It will be no surprise to readers of this missive that I think ObamaCare is an unmitigated disaster. But, even if you think it was a good thing, the problems surrounding its implementation have injected even more government-created uncertainty into a major element of the economy. Uncertainty retards growth because it freezes capital, labor and decision makers. The uncertainty here is not just a result of the pending Supreme Court decision. It began long before that as it quickly became apparent that major elements of ObamaCare just don't work. Even the White House has admitted this. Even more problematic, the provisions that the White House has already agreed not to implement have now put other parts of the law in question as these parts were dependent on those withdrawn.

There was universal agreement that our health care system needed reform before the passage of ObamaCare. It is pretty clear now that the system today is worse as a result, not better.

But, when we say that we need reform in health care, it isn't that we have bad care as a society. Arguably, we have the best medical care in the world. People stream here from countries across the globe to access the best American doctors and procedures. And, our problem is not access either. We often hear talking heads call for "universal care". I would argue that we have universal care already. No one is turned away from an emergency room. Sick people are not roaming the streets without access to doctors. Now, that doesn't mean that everyone has equal care. That will never happen because doctors are human beings and they are different and hospitals will be different and so forth. But, we do already have universal care. Our problem is that we are paying for it in an inefficient and inequitable manner. Therein lies the challenge.

In this "Fix It" series, I have endeavored to provide you with solutions that I think can attract bipartisan support. Health Care may be the area where this is the most difficult. That is because ObamaCare is directionally opposite from where I, and all Republicans, think the solution should go. ObamaCare moves more control and decision making to the government and your employer. I believe that we should be doing precisely the reverse. We should be freeing individuals from dependency on either their employment or a government bureaucrat for their health care. You should own your policy and it shouldn’t depend on what job you have or if that job changes. Pre-existing conditions should not affect your ability to change health care providers. Not because of some government mandate, but because we all should pay into a pool to cover ourselves in the event we fall into that category some day. A premium support program (just as exists and works in Medicare Part D today) can provide increasing support for those who can't afford the coverage or are enrolled in Medicare. And, if you don't like your coverage, you should be able to easily change it. And, if you want to have a bigger deductible and pay less, you should be able to do that, too. And, if you think your provider doesn't cover everything you want covered, you should be able to switch and determine if the benefit is worth any additional cost.

That's the way human economics works. It works for something as essential as food. It can work for health care, too.

In this short piece, I can obviously not do an exhaustive explanation of this very complex subject. But, I think you get the point. Finding a bipartisan solution here will not be easy. But, fixing the way we pay for health care can free businesses to hire more workers without fear of unknown, future health care liabilities. It can free health care professionals to go back to actually providing care, instead of managing through a labyrinth of confusing and changing regulations. We can get billions of dollars of unnecessary costs and procedures out of the system. And, we can save federal dollars in support programs as well.

It will never be perfect, but we can be much closer than we are.

I'm going to call my doctor now because I feel better already!

Energy: The "fix" for our energy problems is actually one of the simpler ones. And, the reason it is simple is not because of any action of Congress or the President. It is not even because of our founding fathers. It comes from God.

This country is blessed with enormous natural resources. We have more coal than any other country on earth. We can make electricity from coal. We also have enough natural gas, by some estimates, to last us for a century. We make electricity from natural gas. We have a number of nuclear plants that generate electricity and we can build more. And, we have rivers to create hydroelectric power which can be harnessed to create more power should we need it. I have just described four sources that currently create more than 90% of all the electricity in this country. And, we can expand them all if we want or need to without importing anything from any other country.

But, you say, you haven't mentioned anything about our primary transportation fuel: oil. Currently, we import about half of all the oil used in the United States. But, we don't have to.

Last year, the National Petroleum Council (NPC) released a study showing that there are now enough proven oil reserves in the U.S., Canada and Mexico to meet all the projected oil use in those 3 countries for the next 30 years, at least. That means we can use all the oil we need without importing a drop from Saudi Arabia, Russia or anyplace else outside of North America. Now, some of you will assume that NPC is some front organization for evil oil companies. Sorry. It was formed by the U.S. Department of Energy to keep the Energy Secretary informed about petroleum reserves in the country and its membership includes several environmental groups. And, NPC is not the only organization reaching this conclusion.

Back in the 1920s, as more and more cars were being built, President Calvin Coolidge wrestled with the predictions that the world would run out of oil in 1935. But, technological improvements found more and more oil. My father was a petroleum geologist working in Kern County, California in those days, and he used the latest innovations of the time to find that oil. This same scenario is playing out again. New technologies have developed new ways to economically extract oil that previously either could not be found or could not be extracted. We have new proven reserves in the Dakotas, in Pennsylvania, West Virginia and many other states, including even California and New York. We have the ability as a country to be completely energy independent. This is a tremendous national asset. The Germans can't do this. The Japanese can't. Even the Chinese can't. We are the only country on earth that has energy resources that we are choosing not to use, opting to import that energy instead. Why?

