Wednesday, January 23, 2013 - President Obama's Second Inaugural Address

President Obama's Second Inaugural Address: This native Californian was all bundled up to keep warm on a chilly Washington morning on Monday to witness the 57th United States Presidential Inaugural and hear President Obama's second inaugural address.

To be honest, I was inspired by the address.....
....but, not in the way the president might have wanted.

I'm a big football fan. There's nothing to bring you to your feet quite like the big touchdown pass. And, that is usually what brings accolades in the annals of football lore. But, just as important, and many times more important, is that tenacious defense. When you don't have the ball, you count on those 11 defensemen to keep you in the game. Oh sure, they can sometimes get a "pick-6" and score a touchdown. But usually, they just hold the line and keep bad things from happening. The undefeated 1972 Miami Dolphins were led by what was dubbed the "no name defense". They held the line and they were a big part of the only undefeated season in NFL history. As Republicans, we don't have the ball right now. We may control the House, but we are the minority party in Washington since everything else is Democrat-controlled. We are on defense.

The president's address started out rather well, I thought, as he talked about the enduring nature of our Republic and its establishment by some pretty bright and unquestionably brave guys. But then, the speech deteriorated rather badly, in the view of this attendee. You have probably already read or can read what he said. But, to this listener, there was not only no olive branch extended, but the president was confrontational. As he ticked off his points, what I heard was an agenda of, as Sir Winston Churchill once described it, the equal sharing of misery. I heard the mention of all kinds of specific groups that he would help, as well as the mention of classes. I did not hear about the only class that we have in this country - the American class. I heard a plea to lower medical costs when Obamacare has dramatically raised medical costs for everyone.  I heard a strategy of disengagement around the world, which works fine until some part of the world rises up against us. And, Mr. President, making the strong weaker does not make the weak stronger. In fact, it does just the opposite.

What I heard was the antithesis of why I have been in public service for more than a dozen years.

And, I was inspired. Not because I liked what I heard. I obviously did not. Not because I was encouraged that there will be common ground upon which we may move the country forward. I believe that will not be the case. I was inspired because I now know what I have to do. The country will be led in the next four years by an individual who, if left to his own devices, will make this country weaker and less prosperous. Much of what he laid out will make us more and more like the weakest and most troubled of Europe's states: Focused on expanding failed programs, on driving out accomplishment and turning a blind eye to threats around the world.

I can't let that happen. We can't let that happen. I know that's not an agenda of progress. That agenda was delayed by the election results on November 6th. But, we can stop a lot of bad things from happening. We can have a tenacious defense. And, we can save America in order to reap the exceptionally bright future that is before us just waiting for the right leadership.

Thank you, Mr. President. Thank you for lighting a fire underneath me and the silent majority of others like me. This is a battle of ideas. Yours are wrong. Our swords and our shields are at the ready. Let the fight begin.

Monday, January 21, 2013 - Moral Imperative

Moral Imperative: I speak often in these pages about things fiscal, financial and economic. Given that I am a CPA and sit on three committees in Congress that deal with money (Budget, Financial Services and Joint Economic), this is to be expected. But, I am not all about money. And, the nation's problems are not all about money. As big a problem as our debts and deficits are, they are emblematic of deeper and actually more significant moral and cultural issues.

For some time now, we have heard of those who Tom Brokaw dubbed "the greatest generation", those who sacrificed through a world war to vanquish fascism and imperialism and leave a stronger America for their children. We can go back further to speak of the generation that took the risks to establish this country in the late 18th century or of the generation that fought the Civil War. In each case, said generation sacrificed in order to leave a better and more prosperous country of opportunity for their children.

