Obama’s Audacious Economic Experiment Failed

Record shattering deficits and debt have not delivered the promised prosperity

President Obama made an astounding claim in his recent pivot-to-the-economy speech at Northwestern University 

The deficits have come down at almost a record pace, and they’re now manageable.

The government’s fiscal year ended September 30 and the Treasury Department issued it’s final report for the fiscal year last week.  The 2014 deficit was “only” $483,350,000,000.  A time traveler from past decades would be shocked to learn that this figure is an improvement from the Obama Administration’s first five years.top-ten-deficitsAs the chart shows, the 2014 deficit can be seen as good news only after the Obama Administration deliberately ran the five largest annual deficits in all of the US Government’s 223 year history.

During Obama’s first Presidential campaign he characterized the Bush deficits as “irresponsible” and “unpatriotic.”  But now he calls the 2014 deficit, larger than all but one of Bush’s (and only 5% less than that one) “manageable.”  Apparently hops we’ll be persuaded that concern about deficits is now behind us and it’s time to crank up the spending machine again.

Is a $483 Billion deficit “manageable”?  One wonders what that word means in this context.  The government has “managed” this deficit as it has all previous deficits:  It borrowed more.

Treasury Secretary Jacob (Jack) Lew issued a more enthusiastic statement, hoping to divert attention from ISIS  and Ebola to some “good news.”

The President’s policies and a strengthening U.S. economy have resulted in a reduction of the U.S. budget deficit of approximately two-thirds — the fastest sustained deficit reduction since World War II.

Yes, the deficit has fallen 66% in five years.  But that’s not even close to the fastest deficit reduction since World War II.  Some examples of more rapid deficit reduction:

  • in one year, from 1953 to 1954 the deficit fell 82%
  • In two years, from 1972 to 1974 the deficit fell 74%
  • In four years from 1993 to 1997 the deficit fell by 91%
  • In three years, from 1962 to 1965 the deficit declined at the rate of 80%.

Before the Obama Administration, the all time deficit high water mark was World War II.  But that huge increase in debt was to pay for the largest war mobilization in human history.   Thirteen percent of the US population served in the military, compared to less than one percent today.  Most of America’s manufacturing plants and employees were diverted from  cars and consumer goods to guns, tanks, aircraft and other war supplies, all paid for by the government.

But, as soon as the war ended Congress cut spending by more than two thirds.

The Obama deficits weren’t for war.  They were sold as the road to economic recovery, job creation and prosperity, based on a theory known as Keynesian economics, that government deficits “stimulate” the economy.  Did the Obama deficit surge validate the theory?  To answer, we just happen to have another chart.Spending-VS-GDP-5yearsPresident Bush began and Obama completed a 24% spending increase, six times the average over the past 60 years. 

What did this massive spending and borrowing surge buy?  The weakest post-recession economy since the government began issuing quarterly GDP reports in 1947. 

How do Keynesian theorists such as New York Times columnist Paul Krugman explain this seeming contradiction between theory and results?  Astoundingly, they say Obama’s mistake was that he didn’t borrow and spend enough!

Then there’s the Keynesian claim that deficits generate more jobs.  We don’t have a chart for that but here’s a back-of-the-envelop analysis:

The recession officially ended in June, 2009.  Since then the total federal debt (sum of all deficits for 220 years) has increased by $6.3 trillion.  Over the same period employers report jobs increased by 8.5 million.   What if we give Keynesian deficit spending credit for EVERY new job?  In that case government debt has gone up $741,000 for each additional job.  If Keynesian theorists claim deficit spending created half the new jobs the debt increase would be almost $1.5 million for each job!

Interest on this additional debt is now costing taxpayers about $22,000 per year per job.  Every year.  Eighty to ninety percent of the new jobs pay less than $40,000 per year meaning they generate less than $6,000 per year in payroll tax and less than $3,000 per year in federal income tax. 

In a rational world the failure of this experiment in deficit spending would relegate Keynesian theory to history’s dustbin.  Let’s hope the election next month is the beginning of a house cleaning to rid us, once and for all, of politicians who promote and enact laws based upon this loony economic theory.

Obama’s Job Statistics Vs Main Street Reality

President Obama defines jobs “success” in a unique new way.

Last week President Obama “pivoted to the economy” once again, beginning with an appearance on Sixty Minutes, followed by Speech at Northwestern University.  Here’s an excerpt from Sixty Minutes:

Question: Right now public opinion polls show a majority of Americans disapprove of your handling of foreign policy and the economy. You’ve got midterm elections coming up…What are you going to tell the American people?

President Obama: Here’s what I’m going to tell the American people. When I came into office, our economy was in crisis…businesses were laying off 800,000 Americans a month…We had unemployment up at 10 percent. It’s now down to 6.1..

Note that the President does not compare his economic record with previous administrations, or with historic averages.  Instead he compares a gradually declining, post recession unemployment rate with the highest rate reached during the recession.  On this basis he claims success.

LPR-through-Sept-14

Obama  hopes we’ll see this comparison as appropriate because, as reminds us often, he took office during of a severe, inherited recession and he takes credit for it coming to an end in June 2009.

There have been 33 recessions over the past 157 years and they all ended with little or no government intervention in the economy.  But Obama apparently would have us believe that 2008-09 would have been the first ever permanent, unending recession were it not for his Presidency.

A week after the Sixty Minutes interview excerpted above, the Labor Department published its monthly jobs report indicating the unemployment rate had ticked down from 6.1% to 5.9%.  The President and his supporters were euphoric.  But, it turns out that the falling unemployment rate is a deceptive indicator.

The labor force participation rate is the percentage of the working age population counted as “in the labor force” either because they have a job or because they qualify by government criteria to be counted as “unemployed.”  The unemployment rate is the percentage of the labor force who are counted as unemployed.

People who have been jobless for a long time become discouraged and don’t actively look for work often enough to meet arbitrary, government criteria for inclusion in the ranks of “unemployed” even though they are still jobless and still want to work. 

