wasting well over $100 billion in the process), and taken control of two iconic car companies.  Last week, Congress agreed to a plan that will cost nearly $800 billion.  Between actions by Congress and the Obama administration, as much as $3 trillion was pledged to government bailouts last week! This amounts to 21.7% of American GDP (US GDP is 13.7 trillion).  This new spending is more than government’s entire 2008 budget of just under $3 trillion.  Every penny of this money is being financed with debt.  This will raise the size of the national debt substantially.  Our national debt currently stands at roughly $10.7 trillion.  If we add another $3 trillion to the debt, our debt will increase by 28% and will be roughly equal to our GDP!

Of course, even Mr. Obama has admitted that there is no guarantee that these plans will work.  Even more interesting, he has said that these plans will have little effect before 2010.  This is particularly interesting because the non-partisan CBO recently estimated that the recession will supposedly be over in mid 2009 even if these “stimulus” plans werent passed, meaning that Mr. Obama’s plans wouldnt even begin working until after the economy has already started to heal itself.

But, lets pretend that Mr. Obama’s boldest predictions are correct and that this plan will create 4 million new jobs (although he says it will create or save 3-4 million jobs).  Let us also assume that each of these jobs is a high paying job of $100,000 a year and that these jobs are permanent jobs that will never go away in the future, regardless of future circumstances.  According to both H&R Block’s tax calculator and the Heritage Foundation’s much simpler tax calculator, a single person earning $100,000 pays $19,472 in Federal taxes.  So, the 4 million jobs that we are pretending this plan will create will return $77.888 billion in taxes per year to the federal government.  Excluding any interest (which will likely be a hefty sum and will go countries like China), it will take the government about 35.5 years to recoup the money!

If, however, this plan still creates 4 million jobs but these jobs pay $50,000 per year instead of $100,000, the government will collect $6,606 in taxes per person totaling $26.424 billion in taxes per year.   Under these circumstances, it will take the government 113.5 years to recoup the money!

However, I made a little Excel spreadsheet assuming that the government would have to pay 3% interest on these new loans.  This is a generous assumption, considering that the average rate on treasury bills has been much higher.  I used both of the above jobs assumptions in my calculations and found that the government will actually never be able to recoup this money if interest is factored in! Check it out for yourself.

Americanly Yours,

Phred Barnet

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