Category Archives: Deficit Reduction

A Liberal Democratic Senator Every Conservative Republican Should Admire by Gregory Hilton

Yesterday’s big news was about a possible upset in the Massachusetts special election to fill Ted Kennedy’s vacancy. A political earthquake similar to this happened before. Democrats won the 1957 special election to fill the vacancy caused by the death of Senator Joseph McCarthy (R-WI). The GOP candidate appeared to have many advantages going into the election. He was undefeated former Gov. Walter J. Kohler (1950-1956) who had a high approval rating. The Democrats nominated William Proxmire who had only served one term in the state legislature (1950-1952), and had lost statewide campaigns in 1952, 1954 and 1956.
Kohler significantly outspent Proxmire, but the deepening economic recession was a big advantage for the Democrat. Proxmire was skilled at obtaining free publicity and was even able to use previous defeats to his advantage. The Democratic candidate said: “My opponent doesn’t know what it is to lose. I do. And I’ll welcome the support of voters who do too. I’ll take the losers. I’ll take the debtors. I’ll take those who’ve lost in love, or baseball, or in business. I’ll take the Milwaukee Braves.”
Proxmire graduated from Yale University in 1938, and enlisted as an Army private in the days after Pearl Harbor. He was discharged in1946 as a first lieutenant. He earned his MBA from Harvard two years later and stayed on campus to complete a degree in public administration.
The Proxmire seat remains in Democratic hands today, but unfortunately few members of his party are similar to the late Wisconsin Senator.
He served from 1957 to 1988, and was the original Porkbuster. He was known for his devotion to curbing governmental waste and mismanagement, and beginning in 1975 he issued a monthly Golden Fleece Award. The award was bestowed on the most “wasteful, ridiculous or ironic use of the taxpayers’ money.” He also issued merit awards for successful actions of government agencies which resulted in increased efficiency. A few examples of Golden Fleece Awards are:
* The National Science Foundation for spending $84,000 to learn why people fall in love. Proxmire said such a study was better left to “poets and mystics, to Irving Berlin, to thousands of high school and college bull sessions.”
* The National Institute for Mental Health which spent $97,000 to study what happened in houses of prostitution. The researchers said they made repeated visits in the interests of accuracy.
* The Federal Aviation Administration for spending $57,800 on a study of the physical measurements of 432 airline stewardesses, paying special attention to the “length of the buttocks” and how their knees were arranged when they were seated.
* The Justice Department for spending $27,000 to determine why prisoners wanted to get out of jail.
* The Department of Defense for spending $3,000 to determine if people in the military should carry umbrellas in the rain. He also brought attention to the $7,000 coffeepot, the $400 hammer and the $792 doormat.
* The Department of Agriculture for spending $100,000 to study whether fish that had consumed tequila were more belligerent than fish that had stuck with gin.
Another Proxmire campaign was to cut back on the use of government limousines. In testimony before the House Committee on Government Operations he said “The limousine is the ultimate ego trip, the supreme sign of success. It shouts: “Hey, this guy is really and truly Mr. Big.”
President Jimmy Carter took his advice and used a Town Car instead of a limousine. Carter also accepted Proxmire’s recommendation and surprised everyone by walking down Pennsylvania Avenue after his Inauguration.
Proxmire opposed new federal spending even when it was for his state. He deleted money for a lake improvement project in LaFarge by saying it was wasteful. The lake then became a mudhole, and a sign was erected calling it Lake Proxmire. Many of the financial problems which are being encountered by states and cities today were pointed out by Proxmire decades ago. This was especially true when he served as Chairman of the Banking Committee when it considered the $2.3 billion federal loan guarantee to New York City (which was then on the brink of bankruptcy).
Proxmire publicly criticized Mayor Beame and the city as profligate, and excoriated the City Council for seeking a 50 percent pay raise during a financial crisis. More importantly, he also said municipal workers made too much money and their pensions benefits should be revised because they were far better than the private sector. Few Democratic lawmakers would say that today.
Proxmire was a liberal and his foreign policy and national security views were misguided. His opposition to the C-5A transport, the Patriot missile, the F-16 and the F-18 fighter jets were not wise. Nevertheless, he deserves tremendous credit for efforts to improve governmental management.
Government waste, excessive spending and budget deficits were the prime targets of his books; “Report from the Wasteland” (1970), “Uncle Sam: The Last of the Bigtime Spenders,” (1972), and “The Fleecing of America” (1980). In each of his last two Senate campaigns, Proxmire refused to take any contributions and spent less than $200 out of his own pocket.
Proxmire retired from the Senate in 1988 after 32 years of service. He said, “I have spent my career trying to get Congressmen to spend the people’s money as if it were their own. But I have failed.” He served as Honorary Chair of the Advisory Board of Taxpayers for Common Sense. Suffering from Alzheimer’s disease, Proxmire died on December 15, 2005 after spending four years in a Maryland nursing home.
His name continues to be heard in Wisconsin politics. Former Rep. Mark W. Neumann (R-WI) is now running for Governor. Similar to Proxmire, Neumann frustrated many of his colleagues with his pledge not to vote for any bill which increased the deficit. Neumann believes tax-cutting is not enough, and as a lawmaker he advocated paying down the accumulated national debt and reducing the size of government. His campaign is featuring this 1995 letter the then Congressman received from Proxmire:
“Congratulations on your courage and conviction… I have rarely been so impressed by any Member of Congress as I was by your ‘flat-out act of conscience.’ Yours was truly a class act. Wisconsin should be very proud of you.”
PHOTO: Triumphant Democrats march to the State Capitol in Madison, Wisconsin on August 27, 1957 as three time loser William Proxmire easily wins the special election caused by the death of Senator Joseph McCarthy (R-WI). Proxmire’s victory sent shock waves through the political world and a year later Democrats would win an unprecedented 13 seats in the U.S. Senate and catapult into the lead for the 1960 presidential election. Democrats would also win both 1959 Senate elections in the new state of Alaska, and the results were split in the new state of Hawaii. The results were an aggregate gain of 16 seats for the Democrats and a party balance of 65-35. Democrats gained three open seats in California, Indiana, and New Jersey, and defeated ten Republican incumbents: William C. Revercomb (WV), John D. Hoblitzell, Jr. (WV), John W. Bricker (OH), Edward Thye (MN), William A. Purtell (CT), Frederick G. Payne (ME), Charles E. Potter (MI), Arthur V. Watkins (UT), Frank A. Barrett (WY) and George W. Malone (NV).