Unfortunately, various groups with political influence use "environmental" reasons to block U.S. energy development. But, the "environmental" arguments are just a smoke screen for people who are against any growth in human activity at all. I can refute every supposed environmental argument to the development of our own U.S. energy resources, but it would take the next 4 episodes of this epistle to do so. Suffice it to say, for example, that developing all the available oil in Alaska would impact only the land equivalent to a postage stamp on a football field. Slant drilling will enable the extraction of much of our offshore oil without ever penetrating the ocean floor. And even if this were not the case, is it better to buy the oil from foreign countries whose environmental regulations contain none of the protections that ours do?

But, let's assume that I am wrong and that there are environmental impacts. Those must be weighed against the benefits of developing our own oil. Let's assess what those benefits are: (1) Jobs - The states with the lowest unemployment in the country today are generally the energy producing states like Oklahoma and Texas. We can have a lot more of those. And, the jobs produced are good paying jobs and often union jobs. (2) Trade Deficit - We can vastly reduce the trade deficit if we don't have to import so much oil. (3) Security - Some of you probably believe that we entered the Persian Gulf War to protect Kuwait as a source of oil. If we didn't have to import oil from there, (or other non-North American countries), our foreign policy towards such countries could be completely different. And, I think it is unlikely we will be attacking Canada any time soon. (4) Price - There is a world price of oil. But, we can have a great deal more control over what we pay at the pump if we are domestically sourcing our own oil. So, what are we giving up in exchange for the weak environmental arguments? Jobs, lower deficits, security and lower prices against.......no real argument at all.

So, you ask, where is the bipartisanship here? When we have voted to complete the Keystone pipeline, nearly one third of Democrats in the House joined every Republican in support, in spite of heavy, heavy pressure from the White House on Democrats to oppose. Without that pressure, an overwhelming majority of both the House and the Senate will support an initiative to develop all of our domestic energy. Unfortunately, President Obama has become a captive of a small, fringe element of his support base that opposes all growth. That is not where most Democrats are. That is not where most people are. No other country on earth has the ability to be energy independent and chooses to import it instead.

You may also ask why I have not talked about the oft-discussed wind and solar options. I have nothing against wind and solar. But, they can never be anything but supplemental for any number of reasons because the wind does not always blow and the sun does not always shine. Solar might be more effective in the future if there is a breakthrough technology. But, the interests promoting wind and solar are doing so precisely because they know that reliance on these sources will make energy scarce and expensive. In the end, that is what they want because it will stifle growth. I think about this when I drive past the windmill farms near Palm Springs. How can that huge blight on an otherwise beautiful desert landscape that produces so little energy can be considered environmentally sound? With much less environmental impact, for less money and without potentially killing birds, we can produce so much more energy in so many other ways. I think wind is one of our least environmentally-friendly energy sources.

As far as I am concerned, this discussion is not about using more oil or burning more gas. The car I drive most of the time in California is an electric car (more about that and electric cars in general in a future laptop). We have a number of energy choices to power our future and we should let technology and the market decide which energy source is best. But whatever that source is, we can make it here. We don't have to import it from outside our continent or be dependent on some unstable or unfriendly government to get it. And, we can add a lot of jobs, economic growth and, yes, tax revenue along the way. This is truly a no-brainer element of fixing the American economy.

Random Thought of the Day: Last week, we voted on several alternative budgets to the Paul Ryan budget, which was the budget we ultimately passed. One of them was President Obama's budget. The President's budget failed by a vote of 0 - 414. You read that correctly. Not one member of the House of Representatives, Republican or Democrat, could bring themselves to vote for the Obama budget. Is that some indication of just how bad the Obama budget is? Just as this vote was finished up on the House floor, I heard another congressman quip, "Well, Obama said he was going to bring us all together and unite us. And, he has finally done that!"

Until Episode IV, have a Happy Easter and Blessed Passover.

That means we are debating the budget for the upcoming fiscal year. There are proposals and amendments and such.

Below, I've included a 5 minute video clip of a response I gave to another (sigh) proposal to "tax the rich more". I received a number of accolades on this speech, including many from Democrats. I hope you enjoy it.

By the way, the amendment was defeated.

Click to Watch Video

Instead, let me put this problem/opportunity in the context of the larger issue we are talking about. Implementing a plan to gradually fix our deficits and reduce our debt is a necessary but not sufficient condition for growth. Fixing the deficit will not in and of itself free the economy for sustained prosperity. There are other things we have to do that I will write about in future episodes. Suffice it to say, fixing the deficit is not a sufficient condition. But, it is a necessary one.  If we don't do it, we will certainly bring on a crisis which will plunge us into a long and deep recession. By definition, that means negative growth such that fixing health care and energy and other areas are unlikely to rescue us from the economic collapse of a debt crisis. I have described how and why this will occur in the past, but for a contemporary example one need only look at Greece.

The Greek example is instructive in another way. Because they waited until a crisis was upon them to deal with their deficits, they have had to fix a deficit the size of ours, in relative terms, in just one year. That required huge tax increases and spending cuts all at once. That shocked an already fragile economy and they now have a GDP contraction larger than anything we experienced even in 2008/2009. This is why trying to balance a budget deficit that has grown as large as ours too quickly is actually a bad idea and can retard growth rather than enable it. We need to immediately implement a plan to balance our budget, but that plan should do the balancing over 5 to 10 years. This will give markets the confidence that the problem is solved, but not shock the economy by pulling too much out of it too quickly.