The unemployment rate dropped from 6.1% in August  to 5.9% in September only because 315,000 jobless people were reclassified from “unemployed” to “not in the labor force.”

If the labor force participation rate were the same now as it was in June 2009 when the recession ended the current unemployment rate would be just over 10%, not 5.9%.

The chart above shows that the nearly all the decline in labor force participation rate has been, since the end of the recession.  This five year decline is the deepest ever recorded since monthly reports began 67 years ago. The second worst was less than half as deep and started during a recession, not after the end of a recession.

Later in the Sixty Minutes interview we heard this exchange:

President Obama: Ronald Reagan used to ask the question, “Are you better off than you were four years ago?” In this case, are you better off than you were in six? And the answer is, the country is definitely better off than we were when I came into office.

Question: Do you think people will feel that?

President Obama: They don’t feel it. And the reason they don’t feel it is because incomes and wages are not going up.

This is not complicated.  Wages, like prices result from the market forces of supply and demand.   Since the beginning of the recession in 2008 the working age population – supply – has increased 10.4 million.  But as of September only 222 thousand more people are employed than when the recession began.  This is the first time since the current system of monthly statistics began in 1948 that job creation has lagged so far population growth.  In fact, throughout the 1970s and 1980s job creation outpaced population growth, accommodating a larger percentage of women in the labor force than in past decades.  Today, wages are down because the supply of potential employees has increased while the demand for employees is static. 

The President also hyped 55 months of uninterrupted private sector job growth which he claims is a record.  It is true that there is no previous 55 month period without a single negative month.  But it is far from the best 55 months on record.  There have been dozens of 55 month periods with stronger job growth, in spite of a few negative month interruptions.

The grim reality is job creation is down and wages are down because of Obama’s implementation of myriad progressive schemes, including tax increases, dramatic increases in regulation and Obamacare, a major barrier to hiring.

The People will “feel” prosperous when the federal footprint has been reduced, freeing entrepreneurs and investors to do what they always do if not impeded by centralized government control: create new products and services and build new businesses raising the demand for employees.  Only then will there be wage increases.

How Progressives Subvert the Constitution

ObamaCare is a textbook example of how the Progressive Movement has subverted and nullified Constitutional limits on the power, authority, scope and cost of the federal government and how elected Senators and Congressmen routinely violate their oath of office.

September 17 was Constitution Day.  While most Americans celebrate and revere the Constitution, many of our most powerful political leaders see it as an unnecessary, obsolete impediment.  When I joined the Army I swore an oath to “support and defend the Constitution…without any mental reservation or purpose of evasion.”   A few years later I learned that the oath of office sworn by Senators and Congressmen includes the same language.

House-oath-of-office

So how is it that the federal government has been able to take on so much power that is not authorized by the Constitution? 

Consider ObamaCare.  Not only does it require citizens to pay private companies for insurance, it also dictates what that insurance may and may not cover and under what terms.  It establishes some 51 new bureaucracies that are empowered to regulate doctors, hospitals and insurance companies in thousands of new ways.

Back in October 2009 a reporter asked then House Speaker Nancy Pelosi to cite the clause in the Constitution that authorized the government to force people to buy health insurance.  She dismissed the question, sneering:

“Are you serious?”

A day later Pelosi issued a press release titled, “Health Insurance Reform Daily Mythbuster: Constitutionality of Health Insurance Reform.” It was typical of The Left’s abuse of the Constitution:

Reform opponents continue to spread myths about components of the [Health Care Bill]  including the nonsensical claim that the federal government has no constitutionally valid role in reforming our health care system—apparently ignoring the validity of Medicare and other popular federal health reforms…As with Medicare and Medicaid, the federal government has the Constitutional power to reform our health care system.

While Pelosi hoped most of us are stupid enough to be hypnotized by this language, Constitutional challenges from many sources, including Liberty Works, are not objections to “reform,” a term that could mean almost anything, but to specific provisions of the Obamacare legislation.

In the Next paragraph Pelosi recites The Left’s standard version of Constitutionality:

The 10th amendment to the U.S. Constitution states that the powers not delegated to the federal government by the Constitution, nor prohibited by it to the states, are reserved to the states … or to the people.  But the Constitution gives Congress broad power to regulate activities that have an effect on interstate commerce.  Congress has used this authority to regulate many aspects of American life, from labor relations to education to health care to agricultural production. Since virtually every aspect of the heath care system has an effect on interstate commerce, the power of Congress to regulate health care is essentially unlimited.

To anyone familiar with the history and language of the Constitution, this defiant declaration by the Speaker of the House was and is deeply disturbing.  Unlimited government power was abhorrent to The Founders, who wrote the Constitution.  A Congress with unlimited power over any industry or sector was exactly the outcome they were determined to prevent.

Tragically, over the past century politicians and judges and Supreme Court Justices have brazenly violated the language of the Constitution and turned the vision of The Founders on its head, usually through deliberate misinterpretation of what is known as the commerce clause:

“The Congress shall have Power To…regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;”

This is the clause Speaker Pelosi referenced above when she claimed “broad power to regulate activities that have an effect on interstate commerce.  A review of the Federalist Papers and other contemporary writings makes clear that the unlimited power interpretation of this clause, as cited by Speaker Pelosi, simply is not what the original text means.

In the Founders era, as now, the term “Commerce” meant buying and selling, in this case across state lines.  “Commerce” was not and is not a synonym for manufacturing or for growing crops or for providing services, including medical treatments.

The purpose of this clause was not to grant Congress “unlimited” power over anything.  It was to prevent unnecessary barriers to buying or selling across state lines.   James Madison wrote in Federalist Paper #22 of problems that occurred while the union operated under the preConstitution, Articles of Confederation:

The interfering and unneighborly regulations of some States, contrary to the true spirit of the Union, have, in different instances, given just cause of umbrage and complaint to others, and it is to be feared that examples of this nature, if not restrained by a national control, would be multiplied and extended till they became not less serious sources of animosity and discord than injurious impediments to the intcrcourse between the different parts of the Confederacy.