Expect Obama to Make a Right Turn in the State of the Union Address by Gregory Hilton

Several GOP strategists are now expecting President Obama’s upcoming State of the Union Address to be in sharp contrast to his remarks a year ago. This time a central focus will be on deficit reduction and fiscal responsibility. Obama spent more money on new programs in his first nine months than Bill Clinton did in eight years, and the result was a 30% drop in the President’s popularity among independent voters.
There is little room for big spending initiatives, and I will not be surprised if the speech includes an applause line which would bring all Congressional Republicans to their feet. That would definitely happen if Obama announced “Because of the deficit this is not the right time for a global warming cap-and-trade bill.” Bill Clinton did the same thing in 1995 when he said “The era of big government is over.” The President’s comments on Afghanistan will also result in well deserved GOP applause.
The Obama White House contains astute political professionals and they are aware of the polling data. It indicates Obama is beginning his second year with the highest disapproval rating of any President since modern polling began (see today’s Gallup Poll chart). As of now, 44% of the public disapproves of the job he’s doing as president.
That’s four points higher than the next closest president (Reagan), six points higher than Bill Clinton, and 17 points higher than Jimmy Carter. Obama also begins 2010 with the second worst job approval rating of any president in the last 56 years.
The State of the Union will not occur until after the passage of health care reform. My guess is that the only new domestic initiatives revealed in the speech will be a jobs program and enhanced security measures to stop terrorism. The President will say his 2010 focus is on the deficit, jobs and keeping America safe.
He will say the medium-term deficits are too high, and as part of the new budget process, “I am committed to bringing them down now.” The headline from the speech will be the President’s surprise decision to move $100 billion from the financial bailout bill to deficit reduction.
The best way to achieve meaningful reductions is by scaling back entitlement programs. Defense reductions would be popular with the Democratic Party base, but not with the electorate. Jimmy Carter demonstrated that in 1978 and 1980.
Obama’s Chief of Staff, former Rep. Rahm Emanuel (D-IL), held a high ranking post in the Clinton White House. It would not be surprising if he reminded the President that Bill Clinton was successful in moving rapidly to the right after the GOP captured the House and Senate in the 1994 midterm elections.
Clinton jettisoned all of his political advisers and instead relied on Dick Morris who strongly urged him to govern as a moderate. The result was spectacular for Clinton who signed the initiatives contained in the GOP’s Contract with America, and was easily re-elected in 1996.
Will Obama be able to adopt the same tactics? I am skeptical and an important difference is that Obama will continue to have a Democratic Congress. It will not be easy for many Democrats to sell themselves as deeply concerned about spending after voting for the stimulus, the bailouts, the health care legislation, the Obama budget and an expensive plan to address global warming.
The Democrats are already on record as supporting four enormous new government programs. After the speech the big question will be was this election year rhetoric or a new reality? If Obama does not move significantly on deficit and budget reductions, his comments from the speech will be rebroadcast as GOP campaign ads next fall.