Over the next 2 weeks, Republicans in the House will pass a budget that reduces the deficit from $1.2 trillion this year to $800 billion next year, and roughly $200 billion by the end of the decade. That should do the trick because economic growth (which cannot now be projected very high) will probably make up that other $200 billion and get us surpluses. The conservative Republican Study Committee will propose another budget which will balance even without more growth within 10 years. But unfortunately, the Republican budget will pass with few, if any, Democratic votes and will never be taken up in the Senate. And, the Study Committee budget will fail because all Democrats and a number of Republicans will oppose it.

Not only does the President's budget never balance, it actually worsens the deficit more than any budget proposed by anyone to date. The Senate Democrats have not even proposed a budget in 3 years and will not likely do so this year. The only bipartisan solution that is out there is the Simpson-Bowles report released in late 2010. That plan moves the budget towards balance at a slightly slower pace than the Republican budget and does so in a different fashion.

Whether it is the Republican budget (so-called Paul Ryan budget) or Simpson-Bowles, there are many ways to get this done over time. In my opinion, we need to start with one of these and build a bipartisan solution from there that will balance over 10 years, including growth. As unlikely as that may seem in today's political climate, it can be done both politically and economically. And, it must be done. I wish I could tell you that this can happen before the election, but we all know that is not true. However, the groundwork can be laid this year to get right on it after the election. You can be assured that this member of Congress will be laying some of that groundwork.

Unrelated Tidbit: During the writing I’m doing in our "Fix It" saga, the world moves on. I can't observe all of it without a comment or two. Here's one for this week. Isn't it interesting that President Obama has rejected the Keystone pipeline, oil in Alaska, shale oil in the Dakotas and California, Gulf of Mexico and other offshore oil - all the time saying that this additional supply will not really affect gasoline prices. But yet, last week, he made further comments that he might release the US Strategic Petroleum Reserve because the additional supply will lower gas prices. Huh? So, a temporary, one-time, small supply increase will lower prices, but a permanent, enormous and consistent supply increase will have no effect? Maybe Harvard College needs some new economics professors. Or, perhaps Mr. Obama was not paying attention in class that week........

Next week: Episode III. (Just pretend it's Mad Men or something)

Makes you want to fill your bathtub with beer and go drown in it.

But, there is good news. Honest. As messed up as we are, the rest of the world is more messed up. And, we are the only country on earth that can solve all of our own problems by ourselves, without relying on any other nation. Those two indisputable facts mean that the United States is on the cusp of a huge window of opportunity that could usher in an extended new period of prosperity, security and hegemony for this country.

Permit me to give you a little more explanation of this good news and opportunity. Europe's problems are well-known to everyone by now. But, what is less well-known is that the European Union has massive structural problems that could take a decade to work through, even if you assume it does not collapse. Their experiment in increased socialism has failed (as has every such experiment before) and they will have to either unwind some of it or accept a lower standard of living for European people. China, for all the glowing reviews you read, has a number of deep economic and social challenges that are slowing growth there and will likely focus them inward for a while. The stock market in India fell 38% last year because they, and other BRIC countries (Brazil and Russia), have their share of problems. Widespread corruption in some of those countries has limited foreign investment and deepened the effects of other societal problems. Japan faces serious problems due to a strong yen that is forcing a lot of production out of that country. And, because they have always had almost no natural resources, they have a dependency on imports for virtually all of their energy (except for their substantial nuclear production), food and other products. The UK is doing relatively well, but is being dragged down by their proximity to and trade with a sinking Continental European economy. The best decision the UK made in recent years was to reject the urge to give up the pound and join the Euro.

It seems to be part of the American psyche of late to look at other countries and conclude that they are doing things better than we do. I remember during the 80s when the media said we just needed to be more like Japan. They were growing and buying many things in the US and we didn't understand how they could do what they were doing. We were told that they had a 100 year investment horizon, they were just better and smarter than we were and we should struggle to be more like them. But, Japan turned out to be in a bubble which burst - as all bubbles do. If it looks too good to be true and reasonable people think it makes no sense, it usually is not that we're missing something. It usually just doesn't make sense.

Anyway, it’s pretty clear now that we don't need to be more like China or Japan or Europe or Brazil. We need to be more like us.

The rest of the world's problems are deeper than ours. That is no credit to our leadership. That is credit to our system and our culture. Because America is such a great platform for governance and societal harmony, it is hard to screw up....although it seems we are trying. And, we have a better opportunity to fix our problems than do others. We have our own currency and still control most of our own debt. We have vast natural resources that can provide all of our own energy, food and other needs. We have the world's most productive and educated workforce and the strongest military and defense structure the world has ever known. And, although we love to export things to other countries, our economy is so huge that we are not dependent upon it.

