Tuesday, August 27, 2013

They Are Crying Wolf, But The Wolf Is Us

A number of you reached out to me and told me that you liked my recent post on maps.

I came across another interesting map last week that the Tax Foundation put together.  It shows the interstate movement of income over the past decade (2000 to 2010) caused by people moving from state to state.  When a person moves to a new state, they also move their income producing abilities.  That results in a net gain in income that can be taxed in the new state and a net loss in income that could have been taxed in the state he or she left.

This map shows the net gains (green) and net losses (red) in aggregate adjusted gross income from people moving between 2000 and 2010.

The five states that gained the most net income from people moving into the state.

Florida              +$67 billion
Arizona               +$18 billion
Texas                    +$18 billion
North Carolina        +$16 billion
Nevada                      +$11 billion

The five states that lost the most net income from people moving out of the state.

New York             -$46 billion
California                -$29 billion
Illinois                      - $20 billion
New Jersey                -$16 billion
Ohio                            -$15 billion

There are many reasons that people move.  Job opportunities, family connections, climate and the like.  I don't think you can ever point to any one thing.  However, it is interesting that if you look at the individual income tax rates in these states, it is hard to not conclude that taxes are not an important factor in these relocation decisions.

Top Marginal Tax Rate of Gainers

Florida                0%
Arizona             4.54%
Texas                  0%
North Carolina  7.75%
Nevada               0%

Top Marginal Tax Rate of Losers

New York          8.82%
California           13.3%
Illinois                 5.0%
New Jersey         8.97%
Ohio                    5.93%

In looking at the lists above it is also hard not to notice that the states that are gainers are also generally considered to be much better for business.  They are all right to work states.  The states that are losers are all forced-union states and are considered less business-friendly.  More regulations.  Higher taxes.

The result of too much government is too much regulation, too many taxes and fewer jobs.  People eventually follow the jobs.  This is a tremendous problem for those states that are controlled by liberals and the big unions.  Eventually, you can't raise taxes any more on the people who are left and the money dries up.

This is exactly what the French Socialist government has discovered.  This is the headline that I noticed in The Telegraph last week.

France cannot take any more taxes, government admits

France's Socialist government has admitted that the country cannot cope with any further tax rises and promised no more hikes just days ahead of the country's largest ever tax bill.

Remember that President Francois Hollande was elected last year by promising to lower the annual deficit to below 3% of GDP in 2013 by raising taxes on the wealthy while also promising to improve France's economy and create more jobs.

He did raise taxes on the wealthy but he also has seen some of the rich flee. The net result of his tax increases on the rich appears to have raised less than $10 billion in new revenue.  Of course, a variety of tax increases have also been implemented on all French households. In the meantime, employment has risen to over 10% since Hollande took office.
“The government thought that by continually raising taxes, they could raise returns but they are now realising, rather belatedly, the error of their ways,” said Marc Touati, economist at ACDEFI consultancy. “Today in France, we are approaching 47 per cent of total tax pressure compared to GDP.
That is the observation of an outside observer.  What is more interesting are the quotes from some of the leaders of the Socialist French government.

Pierre Mosovici, the finance minister, told France Inter radio: “I’m very sensitive to the French getting fed up with taxes We are listening to them.” Laurent Fabius, the foreign minister followed suit, warning Mr Hollande to be “very, very careful” as “there’s a level above which we shouldn’t climb”.
One Socialist told Les Echos newspaper that the hand-wringing was totally hypocritical as “they are crying wolf, but the wolf is us.”
I hope we are listening to sounds of the wolf.  It is getting closer to our door every day.  In some states more than others.  Yes, you can move to another state.  I've done it before, I could do it again.

However, I don't want to even think about leaving the United States of America.  That is why I keep crying wolf.  Is anybody paying attention?

Thursday, August 22, 2013

Student Debt Disaster

President Obama is in the midst of a two-day tour through New York and Pennsylvania speaking about student loans.  He is touting a new government rating system that will score colleges in areas such as average tuition, student loan debt and what graduates earn after earning their diplomas.  The rating would then determine which colleges would get more federal financial aid.