Bringing Down the Deficit: Can We Follow the Marshall Plan Formula? by Gregory Hilton

The U.S. Congress is entering a highly partisan election year and it is not expected to compile an impressive track record in 2010. Deficit reduction and fiscal responsibility will almost certainly be key themes in President Obama’s upcoming State of the Union Address, and my hope is that progress on spending cuts will not be delayed until next year.
The President and GOP leaders will both call attention to the soaring federal budget deficit and the spiraling national debt. As a percentage of gross domestic product, the public debt is dangerously high (84%) and the interest costs are exorbitant. About $3.5 trillion in American debt is held by foreigners and nearly $800 billion of that is held by the People’s Republic of China.
If nothing changes, ten years from now the federal budget will double. Between 1776 and 2008 the US government accumulated roughly $11 trillion in federal debt; the next ten years alone should bring an additional $9 trillion in burdens. Some analysts believe federal debt will reach $50 trillion by 2030.
Several lawmakers are recommending the establishment of a bipartisan commission to provide recommendations which will stabilize the federal debt at no more than 60 percent of GDP by 2018. This is an excellent idea which has been used successfully several times in the past.
The most notable was when a GOP Congress supported a Democratic president by enacting the Marshall Plan and backing the Truman Doctrine, with its pledge of military help to any free people threatened by Communist aggression.
The U.S. spent an unprecedented $13.6 billion in four years on the Marshall Plan. The money was used to underwrite the economic, social and political recovery of war-torn Western Europe. It never would have been enacted without the close working relationship between Truman’s Secretary of State, General George Marshall, and Senator Arthur Vandenberg (R-MI), the Chairman of the Foreign Relations Committee.
Vandenberg’s bipartisan cooperation led some conservatives to refer to him as “a Benedict Arnold,” and it ruined his chances of winning the 1948 GOP presidential nomination. The Senator could truly say he would rather be right than president. His attitude was “We have won the war. Now let us work together to win the peace.” The Michigan Senator said he was a loyal Republican, but he was also a loyal American. He told his critics bipartisanship “does not involve the remotest surrender of free debate in determining our position. On the contrary, frank cooperation and free debate are indispensable to ultimate unity.”
General Marshall announced the plan during a commencement speech at Harvard University in June of 1947. He said, “I need not tell you, gentlemen, that the world situation is very serious. That must be apparent to all intelligent people.” Then Marshall sketched Europe’s devastation and economic disruption: “The town and city industries are not producing adequate goods to exchange with the food-producing farmer . . . People in the cities are short of food and fuel. . . The division of labor upon which the exchange of products is based is in danger of breaking down.” Europe was shattered, broke and facing economic collapse.
Vandenberg’s proposal was accepted by Truman and a bipartisan 16-person committee was established. It was comprised of leading figures from American life. They worked on outlining a long-term aid program and their recommendations were unanimous.
Vandenberg and the committee insisted that the Marshall Plan be different from any foreign aid program of the past. They wanted it to be administered like a business enterprise, with a clear, discernible strategy and goals. The Truman Administration agreed to the recommendation regarding an administrator of the Marshall Plan. They selected Paul Hoffman, the Republican president of the Studebaker Corporation, who instantly became the centerpiece in the Democratic administration’s foreign policy.
The European Recovery Act was signed on April 3, 1948. Two weeks later the freighter John H. Quick left Galveston, Texas, with 9,000 tons of wheat for France. This was the beginning of the most effective peace-time American foreign policy program in U.S. history. The Marshall Plan worked faster than anyone had thought possible. By 1951, Western Europe’s industrial production had soared by 40%. By 1952 as the funding ended, the economy of every participant nation had surpassed pre-war levels. Over the next two decades, Western Europe enjoyed unprecedented growth and prosperity.