In short, unlike every other country on the globe, we truly control our own destiny. This is a tremendous opportunity that we should seize. And by the way, if we fix our problems, we will help pull the rest of the world closer to a solution for theirs. Over the next few weeks, I will lay out for you the things I think we should do to take advantage of this opportunity, and specifically what I am doing to try and advance this mission. Frankly, the solutions are not that tough. From an academic or economic sense, it’s pretty clear what we should do. The greater challenge is a political one. I know that we Republicans hope to "run the table" in the 2012 elections and emerge with control of the White House, the Senate and the House. Democrats hope to do the same. But, the reality is that neither is likely to happen. And even if it does, neither side is going to get the 60 votes necessary in the Senate to pass legislation without some votes from the other side. So, the solution here must necessarily be something that can attract bipartisan support. That is the real problem given the polarized environment in Washington these days. But, as I will describe in the weeks ahead, there is reason for hope on that front.

So, stay tuned. This is the first in a series of "Laptop Reports" that will lay out not just where I think we should go, but the bipartisan sweet spot where I think we can go.

Next week, dealing with our biggest threat: The deficit.

President's Budget: The President's campaign slogan of late is an "economy built to last". Well, this is a "budget built to collapse". It astoundingly increases spending, taxes and the deficit, both in the coming year and over the next 10 years, against every other budget or projection that's out there. You have that right. It increases all three: spending, taxes and deficit. It moves annual federal spending from about $3.8 trillion now to almost $6 trillion by 2021. It projects $11 trillion in NEW debt over that period, bringing the total debt to somewhere around $27 trillion. And, taxes go up, but not as much as spending does. It makes trillion dollar annual deficits the new norm and makes government spending as a percent of the economy stay constantly at levels previously only ever reached during the height of World War II.

Now, I understand that this is an election-year, political document intended to appeal to the President's most liberal base. It would not get a single Republican vote and I expect that most Democrats in Congress would oppose it as well. So, it will not pass this year. But, I am disgusted that it does not even pretend to show an interest in controlling unsustainable deficits, debt and spending, and instead cavalierly worsens all three with an attitude that they don't matter. That is why it is hugely damaging. Some of us, on both sides of the aisle, have been working for years to get our colleagues to accept the severity and urgency of our problem and the necessity to take bold steps to fix it. We have been making progress. The President has just reversed that progress. It is even scarier to imagine that he would actually push this sort of budget forward next year if he were to be re-elected.

Social Security Tax Cut: Since I have been in office, I have witnessed the political dynamic that has led to our deficits. There is a constituency for every dollar of spending in the federal budget and for every tax deduction or credit in the tax code. Those constituencies are very vocal about protecting their turf. But, there was never a constituency for the deficit. So, when Republicans and Democrats had to reach a compromise on something, they would increase spending while lowering taxes. This way, everybody is happy and the only loser is the deficit - about which nobody screamed too loudly. The "tea parties" ostensibly became the constituency for the deficit in the last couple of years. They gave some voice to the debt and the deficit and helped create some progress of late.

However, the "payroll tax deal" struck last week shows that we have regressed to the old ways. In this horrible deal, Social Security taxes will be cut for 10 more months, but benefits will not decrease. This agreement provides both extended unemployment benefits for the rest of the year and a 37% increase, over the same time period, in reimbursements to doctors who take Medicare patients. Most of these costs will merely add to the deficit. The part that is "paid for" will be "paid for" by increasing fees, selling assets and having federal workers pay more for their pensions - over the next 10 years. So, we change things for 10 years in order to partially "pay for" 10 months of benefits. These asset sales and retirement savings are good things. But, they should be used to reduce the deficit, not pay for new spending. This is the same sort of "compromise" we have been making for years. Republicans get a tax cut and Democrats get more spending and the only loser is the deficit and the Social Security trust fund. This "deal" will increase the deficit in fiscal 2012 (this year) and fiscal 2013 (next year) by $141 billion. In other words, in one action, we have eclipsed all the savings made during last April's government shutdown standoff.

Republican Budget: As part of the "failure" of the Supercommittee and the "debt deal" last August, defense spending (and Medicare spending) was "sequestered" or cut by about $600 billion over the next 10 years. Many Republican "defense spending hawks" are displeased with that sequester. I disagree with them, but there are more of them than there are of me. Therefore, there is a move to repeal those defense cuts in the coming budget. This is coming less than 2 months after these cuts became law and 10 months before a single actual cut has been made. To be fair, they are talking about "replacing" those cuts with cuts somewhere else in the budget. But, if we can make cuts elsewhere in the budget, why don't we do those too and just reduce the deficit?

What do all three of these developments have in common? All will serve to increase the deficit and the debt. All propose to take items that could reduce our deficit and use them instead to support new spending. All seem to indicate that the prevailing view in Washington is that more spending, even if it leads to increased or sustained deficits, is a political winner.

Now, I understand that there are election-year politics in play here. But in America, the next election is always less than 2 years away. At some point, and soon, we are going to have to do the right thing and move these deficits in the other direction. The problems in Europe, China, India and other countries around the world have bought us time to fix our problems. Our debt is still attractive to buyers because our bad situation still looks better than the rest of the world at the moment. As has been said, we are the cleanest shirt in a dirty laundry bag. But, this will change at some point. And when it does, it may be too late for us to avoid extensive damage. Europe's problems are a direct result of their decision years ago to pay themselves the benefits of socialism while borrowing the costs thereof. Now, they are in a crisis and they must fix it right away. This means, for a time, the problem will get worse.