Student loan debt not exceeds $1.1 trillion. Here is a debt clock that shows the approximate amount of student loans outstanding up to the minute.  For perspective, total student loan debt was only $763 billion in 2009.  Student debt has increased almost 50% in the last four years.  All other forms of personal debt, mortgages, auto loans and credit cards, have declined during the Great Recession as I wrote about last year in "Degrees in Debt."

This chart by dshort.com shows all household debt growth (reductions) since 4Q, 2007 to illustrate the explosive growth in student debt in the last few years.

As I also pointed out last year, loan payments are currently being made on just 38 percent of student loans.  The sad reality is that over 50% of recent college graduates are unemployed or underemployed as detailed in this AP story from last year that I cited.  If you have no money coming in, it is difficult to make payments on a loan.

About 1.5 million, or 53.6 percent, of bachelor's degree-holders under the age of 25 last year were jobless or underemployed, the highest share in at least 11 years.
Out of the 1.5 million who languished in the job market, about half were underemployed, an increase from the previous year.

Broken down by occupation, young college graduates were heavily represented in jobs that require a high school diploma or less.

In the last year, they were more likely to be employed as waiters, waitresses, bartenders and food-service helpers than as engineers, physicists, chemists and mathematicians combined (100,000 versus 90,000).
There were more working in office-related jobs such as receptionist or payroll clerk than in all computer professional jobs (163,000 versus 100,000). More also were employed as cashiers, retail clerks and customer representatives than engineers (125,000 versus 80,000).

Underlying all of this is the fact that there is no segment of the U.S. economy that has seen costs grow at a faster pace than tuition and fees for higher education in recent years.  Health care cost increases look modest when compared to the increase in the cost of a college education over the last three decades.  College costs have increased at about twice the rate of health care over that period.  Overall, college costs have grown at about five times the rate of inflation.

Credit: David L. Jones, Jr.

College costs could not go up without a supply of money to pay for it. Just as is the case with health care costs, college costs have become heavily dependent on the flow of federal money into the system.  Health care costs generally tracked overall inflation in the economy until Medicare and Medicaid were introduced and normal market forces were disrupted beginning in the mid-1960's.  The same has been true with student loan money.  As more student loan funds became available, the easier it became for colleges to raise tuition costs.  Ironically, a program that was designed to assist students to afford college seems to be making it more unaffordable with each passing year. 

Such is what occurs over and over when a well-intentioned "liberal" idea meets the real world.  A desire to do good by government ends up being the undoing of the very people it was intended to help.  

Matt Taibbi of Rolling Stone magazine chronicles the dismay, despair and damage that the federal government's student loan program is doing to our young people (and economy) in "Ripping Off Young America: The College Loan Scandal."  

Taibbi places blame on most everyone involved in the process-colleges and universities who live off the subsidies, the private sector contractors who profit by building palatial dorms, rec centers and athletic facilities, the federal government's predatory lending practices, Democrats, Republicans, naive students and clueless parents. It is worth the read.

When I went to college and law school in the 1970's, student loans were almost unheard of.  In college, a good percentage of my friends worked part-time jobs during the school year to pay the bills.  Almost everyone worked summer jobs.  A good paying summer job and part time work could be enough to finance most of what you would need for the year.  That is no longer possible because of the high costs of college.  And the high costs of college would not be so high without the massive amount of federal student loans.

At one time, colleges could not get away with costs that vastly outstripped incomes because they would not be able to attract students.  My grandfather dropped out of college after one year because his family simply could not afford it.  My father worked in a washing machine factory after he graduated from high school.  College was simply out the question for him financially.  He only was able to make it through due to the GI Bill and a number of part time jobs.  Today you simply  sign your name and you are good to go.  Until you have to start paying it back.  And the federal government goes to extraordinary lengths to make sure you pay it back with no relief even in bankruptcy.

At the same time, you now are considered practically disadvantaged if you don't study in Europe over the summer or take a winter break trip to China.  And we keep telling our children to follow their dreams rather than tell them to prepare themselves to be able to sustain and support themselves in a world where they are competing with a couple billion other young people on the planet.  People who want the lifestyle and luxuries that your children grew up with. However, the same lifestyle for them is in doubt  over their own lifetimes if merely due to student and other debts that will be left to them to pay. 

Taibbi sums it up this way.