Madison cited as another negative example the German empire that similar to America, was an association of independent states:

The commerce of the German empire is in continual trammels from the multiplicity of the duties which the several princes and states exact upon the merchandises passing through their territories, by means of which the fine streams and navigable rivers with which Germany is so happily watered are rendered almost useless.  Though the genius of the people of this country might never permit this description to be strictly applicable to us, yet we may reasonably expect, from the gradual conflicts of State regulations, that the citizens of each would at length come to be considered and treated by the others in no better light than that of foreigners and aliens.

Nowhere in the Constitution or any contemporary documents is there any notion of federal control of activities because they “have an effect on interstate commerce.”  So what was the basis of Ms. Pelosi’s arrogant claim of unlimited power?  

It was the Supreme Court’s decision in Wickard v. Filburn, 317 U.S. 111 (1942).  During the Great Depression Congress had imposed limits on crop production, in an effort to help farming businesses at the expense of everyone else by artificially reducing food supply, which would cause food prices to rise.

Mr. Filburn was fined by the government for violating the limit by growing “too much” wheat.  He argued that his entire wheat crop was consumed on his own farm, mostly as chicken feed, and was not sold to anyone and therefore could not be considered interstate commerce.  Thus, he concluded the federal government had no Constitutional authority to regulate his wheat production.

But the government argued that Filburn affected interstate commerce by growing his own wheat rather than buying it on the open, interstate market.  The court took the government’s side and the rest is history.

Pelosi and her political allies now hold that any idea a politician can conceive is Constitutional as long as it can be said to have an “effect” on interstate commerce.  It’s hard to identify any human activity that can’t possibly have, however remotely, an effect on interstate commerce.  Even that intimate activity that popped into your mind diverts the participants from shopping or watching ads on TV.

The Progressive lie is that The Founders meant for Congress to have unlimited power to intervene and, as Ms. Pelosi’s proudly claimed above, “regulate many aspects of American life.”

The Founders came together from thirteen separate, sovereign states.  Their mission was to guarantee individual liberty and prevent government management of The People’s affairs.  But they recognized that some, legitimate, governmental functions were necessary to protect and maintain individual liberty.  They wanted most of those functions to be the responsibility of the states.  But they agreed that a limited few could be handled more effectively by a federal government that acted for all of the states at once.

The goal of the founders was to create a federal government with just barely enough power to handle that limited list of functions, but without enough power to intervene in the lives of individuals or challenge the authority of state governments.  They viewed the new federal government being chartered by the Constitution as the servant, not the master of the states.  They even added the Tenth Amendment, that Pelosi quoted above, to make sure there was no misunderstanding about their intended strict limits on Federal power.

But Pelosi’s progressive interpretation of the commerce clause as empowering the federal government to regulate or control virtually anything, makes the tenth amendment a cruel joke.  A progressive like Nancy Pelosi citing the Tenth Amendment is like a husband who calls home from his girl friend’s apartment to promise unshakable love and fidelity to his wife.

Barack Obama, Nancy Pelosi, Harry Reid and most of Congress believe an elite few, backed by unlimited government power, can and should make us better than we will make ourselves if we are allowed to live our own lives, free of their supervision.  They believe unlimited government power and reduced individual freedom is justified by the “good” they can achieve through the use of force against The People.

The Bottom Line

The Constitution prohibits Congress from enacting authoritarian ideas, like government management  and control of health care.   So, those who hold authoritarian ideas have corrupted the Supreme Court in order to nullify the Constitution.  The only way to undo this damage is to elect people to Congress who will be faithful to their oath of office and obey the Constitution, even though the Supreme Court has ruled that they are no longer required to. 

Obama’s Feckless War On Corporate Inversions

Yelling Obama 3Inversion is a way for companies to work around a government imposed obstacle to investment in America.

UPDATE: The news  that Burger King plans to merge with a Canadian firm has energized anti-inversion talk in Washington and the media.

President Obama and the Democrats, hoping to stir up envy and resentment against American businesses ahead of the November election have declared war on corporate inversions.  He and his media supporters call companies that are interested in inversions unpatriotic and unwilling to pay their “fair share” of taxes. 

The White House web site features a page devoted to the anti-inversion offensive.  It starts with a roughly accurate definition followed by a deception :

Question: What exactly is an “inversion”?

Answer: A corporate “inversion” is what happens when a US-based multinational with operations in other countries restructures itself so that the U.S. “parent” is replaced by a foreign corporation – and usually one that’s in a country with a lower tax rate than the United States.  As a result, on the whole, this means that corporate income tax that would otherwise be paid to the United Sates ends up going overseas [italics added].

The first sentence defining inversion is accurate.  The second sentence regarding the tax revenue results, (we formatted in italics) is in most cases false and in all cases misleading.

Corporate income tax is a tax on profits, or earnings.  At 35% (of earnings) the top bracket US corporate tax rate is the second highest in the industrialized world (the highest is 35.64%)  When state taxes are added a US corporation pays an effective top rate of 40%.  Corporate rates in UK, France, Germany, China, India, Netherlands, Russia, New Zealand, Brazil, Spain, Canada, and Australia are all lower than the U.S.  Even the socialist Scandinavian countries have lower rates, ranging from 20% to 27%. 

But America’s high tax rate isn’t the only or even the most significant problem.  To understand the why a company would want to “invert” consider the difference between US tax law and the law in all other, major industrialized nations.  The difference can be illustrated with an example.

  • BMW, a German company, operates an assembly plant in South Carolina where it builds cars for the American market.  When BMW’s US operations generate earnings BMW pays US corporate income tax on those earnings.
  • Ford operates plants in Germany, building cars for the German and wider European markets.  Ford pays German corporate income tax to the German government on its earnings from its German operations.

So, the U.S. taxes a German company on business it does here, and Germany taxes an American company on business it does there.  Fair and balanced, right?

The problem for American companies begins after the earnings are taxed by the country where they were generated.  That difference is in the tax treatment of “repatriation” or bringing after tax earnings home.