We do not have to follow the path of Europe. First of all, we can choose not to embrace the socialism that Europe has and that our President seems to desire (more about that in coming weeks). Instead, we can begin to fix our debt problems now, slowly, so that the negative impact on the economy will be nil. If we wait until a crisis, then we are going to be like Greece or Italy (or California) and we will have to take immediate and dramatic actions that hurt the economy for years in order to avoid a worse collapse.

But, the actions of last week were not encouraging. A few years back, a small band of us led by Jeff Flake (R-AZ) took on both the Democratic and Republican establishment in a mission to stop earmarks. It was a hard and lonely fight, but we won. This is a bigger fight. We have to win this one too.

CBO Truth Serum: OK, enough insignificant jabber. Last week, I had the opportunity in the Budget Committee to question the Director of the Congressional Budget Office (CBO), Doug Elemendorf, about several things. He confirmed for me that repealing the Bush tax cuts only on the "rich", defined by the Obama Administration as people making $250,000 or more, only represents about 15% of revenue "lost" from all the tax cuts enacted since 2001. And, it would only raise enough money to cover about 10% of the deficit over the next 10 years. You would think from listening to the President and other Democrats, that this alone will solve our problems. Not even close. "Tax the Rich" is no more than a campaign theme intended to stoke hatred and resentment and create distraction from the real problems and, likewise, their solutions. 

Click to Watch Me Question the CBO Director on President's Tax Plan

ObamaCare Miscalculations: When ObamaCare was being considered by Congress, CBO released an estimate that the law would not create any deficit over the next 10 years because of the tax and fee increases included in the bill. This was always a fiction, in part, because many of the costs of ObamaCare were intentionally loaded 11 years out specifically to distort this analysis. But, CBO's projections at the time were that unemployment in 2014 would be 4.9%. 2014 is a significant year because it is the year when much of the free medical coverage in ObamaCare begins. The fewer people unemployed, the less it costs.

Now, CBO projects that unemployment in 2014 will be 8.7%. That's a big difference. And, one of the major revenue components of ObamaCare, the CLASS Act, has been shown to be completely unworkable and even the Administration now agrees that it has to be scrapped. CBO Director Elmendorf says they will do new computations on ObamaCare in March. As more and more is revealed about this law, the fallacy of it will become more and more apparent.

Click to Watch Me Question CBO Director on Health Care Costs

And, for those of you who think I never say anything good about the President, did you hear him sing a couple bars of Al Green's "I'm so in love with you"? (I am an Al Green fan) If not, click here for the link. President Obama clearly has a very good voice. Mitt Romney, however, was somewhat less on key singing "America the Beautiful". His rendition is linked here. OK, so Obama's a good singer. But, he's not a good president. Although, he did rank himself recently the 4th best president behind only Lincoln, FDR and LBJ. LBJ? Really? One of our best presidents? And, I guess that means the current one is better than Washington, Reagan and Jefferson - just to name a few. One of the revealing things about this statement is how highly he regards the 20th century presidents who created major entitlement programs that are now the major drivers of our huge debt and deficit.

Telling, huh?

Real Unemployment:  If you are like me, the recent announcement of a drop in the unemployment rate didn't comport with what I am feeling "on the ground". Maybe that's because I am in California where we have the second highest unemployment rate in the country. But, a closer analysis of the statistics explains why: When people stop looking for work, they are moved out of the ranks of the unemployed by the government. They either are classed as "discouraged workers", who are only tabulated in their own category, or they are dropped out of the calculation completely. When they are dropped out, the reported unemployment rate is lowered even though fewer people are working. So, it is important to know a few things here. The total number of people working in the U.S. is still lower than it was 3 years ago, although the population has increased. The percentage of the population that is listed as eligible for and wanting to work is the lowest in over 30 years. The number of people working is 5.5 million less than it was at the beginning of the recession in December 2007. And, the broadest measure of unemployment (which includes "discouraged workers" and those who are working part-time, but still seeking full-time work) did not go down in January and remains at 15.1%. All this put together means that there are a lot more than 8.3% of the population looking for work and, although things are better now than at the depth of the recession, we are a long, long ways from normal.

2012’s Agenda: I have referenced above the well-known plan of the Obama Administration to encourage class warfare and to pit part of the country against the other. On top of that, the "occupiers" talk about "the 1%" with great disdain and liberals everywhere decry income disparity. This is likely to be the defining issue in Washington for at least the next year. I think there are much more pressing issues that need attention, but I am not president. And to be fair, this is a legitimate issue. So, I will do a multi-part series in upcoming missives to give you my analysis and perspective on everything that makes up this issue. Some of it may surprise you.