In a way, America itself is violating the Truth in Lending Act. It's cheering millions of high school graduates toward college every year, feeding them into the debt grinder under the banner of increased opportunity, when full disclosure would require admitting that there isn't a hell of a lot waiting for them on the other side, where the middle class has nearly vanished and full employment is going the way of the dodo.
We're doing the worst thing people can do: lying to our young. Nobody, not even this president, who was swept to victory in large part by the raw enthusiasm of college kids, has the stones to tell the truth: that a lot of them will end up being pawns in a predatory con game designed to extract the equivalent of home-mortgage commitment from 17-year-olds dreaming of impossible careers as nautical archaeologists or orchestra conductors.

It think it is great that President Obama is paying some attention to the student loan issue. However, it seems like it is many days too late after many more billions and billions of dollars have been wasted. I am not optimistic about any near-term solutions.

If any good is to come from this it should be to consider this as yet another example where the most well-intentioned government plans results in unintended consequences. We see it over and over and over again. Ronald Reagan said it well and we should remember it.

"Government does not solve problems; it subsidizes them".

Truer words have never be said.

Monday, August 19, 2013

Map It To Remember It

I like visuals.  They can convey a lot of information at a glance.  They usually allow you to also put that info or data in context.  Maps are like that.  I still like an old fashioned map anytime over the digital versions you get today.

Neuroscience research also indicates that visuals have six times the recall within the brain as written or spoken words do.

A loyal BeeLine reader (thanks to JWA) sent me this link to a collection of 40 interesting maps that will help you make sense of the world from TwistedSister.com.

Below you will see a few of the info maps that I found most interesting.  Check out the link above for entire selection.

Countries That Do Not Use The  Metric System
I guess that it goes without saying that the United States is a little out of sync on this one.

The Only 22 Countries In The World Britain Has Not Invaded
I guess that they didn't call it the British Empire for the heck of it.  In addition to the above, Britain also did not invade Sao Tome and Principe which are not shown on the map.  That is news to me. I didn't even know they were countries!

Paid Maternal Leave Around The World
Another issue where the United States seems to be out of sync.  Will declining birth rates cause a change of thinking on this policy at some point?  See my earlier post, "What To Expect When No One's Expecting".

Worldwide Driving Orientation By Country
The United States is "right" on left side driving based on this graphic.

Visualizing Global Population Density
That is a lot of mouths to feed and house in a relatively small area of the world.

U.S. Map of the Highest Paid Public Employees by State
After all, with sports the wins and losses are there for every one to see. Not as easy with other state employees.

World Map Tattoo With Countries Visited Colored

My only question on this one...Is there a crack in middle of the ice cap on Antarctica?

Thursday, August 15, 2013

There Is A Better Way To Defund Obamacare

There is a lot of debate on how the Republicans should try to limit the damage of Obamacare to our country and the economy as the critical date of January 1, 2014 looms.  This is the date that most of the key provisions take effect (unless President Obama unilaterally finds more provisions to simply ignore).

There is a large contingent of Republicans that want to defund Obamacare in the coming budget battle and debt ceiling debate that must be addressed in September.  Their thinking is that they will pass a budget and debt ceiling increase that will keep the government running but exclude funding for Obamacare in the process.  Therefore, if President Obama wants to avoid a government shutdown, he will need to sacrifice Obamacare in the bargain.  They also believe that he will take the blame for the shutdown with the voting public if it comes to that because it was his choice.  This school of thought is driven by principles.

While I also want Obamacare repealed and I understand where they are coming from, I think this strategy is risky.  There is a better than even chance that the Republicans, not President Obama, would be blamed for a government shutdown.  The President still has the media in his pocket and that is a powerful advantage to begin with.  Unfortunately, that is the current political reality we have been living the last five years.

In addition, I believe that the attempt to defund Obamacare in this way is going to look to many voters as simply sour grapes at this point.  There have been numerous votes for repeal that have failed.  The Supreme Court ruled (no matter the circumstances) that the basic thrust of the law was constitutional.  President Obama won re-election despite the unpopularity of the law in individual polls.  These all work against the defunding strategy.  This is the public relations challenge.

I am of the opinion that there is a good chance that Obamacare will fall and fail under its own weight.  The Republicans don't have to kill it.  It may well die on its own as the public further questions the law and the fundamental flaws that plague the statute become more and more apparent.