But, what are we doing now? What will be the legacy of my generation? Our debt and deficit crisis is largely caused by giving ourselves health care and retirement benefits without paying for them. But, we "deserve" them. We are "entitled". We paid for them. The problem is that none of that is true. I have paid Medicare taxes my entire working life, and I started earning a paycheck when I was 16. I am 57 years old and, therefore, am 8 years away from Medicare benefits. In spite of that, I have only paid in 1/3 of the cost of the benefits I will likely receive. The rest, fully two-thirds of every doctor visit or medical procedure, will be borrowed. That means my kids will have to figure out how to pay for it.

I use myself as an example, but I am not unique here. No one receiving Medicare now or about to receive it has paid anywhere near the full cost. The same is true of Social Security, although those numbers are not as lopsided. And, we all want to care for the indigent, but we do not pay enough taxes to cover Medicaid expenses either.

So, as a society, we have decided that we want a bunch of stuff right now so that our standard of living will be higher...so that we can buy more things and live more comfortably. And, we don't want to pay for it. Instead, we demand that people in the future pay for it through less opportunity and lower expectations and a lower living standard. Instead of sacrificing to leave the next generation a brighter future, we are rewarding ourselves more than is our due and leaving the next generation with less opportunity, lower expectations and a lower living standard. It is selfish. It is just plain wrong.

The financial markets are also a part of the problem right now. Markets today are dominated by traders rather than investors. Those traders have a very short-term outlook. They are interested in the next week or maybe, at most, the next quarter. So, they want any accommodation that preserves their outlook for a few months and the heck with the long-term future. “I'll gladly pay you Tuesday for a hamburger today,” as the cartoon character J. Wellington Wimpy proclaimed in 1932, seems to have become Wall Street's motto. These short-term markets will hate what we might have to do to fix the problem. But, we must start becoming less concerned about the next 3 weeks in order to build a brighter future for the next 3 decades.

In the final analysis, that's really what this debt limit fight is about. The president and his minions want to give you something for nothing. That's the source of their political strength. You get health care and retirement and education all for free because you are "entitled" to it and somebody else will pay for it. Problem is that those “somebody else's”, like the "rich" and the "corporations", don't have even 10% of the money necessary to pay for it. So, the people paying will be your children. And, they will pay dearly.

I understand that the world moves on. I understand that things change. But, some principles are enduring. Whatever happened to the idea that you are entitled to nothing that you don't earn or show yourself to be deserving of? What about the idea that no matter how good or how modest my station in life is, I want my kids to have it better?

Our debt and this president's perpetual trillion dollar deficits are not just bad economic policy - they are morally reprehensible. We have to make a stand. Barack Obama will be president for 4 more years, to my great disappointment. We are better to make that stand now, even if it means we all have to suffer the trauma of going past the debt limit, than to condemn our children to the consequences of future collapse that will impact them for decades.

Monday, January 14, 2013 - Debt Ceiling Conditions

Debt Limit: The president says that we should just extend the debt limit, or cede the authority to him to expand it as he wishes. I'm sure he probably doesn't think we even need such a discipline at all. He says he will not negotiate on this issue. He says that Congress has already approved all the spending that led to these deficits.

Like on most things, the president is completely wrong.

If credit cards had no limit on them, a whole lot of people would spend without end. The debt limit is like that. It is a discipline that reminds us – “Oh yeah…we've just borrowed $16.4 TRILLION. That's kind of a lot. Maybe we shouldn't spend so much.” We’ve borrowed 35% ($5.805 trillion) of that since Obama took office. Maybe we ought to think about it before we try to borrow $7 trillion more, which is an approximation of how much more this president wants to borrow in his second term. And, as I understand him, the president won't negotiate on this. In fact, he has yet to negotiate on anything. No change here. And, as far as Congress already approving the spending....that's not correct either, Mr. President. Sixty percent of all federal spending occurs as a result of entitlements, which do not require any action by Congress on any periodical renewal. They continue without end unless Congress acts to change them. In my nearly 8 years in Congress, I have voted to reform and reduce said entitlements every chance I have gotten. But, never once have said bills passed the Senate.