Post-Thanksgiving, there were basically two issues remaining for Congress this year. I will address each separately:

Funding the Government: A bill to fund the government for the balance of this fiscal year passed both Houses on a bipartisan vote and is expected to be signed by the President very soon. The total spending in this bill was determined by the "debt limit agreement" in August. So, all that had to be worked out were the specifics within that number ($1.043 trillion). So, that means no government shutdowns before September 30, 2012. Additionally, it is standard practice in election years to fund the government from October 1st through at least the end of November on a Continuing Resolution (CR) rather than try to get enormous spending bills done weeks before an election. So, I expect that next year in March or April, the House will pass an updated version of the Paul Ryan budget that was passed this year. The Senate will continue accruing its record number of days gone by without even proposing, not to mention passing, a budget. If the Senate has offered no budget by early next year, then that will be somewhere north of 1300 days since they last passed a budget, or enough time for Kim Kardashian to get married and divorced 18 times. If that is the case, there will be a CR passed in late September to cover the rest of the year. The bad news about all this is that there will be no opportunity to cut spending further and bring the budget closer to balance until 2013. The good news is that at least there will be no spending related drama in 2012. The only possible exception to this would be if a recession, collapse in Europe, or some act of Congress drives the deficit up over the next 10 months such that the current debt limit ($15.194 trillion) is hit before the election.

Social Security Taxes, Unemployment Insurance and Such: Here is the naked truth about all the recent consternation on Capitol Hill that you are not hearing from the mainstream media: Extending the Social Security Tax cut is a bad idea. It was a bad idea to do it in the first place. The Social Security system is already paying out more money than it is taking in, and this problem is projected to get progressively worse every year in the future. So, why would we make this insolvency worse by reducing what everyone pays in to the system? And, the extension adds $121 billion to the deficit. If you decided to do the extension and then reduced how much everyone gets in Social Security payments, that would be one thing. But, we are not doing that. We are just saying pay less and get more. Except that we will all pay much, much more or get much, much less when the deficit takes us the way of Greece soon. And, no reasonable economist from the right or the left believes that this sort of program stimulates the economy. It was done under the first President Bush, and once more since then, and neither instance worked to spur economic growth. This won't either.

The unemployment extension to 99 weeks is also a bad idea. There is now plenty of evidence that it actually encourages and rewards unemployment and makes people stay on unemployment longer, thereby keeping more people unemployed. Another problem with both the Republican and Democratic proposals on these "extenders" are the so-called "pay-fors". Both party’s bills "pay for" a one year extension (or two months) of new spending by raising taxes or cutting spending over 10 years! That's one year of spending paid for by 10 years of something else. That's like telling your grocer that you will pay him or her for today's groceries over the next 10 years....unless you change your mind. That's why the proposals by both parties increase this year's deficit by at least $167 billion.

The bottom line here is that these "extenders" are bad ideas that will not help the economy, will absolutely and dramatically increase the deficit, and will generally make it harder to fix our problems in the future. As you have probably guessed, I was one of 14 Republicans to vote against both the Republican and Democratic proposals on this and one of only 6 to vote against them last year and again this year.

Truth be known, my position is not as much as an outlier as it might seem. Many, if not most, people in both parties understand that this is bad policy. So, why the bipartisan love fest for a proposal that further endangers Social Security, increases deficits, and hurts the economy? It all gets back to the occupant of the White House. Obama is doing all he can to avoid running for reelection on his record or on what he might do if reelected. (By the way, have you ever heard him once voice what he would do with another 4 years? No, you haven't.) He doesn't want to have to talk about the economy or how he is making us more dependent on Middle East oil or how “Obamacare” is increasing medical costs or his rudderless foreign policy, which makes me almost long for Jimmy Carter again. So, rather than let the House and Senate engage in a reasonable discussion of how to ease us out of this unnecessary spending, he seized the political opportunity to call a non-extension of a one-year, self-described temporary, Social Security tax holiday, a Republican tax increase. Unfortunately, instead of pointing out that this cannot be extended without damaging the Social Security trust fund, my side of the aisle played along with the President's characterization. And now, we are where we are. With the exception of the oil pipeline approval, this debate has nothing to do with good public policy. It is all about posturing for the next election. Our President is very good at running for president. Unfortunately, he is not good at being president. I suspect that in the end these things will all be extended and there will be no "pay-fors", or there will be "pay-fors" that aren't real. This is how we have gotten into the fiscal mess we are in. When Republicans and Democrats both want to spend money, but spend it in different places, the "compromise" is to let everybody spend everything and only the deficit loses. Obama has already made this sort of deal several times. I'm sure he will make it again. But, at some point we have to stop this, or the outside world will force us to stop - as is now happening in Europe. I wish we could stop it here and now. All we have to do is actually do nothing, and the deficit will go down and the economy will take a tick up. Alas, maybe next year.

But, as I said, it is Christmastime. You will not receive another missive from me until next year. So, for a few days, forget about this junk. Enjoy your families, your friends, and your freedom. Thank God for the gifts he has brought us and continues to bring us that know no political labels. Perhaps place a knee to the ground in supplication to Him for His goodness and His grace. And, don't forget to raise a glass to toast the passing of 2011 and a hopefully brighter 2012.

Drive fast and live free........Ho, Ho Ho.

