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Number 43

SAFE

Secure America's Future Economy

 

Fall  2006


OUR MEMBERS SPEAK: New name OK, keep plugging – Bill Whipple

      Let me begin by saying that the response rate to the July survey was terrific.  Over one-third of you (from all over the country) made the effort to get back to us, and for that the SAFE board is truly appreciative.

     The survey results are posted here on our Website [Events page], but here are the highlights.

     ● Feelings about changing our name to Secure America’s Future Economy (SAFE):  new name an improvement 77%, old name was better 10%, does not matter 13%.  The need to attract younger members was cited by several of you as a key benefit of the change.

     ● Feelings re SAFE strategy (as government’s fiscal situation has continued to deteriorate):  2/3 said we should “keep plugging,” 1/3 said to try new strategies (in many cases offering sug-gestions, which will be thoughtfully considered).  No one voted for “giving up.”

     ● Based on the survey, only about 25% of you visit the SAFE Website.  Thus, this channel of communications may be more important in getting SAFE’s message to the public than it is in reaching our own membership.  We appreciate the feedback, however, from those who do visit the site.  The navigation bar is now on top; we will work on “more graphics.”

     ● Almost all of the respondents read the SAFE newsletter, and their average rating was 4 on a scale of 5 (superior) to 1.  We appreciate your feedback and will work on your suggestions.  Let us hear from you about this issue!

    Almost all of you agree that SAFE should be “sending letters to the editor and political leaders, cultivating media contacts, and networking with larger organizations such as Cato and Citizens Against Government Waste.” Your comments and suggestions will be taken into account in planning future SAFE initiatives.

     Thanks again to all of you who responded to the survey.  For other members, it is not too late; we would still love to receive your input.  Indeed, we hope you will reach out to one of the SAFE directors (in person, or by phone, letter or e-mail) whenever a comment or suggestion occurs to you.

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GOVERNMENT LIES: Why won’t our politi-cal leaders tell the truth about Social Security?

      “Lies and Leviathan” by James Bovard in August 2006 “Freedom Daily” covers Social Security and other areas.  Bouard says “Social Security is the single largest government aid program” and “the big lie of domestic politics.”

     In the beginning, Social Security was sold as an insurance program that would provide vested rights. Then, in a 1937 brief to the Supreme Court, the Roosevelt administration characterized Social Security as a “public charity” under the “general welfare clause” clause of the Constitution because the government had no authority to go into the insurance business.

      The Supreme Court went along, upholding Social Security as a welfare system.  This was not politically palatable, however, so the Social Security Administration immediately changed the name of the program from “old age benefits” to “old age insurance.” 

     A later ruling of the Supreme Court established that no one has a legal right to Social Security benefits, some insurance program! If retired workers continue collecting retirement benefits, it will be as a favor rather than because they have paid their taxes and are entitled to the benefits.

     The asserted relationship between payroll taxes

and the “Social Security Trust Fund” is another purposeful distortion.  Since payroll taxes were drastically hiked in the 1980s, tax payments earmarked for Social Security have been exceed-ing Social Security outlays.  In principle, the resulting “surplus” should have been used to pay off the National Debt or otherwise conserved to cover the Social Security deficits anticipated when the baby boomers retired.

       Congress wanted to spend the “surplus” on other programs, however, so they came up with the idea of a “trust fund” that would account for the diverted funds by accepting IOUs. Just one little problem – Social Security beneficiaries want to be paid in cash, not IOUs, so this scheme is just “smoke and mirrors.” 

      Within a few years now, “entitlements” (or welfare) for seniors, which include Medicare as well as Social Security, will increase so much that active workers will be unable to pay enough taxes to cover them. Indeed, Medicare and Social Security are already running a deficit on a combined basis. 

      Borrowing more and more money is a bad idea, because it could lead to a vicious cycle of loss of lender confidence, sharply rising interest rates, and double-digit inflation – i.e., the fiscal meltdown that we keep talking about.

     How can we protect the young workers of the future, our children and grandchildren?  One way is to restructure Social Security so that younger workers will have the option of using the payroll taxes they pay to fund personal retirement accounts and opting out of traditional retirement benefits. For a detailed, easy to understand explanation of this approach, see “It’s your money: A Citizen’s Guide to Social Security Reform,” Cato Institute, 2005.  SAFE has copies; call Bill Morris if you would like one.

      Defenders of the Social Security as welfare status quo have responded to the personal account idea with a lot of bobbing, weaving and obfuscation.  There is no need to act any time soon because the Trust Fund won’t run dry until 2043.  Personal accounts would be way too risky, so no one should be allowed to have one. Channeling tax revenues into personal accounts would “cost” trillions of dollars on a transitional basis, never mind that the outlays involved would be recovered and then some in later years.