California and the Pending Collapse of Liberal State Governments by Gregory Hilton

The California fiscal crisis impacts all of us. The state is running out of money and it is now likely they will default on their debt which will hamper our national economic recovery. Unemployment is over 12%, they have America’s lowest credit rating and the second-highest rate of home foreclosures.
California is now $21 billion in debt, and if they were a business the state would have to declare bankruptcy because they are unable to pay their bills. The state’s tax revenues have fallen from a high of $103 billion in 2007-08 to $84.6 billion in the current fiscal year.
No other state can match California’s fiscal crisis, but many states have similar problems. They have spent too much, enacted policies which have driven employers away, and repeatedly caved in to the excessive demands of public employee unions. Few people are paying attention to Wisconsin but despite a balanced budget requirement, the state’s deficit per capita is four times that of California. Similar stories are rampant throughout Blue America.
Governor Arnold Schwarzenegger (R) took office in 2003 on a promise to “end the crazy deficit spending” and to fundamentally change state government. He has tried to cut the budget many times but the legislature has rarely been cooperative. Some significant reductions have been achieved and the spending gap was over $60 billion last summer. Six months ago $32 billion in cuts were finally enacted.
It was an impressive accomplishment, but far more needs to be done. Schwarzenegger’s next plan will be unveiled during his annual State of the State address on Wednesday and this will be followed by the new budget will be released on Friday. He is expected to ask for changes to the state’s costly pension system, which he has been seeking for several years, as a last major accomplishment. He will also seek an authorization for additional oil drilling off the Santa Barbara coast.
A bipartisan tax commission created by Schwarzenegger and outgoing Assembly Speaker Karen Bass (D) recommended sweeping overhauls. The panel recommended repealing the sales and corporate taxes, flattening the income tax rate and imposing a new type of tax on a wider variety of businesses that would include the service sector. The recommendations have failed to gain any traction in the legislature.
“We’ve already gone after the low-hanging fruit and the medium-hanging fruit and the higher-hanging fruit, so it’s going to get tougher and tougher now to balance the budget,” Schwarzenegger said. The Governor will leave office in January 2011 after seven years. Democrats have controlled the state legislature for many years but they have been deadlocked for a long time.
Similar to the U.S. Congress, they do not want to pass any additional unpopular budget reductions in an election year. There are no easy solutions left, and the state has a political crisis in addition to a fiscal crisis. The legislature is worried about its own unpopularity and they do not want to address the problems presented by bloated public employee unions and entitlement spending.
An excellent analysis of the current situation has been made by former San Francisco Mayor Willie Brown (1996 – 2004). It is difficult to think of a more liberal politician than Brown, 75, who previously served as Speaker of the California Assembly for 15 years. He has been closely associated with House Speaker Nancy Pelosi for over three decades. Brown is unique in that he has come forward to admit the origins of today’s problem. His insightful remarks appear below:
“If we as a state want to make a New Year’s resolution, I suggest taking a good look at the California we have created. From our out-of-sync tax system to our out-of-control civil service, it’s time for politicians to begin an honest dialogue about what we’ve become.
“Take the civil service. The system was set up so politicians like me couldn’t come in and fire the people (relatives) hired by the guy they beat and replace them with their own friends and relatives. Over the years, however, the civil service system has changed from one that protects jobs to one that runs the show.
“The deal used to be that civil servants were paid less than private sector workers in exchange for an understanding that they had job security for life. But we politicians, pushed by our friends in labor, gradually expanded pay and benefits to private-sector levels while keeping the job protections and layering on incredibly generous retirement packages that pay ex-workers almost as much as current workers.
“Talking about this is politically unpopular and potentially even career suicide for most officeholders. But at some point, someone is going to have to get honest about the fact that 80 percent of the state, county and city budget deficits are due to employee costs. Either we do something about it at the ballot box, or a judge will do something about in Bankruptcy Court. And if you think I’m kidding, just look at Vallejo.”