The Obama administration fully understands this and that is why they are unilaterally delaying and waiving parts of the law that they have no authority to do.  They know they are taking legal and political risks in ignoring the law.  However, they understand that the far bigger risk is that Obamacare is at very real risk of losing all credibility with the public if they move forward right now with these serious flaws.  This would either drag down the entire Democratic party or (more likely) you would start to see substantial defections from the ranks of Democrats in defending the law. This could lead to a repeal vote that would get substantial bi-partisan support that could prove devastating to the legacy of Barack Obama.

Due to the fact that I think Obamacare is very weak in the first place, I see no need for the Republicans to risk a frontal assault on the law that has little chance of succeeding anyway.  They would be better served in staking out the high ground in the budget debate by using an  approach that would be viewed as more reasonable, less extreme and tougher for Obama and the Democrats to defend against with the voting public.  This approach would use the budget numbers that the Democrats used to pass the law asa weapon against them in the budget debate.

What am I talking about?

Remember when Obamacare was passed we heard how they were going to do all these miraculous things in health care and it was going to cost us very little?  In fact, the CBO estimated on March 20, 2010 that the law would actually reduce the budget deficit by $143 billion in the 2010-2019 period when taking account of changes in Medicare spending and revenues.

Anyone that understood the numbers knew it was all smoke and mirrors but the official CBO estimate was that the law was going to cost $898 billion over 10 years for Medicaid expansion and subsidies in the exchanges.

The reality today is far different.  The most recent CBO estimate is that the law is going to increase spending in these areas by $1.6 trillion over the next 10 years.

This chart from Heritage.org shows how the 10-year cost estimates have changed.

Let's look specifically at the 2014 fiscal year.  In CBO's 2010 budget projection of the bill, Obamacare was actually projected to reduce the budget deficit by $51 billion in 2014.  I kid you not!

The CBO provided an estimate to House Speaker John Boehner in July, 2012 on the budget impact of H.R. 6079, the Repeal of Obamacare Act. In that estimate the CBO estimated that repeal of Obamcare would increase the deficit by $24 billion in 2014.  Based on these CBO numbers, at a minimum, Obamacare is projected to put us $27 billion worse off today compared to the original projections.

This provides an opportunity for the Republicans to exploit in the coming budget discussions.

My thinking is that the Republicans should not go for the jugular here and cut all funding to Obamacare.  Obamacare is already in life support.  It merely needs to be deprived of a little oxygen in order to hasten its death. Their demand should be merely that the funding in 2014 should be no greater than in the original projections when the law was passed.  Accordingly, Obamacare would be funded to the full extent of the original projections but not a penny more. This would cut $27 billion out of this year's number for subsidies, Medicaid outlays etc.

The Republicans would merely be asking that Obamacare live within the original cost projections.  What could be more reasonable that that?  If Obama did not want to live within the original budget he would be the budget buster.  If he refused, he would be the one that was being unreasonable for not living within the original budget.  This is a much stronger position for the Republicans to play their hand in the upcoming Obamcare/Budget debate.

Lest you think that $27 billion is a trivial number, consider the fact that the February, 2013 CBO report on the budget effects of Obamacare estimated that the total cost of all of the exchange subsidies would cost $28 billion in 2014.  In effect, this strategy could deprive Obamacare of all of money needed to fund the subsidies for the exchanges.

There is a better way to undo Obamacare.  I think this may be a strategy that could appeal across all of dimensions that are in play-principles, politics and public relations.

We can only hope that someone, somewhere in Washington is paying attention to the game they are playing.  It is time to play chess, not checkers when it comes to Obamacare.

Monday, August 12, 2013

What Are We Thinking?

As I review the news it is often hard to not ask, "What are we thinking?"

A few examples.

Fort Hood Murders

Major Nidal Hasan is on trial for killing 13 unarmed soldiers and wounding another 30 others at Fort Hood, Texas in November, 2009.  Despite the fact that Hasan shouted "Allahu Akbar" as he opened fire and there was evidence he held extreme Islamic views, the Defense Department classified the case as one of "workplace violence".

In his opening statement Hasan, acting as his own counsel. stated, "The evidence will clearly show that I am the shooter."