  • BMW is free to bring its after-tax earnings back home without additional tax.  On behalf of its people, the German government welcomes repatriated earnings from foreign operations because when the company invests those earnings it grows the German economy, creates jobs and, ultimately, generates tax revenue.
  • But Ford doesn’t have such freedom.   The U.S. government impedes the flow of Ford’s after tax earnings back into America with a second round of taxation, the U.S. corporate income tax.

Unlike any other industrialized nation, the U.S. taxes earnings generated by American companies in other countries–earnings that have already been taxed by those other countries.  And here’s the exasperating part: the event that triggers that second round of taxation is repatriation, bringing the earnings back home where they can be reinvested in the domestic economy!  But there is no tax barrier to investment in America by a foreign owned company. 

So, rather than being unpatriotic, Inversions enable American companies to invest more resources here at home, growing the U.S.  economy, creating jobs, and ultimately generating more tax revenue from domestic earnings and employee wages!

Reinvested earnings is the number one source of capital, funding business start-ups and expansions. Thus, high tax rates and double-taxation of foreign earnings that reduce capital investment in America ought to be cause for concern among our political elite. 

2 GDP-through-2014-Q2But Even in the weakest post-recession economy in 75 years there’s little political energy in Congress and none in the Obama Administration for simplifying the tax code, reducing the tax rate, or eliminating the double taxation of repatriated earnings.

Back to the second sentence in the quote above from the White House that we said was in most cases false and in all cases misleading.  Inversion does not reduce taxes on American earnings.  Just like BMW in the example above example, an inverted American company must continue to pay U.S. corporate income tax on it’s U.S. earnings.  The little sliver of truth is that the inverted company MAY, through complex bookkeeping maneuvers, shave a percentage point or two off it’s taxable U.S. earnings.  But, the horrendously complex corporate tax code also has plenty of loopholes a domestic company can structure itself to qualify for without inverting. 

Democrats say 35% is not too high because companies routinely pay less than that after taking advantage of numerous loopholes in the law.  True enough.  But a company must DO something to qualify for each loophole.  It must structure itself to comply with some sort of politically motivated condition.  Some  loopholes, such as special credits for wind and solar energy were custom designed for specific industries or even specific companies.  Many companies don’t qualify for any loopholes and thus pay the full 35% rate.

The real problems with the corporate tax code are high rates and massive complexity.  The solution is not to look for ways to punish companies that invert.  The real solution is lower rates coupled with simplification, elimination of arcane loopholes, and an end to the cronyism that generates special tax breaks for politically connected companies and industries.  And, of course end inversions by eliminating double taxation of repatriated earnings.

More from the White House website

Question: OK, but I’m not a corporation. So how does this relate to me?

Answer: Simply put: You’re paying for it. That’s because when corporations pay less, other working Americans have to pay more to help fund the services we all rely on…

This is simply not true.  There is no linkage between the individual tax code, also needlessly complex, and corporate tax revenue.  The IRS does not tax individuals more when corporations pay less and it certainly doesn’t tax individuals less when corporate tax revenue goes up.

One more excerpt from the White House website:

Most Americans don’t have fancy accounting tricks at their disposal — and these businesses shouldn’t, either.

We fully agree.  An American company should never have to waste resources restructuring itself to qualify for “fancy accounting tricks” in order to invest in the American economy!  The United States of America should, like every other industrialized nation welcome home all earnings produced in, and already taxed by, foreign countries.

Instead of operating the worst corporate tax code of all industrialized nations, and looking for a way to impose a tax penalty on the act of investing in America, our President’s goal should be to make America the most business friendly environment in the world  to companies that are prepared to compete in a free market and profit by offering value to customers, not by making political deals in Washington.

Let’s make the American corporate tax rate one of the lowest instead of the highest.  Let’s make the tax code so simple and business friendly that we attract trillions in investment capital from all over the world.  Let’s eliminate all special interest tax breaks so business owners and investors know they’ll be competing for customers, on merit, not disadvantaged by lack of political connections.

ObamaCare On Life Support; Prognosis Bleak

A seismic Obamacare ruling from the US Court of Appeals – D.C. Circuit provides lessons in three ways the dominant American political ideology, called Progressivism or Liberalism, makes government corrupt and dysfunctional, inflicting costs and burdens, both seen and unseen, upon The People.

  1. Using the income tax to weaken the Constitutional system of checks and balances by concentrating power in Washington.
  2. Delegating Congressional legislative authority to unelected bureaucrats through huge, “comprehensive” laws. 
  3. Operating as unaccountable autocrats instead of as servants of the people in a representative government

The D.C. Court of Appeals ruled in Halbig Vs Burwell that a key Obamacare regulation, issued by the IRS, violates the letter of the law.  The regulation empowers the IRS to issue subsidies in the form of tax credits to people who buy health insurance from healthcare.gov, the federal exchange.  The court found that Obamacare or the Affordable Care Act (ACA) as written, authorizes those tax credit subsidies to be issued only to customers of exchanges that are built and operated by states.

The Halbig ruling is an earthquake. If sustained by the US Supreme Court, roughly two-thirds of Americans who live in the 36 states that did not set up exchanges will be ineligible for tax credit subsidies.  The individual mandate, the requirement that every person have health insurance is enforceable only if insurance is “affordable,” as defined by the law.  For most individuals Obamacare compliant insurance is not “affordable” without the tax credit subsidies. Therefore the individual mandate cannot be enforced in 36 states.

But that’s not all.  Obamacare also imposes an employer mandate that is partially to blame for continuing high unemployment.  Companies are required to provide very pricey Obamacare compliant insurance if they have fifty or more full time employees.  The fine for not providing such insurance is $2,000 per year per employee.  The event that triggers the fine is IRS approval of a tax credit subsidy to one or more of a company’s employees.  But if employees are not eligible for a subsidy because their state didn’t set up an exchange there is no trigger and the employer can not be fined.

Thus, if the Halbig ruling survives its inevitable Supreme Court review, BOTH the individual and employer mandates will become unenforceable in 36 states.