I did not vote for this spending, Mr. President, and I don't support it. Nice try.

This member of Congress will vote to increase the debt limit. But, only if there is significant, substantial and meaningful reform to several entitlement programs that starts to reduce the curve on our deficits by a noticeable amount immediately. Only a third of Medicare costs are covered by the taxes. The rest is borrowed. That cannot continue. Medicare will fail. Social Security is better off, but still under water. The food stamp program has increased by 270% since 2002. Medicaid is rampant with inefficiencies and abuse. Student loans are burying kids in debt they will never be able to repay. And, there are about 400 other entitlement programs out there. Reforming entitlements is a target-rich environment. I'm flexible as to what said reforms should be. There are lots of options.

But, I am not flexible on this: I will not vote to raise the debt limit without said cost-saving and deficit-reducing reforms. Period. I understand that if we go past the ability of the federal government to borrow money, federal spending will be limited to how much is received. (Shocking thought!) I understand that this could cause major disruption in the financial markets. Foreign markets may lose faith in Treasury securities. A lot of federal programs will be shut down or reduced. A whole lot of people, including yours truly, won't get paid. None of this is good.

But, if we don't get these deficits under control, we will soon have a debt crisis which will be much worse than what I just described - and we will have no way to get out of it without tremendous pain. This is not conjecture. The only 3 countries on earth with a worse debt to GDP ratio than the U.S. are Greece, Spain and Japan. All 3 have had different outcomes from their respective debt crises, but all of them are bad. This president has shown no interest in or capacity for dealing with these deficits. I don't know if he subscribes to the now disproven theory that deficits don't matter or if he is just oblivious. But clearly, if the House does not act here, we will have a crisis at some point very soon. I don't want to have to go past the debt limit with the consequences thereof. But, better to have such consequences of our own making at a time of our own choosing, when we have the ability to fix them, than to have much worse and uncontrollable consequences for which we are unprepared.

Why am I so firm about this? I have been a spending and deficit hawk since I was first elected to the California State Assembly in 2000. I was a spending hawk in my business for 25 years before that. Maybe it is my Scottish heritage. Maybe it’s because that's the way CPAs like me are. I'm not sure.

But, for me now, this is beyond just a political position. It is beyond a fiscal position. It is a moral imperative.

Stay tuned for the next laptop on this subject. Once again: Same bat time. Same bat channel. (Actually…why did I like that show? It was so campy.)

Monday, January 7, 2013 - Why I Voted Against the Fiscal Cliff "Deal"

Fiscal Cliff: You may be wondering why you did not hear from me during the last few weeks of the "fiscal cliff" machinations in Washington. For one thing, I figured that many of you were enjoying the holidays with your families and friends and did not want me to interrupt that with depressing news. Additionally, however, things were moving so fast that anything I wrote you would have been obsolete by the time you read it. I had about a dozen “laptops” in my head each day, but, by the time I sat down to write them, the circumstances had already changed.

Well, unless you were abducted by aliens or have just gotten back from your Mayan end-of-the-world worship ceremony in South America, you know about the deal that was passed by the Senate and the House on New Year's Day. To say I didn't like the "deal" would be to understate the case. I hated it.

I don't want to raise taxes. That feeling is not driven by a pledge, as many liberals would like to argue in order to portray we conservatives as the mindless lemmings that some of said liberals are. I think that having the federal government take roughly 20% of all the production of the people of the United States is more than enough to accomplish what the federal government has to do. I also think that having all levels of government take 1/3 of all the value of goods and services produced by all of us is equally sufficient. Those numbers are roughly where we are now.

During the 12 years during which I have served in 3 legislative bodies, I have observed a couple things about the operation of the loyal opposition. (1) There is no end to the number of programs that Democrats will fund with taxpayer money as long as they can get their hands on that money. (2) They will passionately describe why this need and that need must be fulfilled, which in the aggregate will require taxes on everyone to double, triple or even quadruple (if you actually wanted to do it all without deficits). So, in order to stop this madness, we must starve the beast. We must limit the tax revenue so that real choices have to be made between what it is truly worth confiscating the people's earnings for and the things which do not rise to such a level.