It has also taken almost four years to bring Hasan to trial during which time he has continued to draw full military pay.

What are we thinking?

Afghanistan Contracts

A second example is the report that the Pentagon is moving forward with a $772 million purchase of aircraft for the Afghanistan army.

Of course, there are two simple problems with this.

First, the Special Inspector General of the Afghan reconstruction warned in a recent audit that the Afghans do not have the personnel or expertise to operate or maintain the aircraft.

Second, $554 million of the aircraft purchases are for a contract for 30 Mi-17 Russian helicopters!

Credit: World Tribune.com

If this was not bizarre enough, the same Inspector General reported that the U.S. Army had refused to bar 43 individuals or companies in Afghanistan from getting U.S. contracts despite information that they supported the Taliban.  The Inspector General concluded in his report, "In other words, they may be enemies of the United States, but that is not enough to keep them from getting government contracts."

What are we thinking?


Finally, Obamacare's main objective was to reduce the number of uninsured Americans without health care insurance.  But 59% of the uninsured are under the age of 35.  This is also the adult age group that is the least costly to insure.

However, the structure of Obamacare actually will increase the cost of healthcare for this age group in order to subsidize the cost of those older and that have expensive pre-existing conditions.  That is because the law dictates that the old cannot be charged more than 3 times the annual premium for coverage than is charged to the young.  The problem with this is that actuaries will tell you that the normal cost factor is about double this (someone in their 60's will average 5 or 6 times the cost of someone in their 20's).

The result is that Obamacare greatly increases the cost of healthcare insurance coverage for exactly the group that is most likely to be uninsured.

This chart from Forbes projects that younger individuals will see increased premiums in 45 of the 50 states.

That is why you have seen reports of premium increases from Washington state (+34%-80%), to Ohio (+88%) to Georgia (85% to 198% for a 25-year old man).  You can expect more of the same from many more states.

Obamacare supporters argue that these premium increases will be offset by government provided subsidies to reduce the actual cost of coverage to the individual. However, as I pointed out in my post, "Obamacare Is Still Dangerous For Democrats", the subsidies are not as large as many might expect.

For example, under Obamacare, a 27-year female who makes $35,000 per year is required to purchase health insurance coverage that is estimated to cost $3,391 per year. She would be eligible for a government subsidy of just $66. She would also be responsible for up to $4,167 in additional out-of-pocket costs for the year.

Does anyone really think that this young lady is going to buy health care insurance at this cost considering the penalty tax for failing to do so (if they can collect it) would be just $350?

We passed a 2,700 page bill that has resulted in 20,000 pages of regulations to end up with this?

What are we thinking?

Sunday, August 4, 2013

Three Interesting Charts From Last Week

BeeLine's antennae are always up looking for interesting charts that convey interesting information.

Here are three that I landed on as I was scanning the data landscape over the last week.

This knowledge, that is as sweet and delicious as any nectar, is delivered to you free of charge compliments of BeeLine.

If you don't fully understand how much Ben Bernanke and the Federal Reserve have been meddling in the economy look at this chart prepared by Zero Hedge.  This chart also shows the projected tapering the Fed suggested they might undertake beginning in 2014-2015.  Keep in mind that when Bernanke hinted that this might occur several weeks back it promptly sent the markets into a panic.

This is cause for a little concern, wouldn't you say?  It is if we have built a glass house, on a mound of sand sitting atop the San Andreas Fault.

I am always worried about a young child running out into the street chasing a ball without looking.  This Wall Street Journal chart indicates I have it all wrong.  I need to be looking out for the youngster's grandfather.

Persons over the age of 70 are 7 times more likely to be a pedestrian fatality than a child under the age of 13!  The good news is how far pedestrian deaths have fallen over the last 35 years.  It should be pointed out men are almost 3 times as likely to be a pedestrian fatality.  That is why I am more concerned about grandpa than grandma.

Finally, consider that singe-mother families make up over half of all households in poverty.  In fact, 58% of the children in single-mother households live in poverty according to this chart from FamilyFacts.org.

Reducing out of wedlock births should be one of the highest priority public policy issues in the country.  And yet no one really seems to talk about it.

I think it is especially ironic that there is so much energy being devoted to enabling gay marriage when we pay so little attention to getting heterosexual people married before having a child.