To coin a phrase, Europe is in economic deep doo-doo. They are suffering a huge crisis born of too much debt of which the causes and potential cures are far too complex for a meaningful analysis in this short format. Suffice it to say that Europeans have given themselves a lot of socialistic benefits without paying for them, instead choosing to borrow the money. The resulting union-dominated socialism has led to very little growth. Italy, for example, has had zero GDP growth in 10 years! Without GDP growth, you cannot grow wages, benefits, government, or social and environmental policy. But, they have tried to do all of that. Germany is the most prosperous country in Europe, but even their prosperity has not been pure. Note that 50% of all of Germany's products are exported; most to other European countries. The Euro has enabled weaker economies (Greece, Spain, Portugal, etc.) to purchase German goods with an artificially strong currency that they would not have had access to on their own. This has propped up the German economy beyond what it would have otherwise been.

But now, the economics of all this have hit a proverbial wall. From here, it is possible that the Euro will break up and each country will return to its old currencies. It is possible that some countries will leave the Euro. It is possible that the Germans and the French will bail out the weaker countries. And, there are any number of other scenarios. Although this is an economic problem, the solutions are necessarily political. For Germany to bail out Greece is akin to the United States establishing a TARP program for Mexican banks. Not an easy political lift. But, all the solutions are difficult politically. And, let's remember that these are separate nations with centuries of history that are hard to ignore or forget.

So, what does this all have to do with us? Europe is already in recession. Even if they get their act together, a recession experienced by our largest trading partner will reduce GDP growth in this country. So, their problems will be a drag on our economy even in the best case. But, if they fail to resolve their problems and one or more of their big banks fail in a disorganized manner, we could see a worldwide freezing of financial arteries similar to what caused the crash in 2008. Remember, that crash, which impacted every country, was triggered by the failure of a single American financial institution, Lehman Brothers. Now, before you jump out of the window, our financial institutions are much better prepared for this sort of thing than they were in 2008. And, we can see it coming this time, which was not the case then. But, the interconnectivity of the world's financial systems are such that a catastrophic failure in the world's second biggest economy will hit us, and the entire world, hard no matter how much we try to prepare.

I am concerned that the President is so preoccupied with running for reelection and scoring political points that we are not as prepared as we should be. This President has no idea how to run the country, but he is good at campaigning. And frankly, congressional leadership is all tied up trying to counter the President's continual campaigning. Therefore, I am working hard to make sure that the U.S. Treasury and the Federal Reserve, as well as congressional leadership, acutely understand the nature of the threat and prepare the US financial system against the possibility of failure in Europe. I am starting to engage with a lot of folks "in the trenches" and am making progress.

There is some good news here. Honest, there is.

We have problems in America. But, the rest of the world is in even worse shape. Europe's problems are clear. But, China recently cut their interest rates even though they have inflation because their growth is falling off. India and Brazil are struggling, as well. In fact, every other country on earth is hugely dependent on the actions of other countries - except the United States. We can create our own growth. We can cure our own fiscal problems. If we could get our fiscal and economic act together, capital, business and jobs would run here from all over the world. I began this tome talking about how European military conflicts drew us into becoming involved during the 20th century. As horrible as those conflicts were, America emerged from them stronger than before. We can do that again. We could begin a new era of growth and prosperity, propelled by our economic superiority rather than our military superiority.
 
But, we have to first fix our problems ourselves. Just as we built our own strong military, we need to build our own strong economy. Unlike Germany or any other European country, we do not need to rely on approval from some other parliament. We can balance our own budget. We can produce our own energy. We can run our own currency. We can innovate and build things better than anyone in the world. But, we need to stop trying to be more like Europe or China, as seems to be the President's plan, and be more like us. Whatever it takes, we must move our budget towards balance. We must firmly reject the debt and socialism that is taking Europe down, and we must unleash the power of our entrepreneurs. You'll hear more from me about some of this in the coming days. But, how about we begin by not extending "temporary" spending and stimulus programs, and instead start to actually make meaningful deficit reductions? And, do so right now?
 
America IS an exceptional nation. These are scary times. But, there is opportunity. Opportunity to show the world the way America does it. We must seize this moment.

So, you might ask, what happens next? Because of the 23 Senate Democrats who are up for reelection next year, the Senate majority is extremely risk averse. They literally seem as though they don't want to vote on anything with any controversy for fear that either a yes vote or a no vote will cost them popular support at home. Dozens of bills that have passed the House, some by large bipartisan majorities, have not and apparently will not even be considered in the Senate. So, it looks like nothing much is going to happen in dealing with the deficit for some time to come, right?

Actually, not right. Congress has become even more of a deadline-oriented place lately. When something is on deadline, both Houses are forced to either act or accept whatever consequence inaction will bring. The next 14 months are loaded with deadlines. Most of these deadlines are the result of Congress' inability to make permanent reforms, instead preferring to pass only temporary policies. Below, you will find a list of a bunch of major deficit-affecting deadlines that will have to be dealt with between now and January of 2013, as well as the annual dollar effect on the deficit according to CBO. In the interest of fairness, I have not adjusted any of these figures for "dynamic effects". Although we all know that individuals adjust their behavior when a tax goes up, etc. But, CBO only does "static" modeling so that is all I will show you for now. Also, I will give you only the facts and no commentary for now. You can be sure I will get to that as each of these deadlines approach.