Furthermore, I believe that we are at a tipping point in taxation at which additional taxes will cause people to change their behavior in such a way as to result in less revenue. This will become supremely evident soon in my home state of California, where the recent tax increases have already passed that tipping point. People, businesses and money are and will be rushing out of California to other states where success and accomplishment are welcomed rather than despised and punished. This exodus is in part fueled by the fear that the tax and regulation behemoth that is now the formerly free state of California is not finished taxing and regulating. That fear is well placed.

So, the last thing in the world I wanted to do was raise taxes. But, I understand that the people made an exceptionally bad choice in reelecting Barack Obama as president in spite of his complete lack of accomplishment or agenda for prosperity, national security, reducing the deficit or anything else. Raising taxes for the purpose of "revenge" (his word, not mine) was the singular thing he demanded as though that would somehow cure all the nation's ills. So, Speaker Boehner, on November 7th, offered to give the president tax increases in exchange for spending reductions. By doing this, at least in theory, we would reduce our deficit.

The final "cliff deal" definitely included tax increases. And, in spite of the advertised threshold of $450,000, taxes were actually increased starting at $250,000 because of the limitation on deductions that was included. And of course, with the expiration of the payroll tax holiday, everyone will now see a tax increase unless you earn under $250,000 and 100% of that income is from dividends, interest and other investment income. The dozens of Obamacare taxes also went into effect January 1st, which will directly tax many and will indirectly tax everyone on "medical devices" as ubiquitous as band aids.

But, the tax increases were not accompanied by any spending cuts in this deal. If that had been the case, I might have even been able swallow that deal. But, what I absolutely could not abide was that these tax increases were coupled to $600 billion in spending increases!

That fact made my "no" vote on this package one I cast with vigor. Late New Year's evening before the vote, I argued vociferously with the Republican leadership to return the bill to the Senate with the tax provisions included but amended with all or most of the spending increases removed. Many others joined me in this appeal. But, that request was rejected.

What were these spending increases? Well, from my perspective they were pretty bad. To start, an extension of the up to 99 weeks of unemployment payments, in spite of all the evidence that long unemployment payments perpetuate unemployment rather than reduce it. And, an extension of a greater "earned income tax credit". This is the refundable tax credit where people who pay no taxes can get a check from the government. This is universally recognized as the single most abused program of any sort in the federal government. The IRS, who administers the program, has said that this is effectively a welfare program and they are not built to administer welfare programs. So, they have no way to know if the checks they are sending are to legitimate recipients, and estimates of abuse of this program run upwards of 30% of all the money sent. But......we just expanded it.

And then, of course, there is the spending that occurs through the tax code. We just extended for up to 10 years, a whole bunch of special interest tax credits that can be described by no other word but “pork”. For example, tax breaks for Disney and Hollywood film production companies, subsidies for mine companies to train their employees on safety, subsidies for rum production in Puerto Rico and the U.S. Virgin Islands, special tax provisions benefiting New York City, subsidies for "2 or 3 wheeled plug-in electric vehicles", subsidies for growing algae for “cellulosic biofuel research”, a wind energy production tax credit, and tax credits for private railroad companies to maintain their own tracks. The list goes on and on.

No, this was not a close vote for me. But, it passed. So, we need to move on.

And, move on we will. By the end of February, the Treasury says that they will run out of cash due to reaching the debt limit. Also, at the end of February, the delayed "sequester" spending cuts will go into effect. And, at the end of March, the authority of the federal government will run out.

Tune in to the next laptop report for my thoughts on the "debt limit cliff".  Same bat time. Same bat channel. (Yes, I realize I’m showing my age here!)