Obamacare defenders immediately attacked the ruling.  Typical was Vox.com’s Ezra Klein who  declared the Halbig decision “plainly ridiculous,” adding that “the point of Obamacare is to subsidize insurance…”  The New Republic pronounced it “absurd.”  On MSNBC’s Hard Ball with Chris Matthews,” Jonathan Gruber, MIT Professor, White House adviser and one of the principle architects of the ACA legislation bellowed:gruber

Chris, it is unambiguous this is a typo. Literally every single person involved in the crafting of this law has said that it’s a typo, that they had no intention of excluding the federal states. And why would they?

Stay with us to find out why Professor Gruber was forced to eat his words a few days later.

Most of the media went along with the typo story, without bothering to read, comprehend or explain the Court’s reasoning.  Once again Liberty Works will step in where the establishment media have failed.  Here’s how the court reached it’s conclusion

The court identified three relevant sections in the massive, 2,500 page Affordable Care Act (ACA):

  • ACA Section 1311 grants authority to the states to set up exchanges.
  • ACA Section 1321 grants the federal Department of Health and Human Services (HHS) the authority to set up a federal exchange for states that do not set up their own.
  • ACA section 1401 authorizes the IRS to grant health insurance subsidies called “Premium Assistance Coverage” in the form of tax credits to individuals of low to medium income.  Under the heading “Premium Assistance Coverage Amount”  section 1401 says:
The premium assistance amount determined under this subsection with respect to any coverage month is the amount equal to the lesser of (A) the monthly premiums for such month for 1 or more qualified health plans offered in the individual market within a State which cover the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer and which were enrolled in through an Exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act
Most of the media quoted only the words “established by the state,” and strived to plant the perception that it’s the only relevant phrase in the entire 2,500 page law, that it appears only once, and therefore, that it must be a typo.  But that perception is wrong. The underlined text above establishes TWO requirements an exchange must meet for its customers to be eligible for tax credit subsidies:
  • It must established by the State – not federal government and,
  • Must be established under section 1311, which authorizes only state exchanges.  Again, a separate section, 1321, authorizes the federal exchange.

The same two requirements appear again several paragraphs later under the definition of “coverage month:”

The term “coverage month” means…any month…the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer is covered by a qualified health plan described in subsection (b)(2)(A) that was enrolled in through an Exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act

Later on, the dual requirements are emphasized twice more in paragraphs that set forth ways to compute the tax credit.

Obviously, four deliberate repetitions of two requirements would rule out a “typo.” But, ACA supporters are hoping the Supreme Court will overrule Halbig based on a different concept, a “drafting error.” It must be an error they say. Why? Because they don’t like the outcome!  More on the drafting error idea under number 3 below.

The President could respond to this setback by asking Congress to change the law.  But he won’t do that because Senate Democrats don’t want to admit there is a problem and because House Republicans would insist on significant modifications to the law in exchange for their votes.

Now, the three ways Progressivism makes government corrupt and dysfunctional, inflicting costs and burdens, both seen and unseen, upon The People.

1. Using the income tax to weaken the Constitutional system of checks and balances by concentrating power in Washington.

Because concentrations of political power are always abused by the elite to the detriment of The People, the US Constitution brilliantly disperses governing authority among the states while limiting the federal government to a few, specified, or “enumerated” powers.  Through the Constitution, the states created the federal government to be their servant.  Congress may not require state legislatures to enact legislation or create programs.  If there are to be social welfare programs such as Obamacare they must be created and operated by the states, not massive, one-size-fits-all federal behemoths.

But the schemes of the leftist progressive movement cannot be implemented without concentrating power in the central government.  So progressives contrived a way around Constitutional checks and balances: Offering state governments financial incentives to comply with the central government programs.  Said financial incentives were not possible before the federal income tax, which began in 1914, produced the required funds.  Taxing income was not originally permitted by the Constitution and thus had to be authorized by the 13th amendment which was, of course, promoted by the progressive movement.

The financial incentives are sometimes convoluted but always a variation of the same idea: If a state enacts legislation the Washington elite orders, the federal government will provide “free money” to offset costs and even to fund unrelated programs.

Tax credit subsidies to customers who buy insurance from a state exchange are the free money in ObamaCare that was supposed to ensure that all states set up exchanges.  In fact the authors of Obamacare were so sure this financial incentive would coerce every state into setting up an exchange, the law provides no funds to build a federal web site.  Thus, the healthcare.gov project got a late start, contributing to its disastrous rollout, because funds had to be transferred from other programs.

Now: back to professor Gruber’s claim quoted above, that the state exchange requirement is a typo.  A few days after the court issued its Halbig ruling, some enterprising reporters and bloggers  turned up 2012 YouTube recordings of speeches by Professor Gruber.  In those recordings here and here he states, unequivocally, that the intent of the law to deny tax credits to citizens of states that do not set up their own exchanges.

2. Delegating Congressional legislative authority to unelected bureaucrats

Obamacare is a massive law with hundreds of interrelated functions that are to be made operational by bureaucratic regulation.  Complex government schemes never turn out as promised and always generate undesirable results, usually called “unintended consequences.”

When the bureaucrats realized that most of the states would not up exchanges, even though tax credits would be denied, they wrote a regulation that contradicts the plain language of the law, granting tax credits to customers of the federal exchange.  But now that regulation has  been challenged in court and lost. 

So far, the regulators have piled up some 20 thousand pages of ObamaCare regulations, more than any doctor or patient or insurance executive could ever absorb and comprehend.  Because the President postponed the start of the employer mandate until next year we don’t yet know how those regulations will turn out to be in conflict with the law or otherwise unworkable.

3.  Operating as unaccountable autocrats instead of as servants of the people in a representative government.

With the typo idea discredited ACA supporters are shifting to a different tactic.  When the case is heard by the Supreme Court they will attempt to persuade the justices to view the offending language as a “drafting error.”  They will ask that the court disregard the text of the law and instead conjure “Congressional intent,” which they claim was to issue tax credits in the federal exchange. 