Budget Deficit: The U.S. Would Not Qualify for EU Membership by Gregory Hilton

At the beginning of 2008 no one would have imagined the French Senate would soon be lecturing us about the need for fiscal responsibility. Unfortunately, they do have a point. Our budget deficit is now worse than Cuba’s. Because of our spending programs we would not be eligible for membership in the European Union. The European Union’s Stability and Growth Pact adopted in 1997 requires a budget deficit to be less than three percent, and requires a national debt beneath 60 percent of Gross Domestic Product (GDP).
The necessary U.S. reductions are massive. According to the Congressional Budget Office, the 2010-19 deficits would total $9.3 trillion; the debt-to-GDP ratio in 2019 would be 82 percent. This is a ratio of publicly held federal debt to gross domestic product (GDP, or the economy). This is highest since 1950 (80 percent) when we were recovering from WW II.
Treasury Secretary Geithner and NEC Chairman Larry Summers are refusing to rule out a tax increase, and in a complete reversal from last year, Obama supporters are now saying this is necessary. Economic recovery has returned to Wall Street, but not to Main Street. As soon as it does, senior officials of the Federal Reserve are telling us interest rates will be raised in order to avoid inflation.
The U.S. banking system has increased surplus reserves from $1.8 billion in 8/08 to $832 billion in 8/09. Private sector liquidity is vapid, and a tax increase could wallop our nation into a disaster.

Why Has the Left Forgotten About the Deficit? by Gregory Hilton

The winner of Moveon.org’s 2004 “Bush in 30 Seconds” contest was a spot focused on the evils of the budget deficit. The deficit this year is $1.8 trillion, which is more than 10 times bigger than two years ago. It has gone from 3.2% of GDP to 13.1%, twice the post-World War II record of 6%. Unlike the WW II surge it is not temporary.
The deficit was Moveon.org’s top issue in 2004 but now they ignore it as they promote the Obama agenda. This is the same organization that ran a full page ad in the New York Times accusing General David Petraeus of cooking the books on Iraq and claimed the troop surge was a failure. They were later criticized by Democratic Senators Joe Biden, John Kerry and Hillary Clinton.
As Mrs. Clinton noted, “MoveOn didn’t even want us to go into Afghanistan. I mean, that’s what we’re dealing with.” On another occasion she said, “They are very driven by their view of our positions, and it’s primarily national security and foreign policy that drives them. I don’t agree with them. They know I don’t agree with them. So they flood into these caucuses and dominate them and really intimidate people who actually show up to support me.”
The Moveon.org claims are frequently rebutted by http://www.factcheck.org and keep that in mind when you see their new material on health care and cap and trade.