Thursday, August 1, 2013

Mothers, Young Muslims and Old Movies

In my last post I provided an overview of Jonathan Last's book, "What To Expect When No One's Expecting", which looks at the challenging consequences to society of declining birth rates.

This book is not only a page turner but you will also end up highlighting a good portion of the book for later reference with its endless string of information and insights.  I know did.

Here are a few from both categories that I thought worthy of highlighting as I read the book.

  • In 1965, when the average woman had three children and was a stay-at-home mother, she spent 10.6 hours per week on the kids. The average mother worked 6 hours per week. The average married father dedicated 2.6 hours per week to the brood. 

  • Today, even with 60% of mothers working outside the home (an overall average of 23.6 hours per week), they are putting in an average of 12.6 hours per week with the kids and fathers have cranked it up to 6.5 hours per week.  No wonder parents are so stressed and frazzled today.  There are still only 24 hours in a day!
1960's Mother

2013 Mother
Photo Credit: webmd.com

  • American women say that 2.5 children, on average, is the ideal family size but 20.4% end their childbearing years with no children, 16.9% have just one and 34.4% end up with two.  

  • Declining birth rates do not immediately translate to lower population.  You don't see the effects of population declines until the last above-replacement generation dies.  In the case of the United States, that is the Baby Boom generation.  Some European countries are already there.

  • The average age of first marriage for women increased from 20.3 years in 1950 to 26.0 in 2007.

  • At age 24, a woman's chance of being infertile is 3%.  At age 34 it is 8%.  By age 35, half of women trying to get pregnant over an 8 month period will not be successful.  By age 39, a women has a 15% chance of not being able to conceive at all.  At age 43, her chances of getting pregnant are near zero.  Delaying childbearing is a direct challenge to human biology.

  • In 1960, only 5% of all births were out of wedlock. In 1980 it was 18%.  In 2008 it was 41%!

  • Since Roe v. Wade was decided in 1973, 49.5 million babies have been aborted in the U.S.

  • In 1976, 20% of women had five or more children and another 16% had four children.  Today, only 1.8% of mothers have five or more children.

  • During the Depression through World War II, housing starts averaged less than 100,000 per year.  There were more housing starts in 2005 (2.1 million) than during that entire 16 year period between 1929 and 1945.  We have averaged about 700,000 housing starts per year since 2008 in "The Great Recession".

  • As the number of children born to a couple decrease, "the little dears become more dear".  Societies with low birth rates are very reluctant to endorse wars that their leaders might want to wage because of this.

  • 23% of German men say that zero is the ideal family size.

  • 80% of civil conflicts occur in countries where more than 60% or the population is under age 30. (most of the Middle East right now).  For example, nearly 2/3 of Egyptians are under the age of 30.  24% of Iran's population is under age 14.  42% of those living in the Gaza Strip and 35% of Syria's population are under age 15.  Other countries % of those under age 15.  Egypt 32%, Israel 28%, US 20%, China 16%, Russia 15%, Japan 13%, Germany 13%.
Credit: Ed Giles/Getty Images

  • Europe as we have known it for the last 15 centuries is on a path to fade away over the next 50 years to what will most likely be a Muslim dominated region.

  • Since 1970 vehicle land miles driven by Americans have increased by 150% but we have only added 5% to our highway capacity.  Now you know why you are stuck in traffic on the way home from work to pick up your child at daycare!

  • One of the major obstacles to more births are the high costs of raising children and high taxes on working families, particularly FICA taxes.  If you think about it, each parent of a child is bearing the cost of developing a future taxpayer.  It is essentially an investment that the whole country will benefit from in the future. People without children do not bear that cost.  However, both will draw the same Social Security and Medicare benefits when they are older.  Those benefits must be paid by those children's future taxes.  That is the way the system was designed. If taxes are not paid by the next generation, no Social Security benefits are going to be there for anybody. 
One researcher has suggested that parents receive a "Parental Dividend" to offset FICA taxes and reduce the current disincentive to have children.  For example, reduce FICA taxes by one-third for the first child, two-thirds for two and in full for three until they turn 18.  I like that idea even though I have already fully paid all the bills for three current and future contributing taxpayers. 

How about a dividend on the dividend for new parents? 

Credit: Wikipedia