But seeking to discern “Congressional intent” is like chasing the wind and tends to make one even more cynical about Congress.  As courts have noted, Senators and Representatives who vote in favor of a bill have a wide range of intentions.  A YES vote can mean that a representative:

  • approves of a bill in its entirety, including in this case, restricting tax credits to customers in states that set up their own exchanges
  • approves of only parts of a bill coupled with willingness to compromise and accept the other parts;
  • intends his vote to please a lobbyist or pressure group;
  • intends to exchange his vote for a promise from his party’s leadership, perhaps desirable committee assignments or campaign finance help;
  • intends to exchange his vote for a subsidy or special consideration for a project or business interest back home.  This is often a side deal, with the inducement tucked into a different, unrelated bill.

In the case of Obamacare/ACA there was yet another dynamic in play:

  • intent to demonstrate loyalty to the President and the Democratic party by voting yes without reading the bill, based on utopian promises from the President. (If you like your insurance you can keep it, period.  The typical family will save $2,500 a year)

The government’s Halbig lawyers were unable to show the court a single word in the Congressional Record to support their claim that “Congressional intent” contradicts the plain language of the law.

Obamacare was written largely by Senate staffers and outside consultants including Professor Gruber (mentioned above) who were overseen by just a handful Senators and Representatives.  It became law only after extraordinarily intense arm-twisting and horse trading for votes.  Special interest provisions were added hastily without due diligence.  Only strenuous parliamentary maneuvering and rule bending avoided a Senate vote that would have killed the it. The law passed the House by only seven votes, 219-212 with all Republicans and 35 Democrats voting NO.

Thus, “Congressional intent” is so elusive that to even mention it is an insult to the court.

Only by inventing a most tortured argument could the Supreme Court overcome what is actually written in the law, four times, to approve tax credits for Healthcare.gov customers.

Five Years of ObamaNomics: A Progress Report

June 2014 was the fifth anniversary of the end of the 2008-09 recession.  But the US economy has not yet begun an acceptable recovery.  Polls show more than half of Americans believe we’re still in recession.

According to the “advance estimate” published Wednesday by the Commerce Department, Gross Domestic Product (GDP) grew at an annualized rate of 4% in the second quarter, ending June 30th.  (This estimate will be revised twice and the final number, due in about sixty days, could be significantly different.)2 GDP-through-2014-Q2While 4% is nearly double the average for the past five years it’s still not the strong growth America needs to begin a genuine recovery from recession.  And, as the chart shows we’re suffering through the weakest post-recession recovery since the government began issuing quarterly GDP reports 67 years ago.

Last fall the Obama Administration spiked the football on news of a 4% quarter.  But the three quarters since then average an anemic 1.8%.  So this time the post on the White House website was more subdued.  It began with the obligatory blame-hurling at Republicans – without acknowledging any failing for which someone should be blamed.   The rest of the post was a bland, academic assessment with the cautionary advice that “GDP figures can be volatile and are subject to substantial revision.” 

Perhaps they realize at the White House that they’ve declared economic victory too many times — beginning with Joe Biden’s “recovery summer” of 2009 — and no longer have any credibility.

The Obama era American economy, while the most resilient in human history, struggles under the weight of decades of accumulated government intervention in the form of excessive regulation, taxation, and bureaucratic mandates, the most recent being Obamacare and the massive, Dodd-Frank financial regulation law.  These government intrusions into the private sector and the generally anti-business, anti-investment attitude of the Obama Administration discourages and deters entrepreneurs and investors, resulting in fewer of the business start-ups and expansions that create jobs and expand the economy.

Defenders of big government economic intervention say the current recovery is the weakest on record because the 2008-09 recession was deepest/worst on record.  But that isn’t consistent with the historical data.  The last time we suffered an exceptionally severe recession was 1981. Depending on which statistics one considers most important 1981 was either the worst or second worst recession on record.

Like President Obama, President Reagan inherited a an economy in crisis due primarily to huge losses and retrenchment in the banking sector.  Unlike Obama, Reagan faced historically high interest rates.  In 1982 Mortgage interest was 15% compared to 4.5% today. The prime rate, paid by the largest, most credit worthy corporations was also in the teens, compared to 3.25% today.  The unemployment rate spiked up to an even higher level in 1981 than in 2009.

Reagan’s approach was directly opposite of Obama’s.  Instead of raising taxes and intensifying government interference in the private sector as Obama has done, Reagan deregulated and cut taxes.  The chart below compares the results, quarter by quarter, and demonstrates that a severe recession doesn’t have to lead to an anemic recovery.  In fact, the historical data show that more severe recessions tend to resolve into more, not less robust recoveries.. 

The 1981-82 recession was either the worst or second worst on record.  But, as the chart above shows, the 1982-86 recovery was the third strongest out of ten since the government’s quarterly GDP reports began2014-Obama-Vs-reagan-GDP

Job Market Deception by the “Experts”

How Government-Media “experts” spin bad news as good news.

The headline unemployment rate dropped from 6.3% in May to 6.1% in June.  A round of cheers was herd from the “experts” in the Obama Administration and the media. 

Unfortunately, we live in a new kind of economy now, an economy with more government intervention than ever before, an economy where an unemployment rate decrease can be, and in June was, a symptom of a labor market deterioration.LPR-to-June-2014In only three months, from March to June, Labor Department Statisticians reclassified just over one million jobless people from “unemployed” to “out of the labor force.”  If those men and women were still counted as unemployed the June unemployment rate would have been 6.7%.

Since the Recession ended in June 2009 4.4 million jobless people have been reclassified from “unemployed” to “not in the labor force.”  If they were still counted as unemployed the June unemployment rate would have been 8.7%.

In February 2009 the Democrat controlled Congress enacted the President’s $840 Billion “stimulus,” promising millions of high paying jobs on “shovel ready projects.”  Since then 7.4 million jobless people have been reclassified.  If they were all still counted as unemployed the June unemployment rate would have been 10.3%

The Labor Force Participation Rate

The labor force participation rate is the percentage of the working age population counted as “in the labor force” either because they have a job or because they qualify by government criteria to be counted as “unemployed.”  The unemployment rate is the percentage of men and women in labor force who are counted as unemployed.