As a baseline, understand that the deficit for the fiscal year that just concluded 9/30/11 was $1.3 trillion. The deficit projection for the current fiscal year which ends 9/30/12 is $973 billion under current law.

December 16, 2011 - The "CR" funding the government for this year expires, requiring either another CR or an actual omnibus appropriations bill. This is unlikely to have any net deficit effect because the non-entitlement spending for this fiscal year was established in the August "debt deal" at $1.054 trillion.

December 31, 2011 - The 1% reduction in payroll taxes that was part of the "tax deal" made last December and part of the "Stimulus" expires. If not renewed, payroll taxes will return to where they were before this "temporary" cut in Medicare and Social Security taxes. If this reduction continues, it will increase the deficit annually by $129 billion.

December 31, 2011 - The so-called "doc fix" expires. Back in a prior deficit reduction act, the rates that Medicare pays doctors and hospitals was cut. But, Congress has suspended this cut every year since then, on a year-by-year basis, largely because of concern that many doctors and hospitals would fail or refuse to take Medicare patients. It is currently illegal for doctors to ask the patient to pay the difference. If this "doc fix" were extended, it will increase the deficit by $298 billion over the next ten years.

December 31, 2011 - The increase in unemployment benefits from up to 26 weeks to up to 99 weeks is scheduled to expire. If the maximum period for which an individual can collect unemployment is again extended to 99 weeks, the deficit will increase by $28 billion next year.

December 31, 2011 - The Alternative Minimum Tax (AMT) "patch" is scheduled to expire. The AMT was put into law in 1969 to tax 100 or so "ultra-rich" people who the government believed were not paying enough taxes. (Does this sound familiar today?)  It was never indexed for inflation and now, if not adjusted, would add a "penalty tax" to over 20 million families. The "patch" cuts about half of those people out of the AMT. If it is not extended, it would increase taxes and reduce the deficit by $70 billion per year.

December 31, 2011 - There are a number of business tax credits, including the R&D credit, scheduled to expire. If not extended, these will raise about $35 billion annually for the Treasury.

Sometime next year prior to the election, it is likely that the debt limit will run out again. The failure to pass a balanced-budget amendment to the Constitution (it recently failed in the House by 29 votes with 161 Democrats and 4 Republicans voting to oppose it) reduced the authorized debt limit by $300 billion. The "Super Committee” could have added another $300 billion debt limit with more cuts, but they didn't. And, with the economy nearing a double-dip recession, revenue projections have proved to be optimistic and the deficit greater than was estimated when the "debt deal" was done last August. So, at some point in 2012, this limit will likely need to be extended again or we face another government shut-down.

Sometime in the summer, the US Supreme Court will likely rule on the constitutionality of ObamaCare. If they rule it unconstitutional, much or all of its provisions could be invalidated. That could have an effect on spending for Medicare and Medicaid, but we can’t determine what that might be without knowing which provisions are ruled illegal. However, there is no doubt that ObamaCare does increase deficits.

October 1, 2012 - Fiscal year 2013 will begin and Congress will need to pass both a budget for FY 2013 and a "CR", or the requisite appropriations bills, to fund the government. The deficit could be increased or decreased depending on how much Congress decides to spend.

January 1, 2013 - The extension of the "Bush tax cuts" will expire and tax rates will rise on all US taxpayers, and some people currently not paying income taxes will now have taxable income. If they are extended, the deficit will increase by $3.9 trillion over ten years. If the tax cuts are extended only for those with less than $250,000 income per year, the deficit increase drops by $2.3 trillion over ten years. Note that 60% of the deficit effect of letting the Bush tax cuts expire is funded by taxpayers with incomes under $250,000.

January 1, 2013 – Death taxes are scheduled to rise. Under current law, estates under $5 million are not subject to tax. If there is no extension, estates of $1 million or more will begin paying tax. This is forecast to raise approximately $6 billion per year towards deficit reduction.

January 2, 2013 - The automatic sequestered cuts actually go into effect, reducing "security" spending by $55 billion in the first year and reducing what hospitals and other medical providers are paid by Medicare by 2%. Some in Congress are already calling for these cuts to be changed or repealed before they take effect. This would add $113 billion to the deficit in the first year.

Note that in almost every case, inaction by Congress will result in a tax increase or spending cut taking effect and thereby reducing the deficit. The total of all this is estimated at roughly $800 billion per year, of which over 80% would be increases in taxes or reductions in tax deductions or credits. Understand that none of this involves entitlement programs or benefits except to the extent that doctors and hospitals refuse to accept Medicare if their reimbursements are cut. Taxes would literally increase on everyone who gets a paycheck or has taxable income.

According to CBO, if all of these deadlines were allowed to expire, we would still have a deficit in 2014 of $265 billion. Although that would be hugely reduced from last year's deficit of $1.3 trillion, the deficit would then immediately begin rising again unless the major entitlement programs are reformed.