      Maybe someone should tell Congress that enough is enough.  Maybe SAFE Members could participate in the grass roots effort that would be required.  Maybe we should start it.

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I wonder . . .would two canes make walking twice as easy.

Dangerous forgetfulness . . .brakes or accelerator.

A hot message . . . when your temperature indicator points red on your car dash.

I don’t know . . . what I’m looking for.


 

DOWNSIZING THE GOVERNMENT: Let’s take a hard look at Federal grants - Bill Morris

     This is an idea I wholeheartedly endorse.  In fact, I love it!  It is also the title of a book by Chris Edwards, sponsored by the Cato Institute, that is available online or at bookstores for about  $12.

     I cannot improve on two statements in the introduction:  “The federal government is running large budget deficits, spending too much, and heading toward a financial crisis.”  And “—policymakers need to begin identifying programs in the federal budget that can be cut, transferred to the states, or privatized.”

     Edwards provides a rundown on what he calls wasteful programs, special interest spending, and actively damaging programs. With his proposed cuts, he says, the budget would be balanced in 2011 with a large surplus by 2015.

     Now, I would like to offer my thoughts on trying to get some downsizing done.  First, lets place the blame where it belongs.  Democrat and Republican administrations alike have run up the debt they should have been paying off in preparation for retirement of the baby boomers.  This is grossly unfair to the next generations.  We are witnessing bipartisan irresponsibility and it must be stopped.  Second, the problem will not be resolved without a real sense or urgency.

      Assume an asteroid is headed for the earth; it will take a $5 trillion program to avoid a collision.  Governments of the world will soon discover that a lot of sacred cows are not so sacred after all.  Look for nonessential spending to be eliminated, taxes to be raised if necessary, etc., without the need for a great deal of discussion.

      There is no asteroid, of course, but the federal government is overextended financially.  Indeed, the estimated present value of its unfunded liabilities (principally for Social Security and Medicare) is some $50 trillion. Peter Peterson in “Running on Empty” and Laurence Kotlikoff in “The Coming Generational Storm.”

      The most painless way to close the fiscal gap would be major cuts in nonessential government programs. To this end, I believe the federal government should eliminate grants ($426 billion in 2005) to state and local governments for Medicaid, education, homeland security, high-ways, etc., along with the associated mandates.

      State programs in these areas will still be needed, I do not mean to imply otherwise, but why are federal grants needed to help pay for them? As Chris Edwards notes, federal grants encourage extravagant over-spending, reduce state govern-ment flexibility, and create administrative costs for federal, state and local governments to document compliance with federal grant requirements.

     For example, most of the federal Department of Education budget ($71 billion in 2005) goes for grant programs designed to bribe the states to comply with various educational policies that are quite complex and highly detailed. If the grant programs were eliminated, it should be possible to abolish the federal department.  Such a step, in my opinion, would improve education in America by enhancing the ability of the individual states to innovate and learn from each other.   

      What about raising taxes instead of cutting spending?  A tax revolt would occur if Congress attempted to raise taxes anywhere near enough to solve the problem.

       Borrowing to close the fiscal gap may seem a painless choice, but who is going to lend us $50 trillion?   Should lenders begin to doubt the ability of the U.S. government to pay its debts, look for sharply higher interest rates, surging inflation, and a severe financial crisis (aka fiscal meltdown). 

      Does eliminating federal grants sound a bit radical? Actually, I think it is called for by the Tenth Amendment (1791): “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”

     I presume that the members of SAFE want to see large spending cuts to avert a financial crisis and protect the future of the next generations.  For such cuts to happen, voters must see that getting goodies with strings from the federal government for their respective states is a bad idea.  What can we do to help change the public mindset?

     Give us your ideas.  Please.

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THE PUBLIC SAYS: Time to act now, spending cuts favored 3:1 over tax increases.

      It wasn’t easy to persuade passersby at Newark Community Day to stop and participate in a two-page survey on fiscal responsibility that took ten minutes or so to complete.  We got 111 takers, however, and the results were instructive.  A recap is posted here on our Website , and we also shared the results with Delaware political leaders, the media, and other contacts.

      SAFE’s basic view appeared at the top of the survey form:  “Current deficits of $300-400 billion per year are bad enough; when the ‘baby boomers’ start retiring (in only a few years) and push Social Security and Medicare outlays through the roof, the situation will get far, far worse.”  Apparently, the participants agree; 87% of them said projected fiscal shortfalls “must be addressed now” vs. left for later.