People who have been jobless for a long time become discouraged and don’t actively look for work often enough to meet arbitrary, government criteria for inclusion in the ranks of “unemployed.”  They are reclassified from “unemployed” to “not in the labor force.”

Typically, the labor force participation rate declines slightly during a recession, then comes back up during the post-recession recovery.  But as the chart above shows, most of the recent decline has been since the end of the recession in mid 2009.  This has never happened before.  Thus, customary indicators of employment and unemployment generate misleading headlines.  What has always been good news, a drop in the unemployment rate was, in June, an indicator of bad news.

The excuse makers in the Administration and the establishment media glibly dismiss the alarming decline in labor force participation as the result of the baby boom generation beginning to retire and thus not bad news at all.  This explanation seems plausible until one looks at the data by age group.over-under-65-June-14As the chart shows labor force participation has increased in the over 65 age group, and decreased in the prime working age groups, under 65.  So the overall decline in participation shown in the first chart above is not the result of the retiring boomer generation.  It results from jobless people who are still in their prime working years being reclassified out of the labor force because they have become discouraged and don’t look for employment every week.

We know from history what steps government can take to facilitate economic growth and job creation.  But the progressive movement President Obama represents ignores history in favor of politically motivated theories.  They insist that activist government, imposing higher taxes and more regulations and granting subsidies or protection from competition to companies chosen by the Washington elite, will somehow create jobs.

Hopefully, the Republicans will regain control of the Senate in November.  And hopefully those Republicans will shake off the special interest pleaders and use their power as the House & Senate majority party to dismantle some of the more onerous regulations of the past decade and to liberate the American economy to do what it has always done when free of government excesses, expand and create jobs.

Has Another Recession Already Begun?

What may become the most significant news economic news of 2014 was nearly ignored by the political-media establishment.

The Commerce Department published its third and final revision to its quarterly GDP report.  The economy contracted by 2.9% during the first quarter of 2014.10-recoveries

As the chart shows we were already suffering through the weakest of the ten post-recession economies or “recoveries” since the government began issuing quarterly GDP reports in 1947.

When the May 29 revision showed the economy contracted by 1% Administration officials blew off the news as insignificant, a temporary blip due to winter weather.  Move along, nothing to see here.   But it won’t be so easy to dismiss a 2.9% drop.

Hopefully, the commentators and Administration spokesmen are right, that the first quarter was just a “blip.”  But, considering the economic statistics below they seem to be a bit overconfident.

Exactly 265 quarters have passed since the Commerce Department began tracking and reporting quarterly GDP in 1947.

  • 225 or 85% of those quarterly reports showed positive GDP growth indicating economic expansion.
  • 11 negative (economic contraction) quarters turned out to be starts of recessions
  • 19 negative quarters were the second, third or fourth in continuing recessions;
  • only 4 negative quarters in 66 years came and went as isolated phenomenon (blips,) not followed by a recession.  Three of those were before 1960.

So, a negative quarter is unusual, not a routine event.  A negative quarter that isn’t part of a recession is extremely unusual.  Every recession since 1947 was started with the first of several negative GDP quarters.  Yet we’ve seen no sense of concern over this ominous economic indicator from the Administration or the media. 

Did a recession start in the first quarter?  The National Bureau of Economic Research, Business Cycle Dating Committee, the body whose judgement economists of all stripes respect, determines – in hindsight after months of analysis – when recessions began and ended.  The committee’s definition of recession:

A recession is a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

We’ve already seen drops in GDP, real income, production and sales.  But so far the Labor Department has not reported the net job losses that typically, but not always begin about the same time that GDP turns negative.  That is one reason to hope that the first quarter was indeed just a blip.

President Obama certainly has not altered his agenda in any way to head off a possible recession.  Employers are still preparing for increased expenses associated with hiring due to the Obamacare employer mandate, scheduled to begin at the end of the year after being postponed twice.   The President recently announced he will “fight climate change” with sweeping new restrictions on the coal fired power plants that supply nearly half of the nation’s electricity.  The resulting spike in energy costs will function as a sweeping new penalty on American industry.  The only possible result is downward pressure on GDP and fewer jobs.

If the first quarter of 2014 turns out to be the beginning of a new recession – and based on history the odds favor such an outcome – the President will likely claim, as he has during each of his Administration’s crises and scandals, that he had no warning and bears no responsibility.  But the truth will be that his big government initiatives will be to blame both for the anemic, nearly jobless recovery we’ve seen since the end of the 2008-09 recession, and for the new 2014 recession.

I Am The American Dream of July 4

Independence Day devotion by Cheri Douglas

FireworksI Am the American Dream. 

I was born on the 4th of July, 1776, the day the Declaration of Independence was published.  I was born as a vision in the hearts and minds of the founders and their families, men and women came to the shores of this continent determined to find a better life.  As they fled government oppression and tyranny, they yearned for a new homeland where they could breathe free.

They hoped against hope that they might find a place to live securely within a fair rule-of-law, without fear of big government bullies overpowering their lives. I became their dream!

I am the American Dream.  As my founders dared to dream of me, they saw a life for themselves, free to be exactly who they were and to worship the God who made them that way.  As they worshiped, I began to take on life in their mind’s eye. They envisioned me as a land where their freedom would be treasured equally for everyone as a God-given right, never being handed out by a government as a favor to a select few, or dictated to them against their will.

I am the American Dream. As I continued to take shape, Americans got even more excited about me. They began to realize little by little, that this freedom they sought in me, would allow them to use their talents and creativity to make a life and a living for themselves. The seed of creative craziness was planted in our soil. Americans began to assume that they could follow the passions that God, himself, had woven into the fiber of their beings.  They saw that every person who wanted to make a difference in this new country, was challenged to greatness by freedom itself, even if they had to work from sun-up to sundown to achieve it

I am the American Dream. The best thing about me is, that I am not owned by any one person or clique.  I belong to every American.  When a team of patriots created the Declaration of Independence, the love of me, and the sense of ownership was spread to all.  The people participated and shared in the investment and commitment to make me real.  “We the People” became the cry of freedom for all who took me as their own.  And, “We the People” set an example of brilliance and excellence that shined as a ray of sunlight around the world.