The Bush Deficit, the Clinton Surplus and TARP by Gregory Hilton

The 10 year budget outlook

The 10 year budget outlook


For eight years many liberals complained about the Bush deficit and praised the Clinton surplus. They had an excellent point, but overlooked many key factors. Bush created a Medicare drug entitle­ment which will cost an estimated $800 billion in its first decade. He increased federal education spending 58% faster than inflation. He was also the first President to spend 3% of GDP on federal anti-poverty programs. For some reason the left wing is no longer talking about the deficit.
The above graph does include spending on Iraq and Afghanistan during the Bush years. While Bush did fund the wars through emergency supplementals (not the regular budget process), that spending did not simply vanish. It is of course included in the numbers above.
The Bush deficit declined significantly until early September of 2008 when the global economic crisis began. Bush responded with TARP (the toxic asset recovery program). This was done because $550 billion was pulled out of our financial and investment systems in ONE hour on September 18, 2008. The situation was dire and there was no longer a firewall between the banks and the stock market. There was $40 trillion in outstanding Credit Default Swaps, and most of it turned out to be worthless. That’s more than the GDP of the entire United States for three years.
The Bush administration worked diligently to keep the American economy going. Many conservatives and libertarians were disappointed by TARP. They believed we should leave the economy alone and it would fix itself. The conservative magazine National Review did not agree and supported TARP as a necessary evil. The House Progressive Caucus was opposed but their prediction that it would fail, has not proven true.
TARP was necessary to save the economy from collapse. Letting the banks fail was not the right thing to do and it would have led to a Great Depression. TARP and all of the other government efforts in the fall of 2008 did unfreeze the credit markets. Every single credit indicator (LIBOR, TED spread, A2/P2 spread, intra-bank lending, etc) shows that the markets have significantly unfrozen. The major banks have now passed their stress tests, and they are able to raise capital through the public markets. The American economy survived without a depression. There was no wholesale meltdown of the U.S. banking system. The big banks did not fail.
The taxpayers could still lose $12 to $20 billion on the money given to AIG. That is disappointing, but it is big improvement from a few months ago. AIG received $182 billion from the Federal Reserve and the Treasury.
Many thought the taxpayers were going to get stuck for over $100 billion, but AIG has been rapidly selling assets and the loss will be far less than what was once believed. The real outrage is that AIG lost $98 billion in 2008 but that did not stop them from paying large bonuses after they received the balout money.
President Obama went well beyond TARP with his $787 stimulus in February of 2009. The Stimulus bill includes tax cuts but they are not the type that spur the economy. The economic model of the stimulus bill assumes every $1 of government spending increases the economy by $1.60. By that logic, debt-ridden, big-government countries like Italy, France and Germany should be wealthier than America. Not one House Republican voted for the final stimulus package, which is remarkable.
The moderates did not support it because it was too big, too porky, and hardly stimulative at all. It also wiped out many of Bill Clinton’s excellent welfare reform laws. We did see deficit reduction and economic growth in the late 1990’s.
Bill Clinton and a Republican Congress worked together. They agreed to restore a lower tax rate on capital gains and virtually eliminate capital gains taxes on owner-occupied housing. The galloping economy then reduced the deficit by a record level.
Another major factor was the “peace dividend” after the Cold War. Clinton however did not erase the debt. The national debt went up every single year. The Clinton surplus is also debatable. He took a vast amount of money out of Social Security in order to cover his budgets and give the appearance of reducing debt.

Why Does Moveon.org No Longer Care About the Deficit? by Gregory Hilton


This powerful and timely 30 second ad was produced by the liberal activist group Moveon.org. The ad harshly criticizes the Bush Administration for compiling a $1 trillion debt. The spot shows a series of children working blue-collar jobs and ends with the line: “Guess who’s going to pay off Bush’s $1 trillion deficit?” The ad was shown during the 2004 presidential campaign, but it is far more relevant today.
Moveon wanted to spend $1.6 million to show this 30 second ad during the Super Bowl. Back then the deficit was less than 1% of our GDP. Spending to foster economic recovery is important, but future generations will have to pay the upcoming $10 trillion debt.
The arguments made by Moveon.org in 2004 when the deficit was $1 trillion were valid. They are even more valid today when we are looking at a $10 trillion deficit. Sen. Kent Conrad (D-ND), the Chairman of the Budget Committee, says the Obama budget is “unsustainable.”
The $9.6 trillion 10 year deficit figure is from the Congressional Budget Office (CBO). The immediate past CBO Director is now Obama’s OMB Director, and the President quoted the CBO in practically all of his debates last year. The situation is even worse than this because the CBO tells us rising unemployment and declining tax revenue means the surplus in the Social Security Trust Fund may vanish next year, nearly a decade ahead of schedule.
I am not trying to place blame on any political party, and there are good people in both parties. There were 50 hours of Senate debate this week on the budget. Democratic Senators Nelson, Bayh, Landrieu, Begich, McCaskill, Carper, Lieberman, Bennet, Shaheen and Hagan all came out against the Obama budget and they have now cut in half the proposed increase in domestic discretionary spending. The budget will pass by a simple majority tomorrow but I am glad the above Democrats are promising further reductions to cope with our massive deficit.