I am the American Dream.  The fibers of my tapestry were woven most elegantly with threads of pure gold when I was made complete by the writing and ratification to the Constitution of the United States of America. After that I didn’t just hold out hopes for individual freedom and the rule of law any longer, I became them.  I became the reflection of a country thriving on the shared vision of freedom for all.  Personal responsibility, commitment, and investment made Americans true owners in their homeland, and in me. An economy based on home ownership, business ownership, hard work and limited government grew to become strongest in the world.

I am the American Dream. I have provided rewards to individuals, teams and countries.  I have become one of the strongest forces for good in the world.  My people readily share my fortunes and resources, to bless the poor across the globe…always have and always will!  I captured the imaginations of people everywhere around the globe and they arrived from every corner of the world to become Americans.  I am spread around the world, not to enlarge America, but to enlarge freedom, as a God-given right to all.

I am the American Dream.  I am so loved that tens of millions have fought – and 1.3 million have died fighting – for me during my relatively short life.  I treasure the blood of every American hero and save every drop as diamonds and rubies among my pure gold threads. These precious gems are proof that I will never die, as long as there are those who will lay down their lives to preserve me.  The more I am challenged, the more Americans will sacrifice to make sure I bounce back alive and well.  Patriots, like gem stones, keep going to the grinder in struggles for me.  I shine more brilliantly with every struggle, aglow in the blood of heroes who have died at the hands of my enemies.  They have brightened America and the world for others, with an unmistakable American beacon that shines even in the darkest times.  Because of them, great leaders have called me the light of the world and the shining city on the hill.

I am the American Dream.  Some people don’t like me. I don’t know why.  Maybe they are jealous of the joy and confidence that emanates from me.  Maybe they fear the loss of control over me if “We the People” really are my owners. Maybe they just feel guilty because they know they didn’t earn me and don’t deserve me.  But for whatever reason, I’ve always had detractors and even attackers.  It’s a sad thing too, because my Heavenly father, who inspired me, knows that no one deserves me.  I am a gift of God.  And as a gift of God, I am offered freely to all.

God is the only one who can truly control anything.  And, the joy that comes from me will flood the soul of anyone who goes to my Father in Heaven to pray with His son Jesus Christ. After all, He made all this possible by grace. No one can earn it.  Not even Patriots!  It’s a pure gift from God.  That’s why I am the American Dream.

©2009 LibertyWorks.com  All Rights Reserved

A Bittersweet Jobs Milestone

America’s six-year experiment with progressive economic theories has proved those theories invalid.  Now is the time to replicate the successful economic strategies of the 1980s.

The Labor Department’s monthly jobs report marked a long awaited milestone that, had it occurred in 2010 would have been cause for jubilation.  But in 2014 it’s a grim reminder of continuing economic misery in year five of the most anemic economic recovery in seven decades.

The milestone: As of May the total number of jobs reported by employers finally equaled the total in January 2008, the last month before recessionary job losses began.

President Obama’s supporters blame “Bush policies” for continuous job losses extending through his first 14 months.  They insist the Obama jobs record begins in March 2010, the first month of post-recession job growth.  So, on the chart below we compare the Obama post-recession jobs recovery with each of the ten previous recoveries since World War II.  We measure each from the same starting point, the first month of job growth after a period of recessionary job losses. months-to-replace-jobsAs the chart shows, after the previous recessions all lost jobs were replaced within less than a year.  But this time it took more than four years.

But it’s even worse than it seems.  Because the working age population increases every month the same number of jobs as there were in seven years ago isn’t nearly enough today.

Back in Old Normal, before the recession, 63% of working age people had jobs.  In today’s New Normal only 59% have jobs.  The four-percentage point difference equals 10 million jobless men and women.  In other words, we’re 10 million jobs short of Old Normal.

The establishment media celebrated the latest jobs report because May was the third month in a row with an increase of more than 200,000 jobs.  Averaging 234,000 per month, March, April & May were indeed the best three months of New Normal, the painfully anemic, Obama era.  So, how long would it take to claw back to Old Normal if the working age population continues to grow at the same rate and employers continue to add an average of 231,000 jobs per month?  We did the math. It would take until 2022.

So if the best monthly job growth of the Obama era would bring us back to Old Normal in eight years, is there historical precedent for a better job creation rate?  Yes.  During the first two years of the Reagan post-recession recovery, job creation averaged 316,000 per month.  At that rate we’d reclaim Old Normal in 2018.

But the 316,000 Reagan rate was in 1983 and 1984 when the working age population was 30% smaller than today.  Adjusting for population growth it would be the equivalent of 448,000 jobs per month in 2014.  At that rate we’d be back to Old Normal by the end of 2016, just in time for the Presidential election! 

President Obama is the modern leader of the so-called Progressive Movement whose core doctrine is that economic liberty is somehow “unfair” and must be supplanted with interventionist government regulation of most economic functions.  Progressives put their faith in “experts” to steer the economy via government power.  That faith in experts is at the core of ObamaCare, with 20,000+ pages of new regulations published so far. 

Because progressives’ favored “experts” warn of looming climate catastrophe Obama’s EPA plans to manufacture an energy shortage, driving costs up and employment down.  Previous government mortgage lending regulations led to a meltdown and severe recession.  The “experts” developed new regulations that set credit standards too high for most Americans to qualify for a home loan.  The list of regulatory burdens on the economy would fill thousands of pages.

Obama and the Democrats have increased taxes, including those paid directly by the small businesses and investors who have always created most of the new jobs in America.

Like President Obama, President Reagan inherited a deep, severe recession.  But Reagan’s strategy was to deregulate and to lower tax rates, especially on the small businesses and investors who create most of the new jobs.  The chart below speaks for itself, tracking employment during the 1980s recession and recovery compared with our current distress. Reagan-VS-Obama-77-months

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