     Asked to identify the primary solution(s) to the coming financial crisis, 77% of participants cited reducing current government expenditures.  39% voted for restructuring Social Security & Medicare to reduce future commitments; only 24% saw raising taxes as a primary solution.

     If taxes were to be raised, participants would favor eliminating the exemptions and credits that have effectively relieved half the U.S. population from paying income taxes.  The average score for this option was 3.5 on a scale of 5 (clearly accept-able) to 1 (unacceptable).  Appreciable support was indicated for rolling back the Bush income tax cuts (3.0).  Increasing taxes on gasoline (2.4), a payroll tax hike (2.0), or a new national sales or value added tax (1.9) were not favored.

     Out of five targets for spending cuts, the scores were: Congressional “earmarks” for special interest programs (3.5); agricultural support payments and “corporate welfare” (3.1); failed “war on drugs” (3.0); federal grants to state and local governments (2.7); eliminating the federal Dept. of Education (2.4).  [Comment:  SAFE believes all these ideas should be pursued.]

     The most favored option (average score 3.2) for restructuring Social Security was to give younger workers the option of using the payroll taxes they pay for Social Security to fund personal retirement accounts.  [Prediction:  real Social Security reform is not dead, even though the Bush proposal fizzled in 2005.]  Lesser support was indicated for (a) increasing the “normal” retirement age (2.6), or (b) subjecting up to 100% (vs. 85% at present) of Social Security benefits to income tax (2.3).

     Out of four options for restructuring the healthcare system, there was respectable support for (a) capping punitive damage awards for medical malpractice claims (3.3); (b) prohibiting higher charges for medical products and services to people without medical insurance than to people covered in group plans (3.3); and (c) repealing the prescription drug benefit for Medicare that was enacted in 2004 and went into effect this year (3.1).  Restructuring all medical insurance plans by raising deductibles and requiring beneficiaries to pay their medical bills in the first instance was not favored (2.2).

      Most people seemed to consider the survey a learning experience. “I’m not educated enough on most of these issues,” wrote one person, who at age 16 was probably the youngest participant.  If she and others gained a better understanding of the current fiscal mess, our time was well spent.

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Remove three matches to leave four

 

(Answer Below

Time to Set Your Ceiling Fans

Ceiling fans are great energy savers, which can contribute to the comfort of your home all year round.

     In the summer, you want the fan blades to push the air down onto your skin, essentially creating a cool breeze.

     In the winter, adjust the direction of your fan’s blades so they are pulling cold air upwards and pushing the warm ceiling air down around the edges of the room.

 

TAX REFORM: Our online poll fails to settle an argument.

      The old saying that “great minds think alike,” does not seem to hold true when the SAFE board discusses tax reform – despite general agreement that the present system leaves a lot to be desired.

      Some directors favor the “Fair Tax” proposal, which would replace the federal income and payroll taxes with a federal sales tax designed to raise the same amount of revenue.  The result would be to tax consumption instead of income, thereby eliminating a disincentive to work, simplifying tax administration (no more IRS), and hopefully improving taxpayer compliance.  Acknowledging the danger of winding up with a sales tax and an income tax, “Fair Tax” advocates say the Constitution would be amended (out with the 16th Amendment, 1913) to ban a federal income tax.

      Other directors would be inclined to overhaul the Internal Revenue Code, eliminating the exemptions, deductions, credits, and alternative rates (e.g., for ordinary income vs. capital gains) that make the income tax so difficult for taxpayers to comply with and the IRS to administer.  The result might be a graduated income tax much simpler than the current system or an even simpler flat tax.  As for the Fair Tax proposal, they don’t see much chance of a Constitutional ban on income tax.

      To seek additional opinions, a poll on tax reform was posted on the SAFE Website.  The 12+ responses sound familiar.  Almost everyone wants to change the present system, but support for a flat tax or simply overhauling the tax code is about equal to support for the Fair Tax.  One respondent explained his vote in the following way:

Fair Tax is best but people would barter wherever possible.  Fair Tax means no gov’t snooping on your income.  Flat tax seems to me to work best, so include the poverty rebate and let it roll.  People are used to income tax, even though it is very evil.  Testing structure to simplify and improve is a good idea, but who would trust our politicians to do it?

I’d go with the flat tax for now and once in place start pushing for the Fair Tax.  The trick is on the other side of the coin, spending. Without a handle on that we are doomed anyway.

PS: Great Website.

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FOOD FOR THOUGHT: Like it or not, there is no escape from higher taxes.

      Fiscal conservatives want to address the government’s budget woes by cutting spending.  Higher taxes would be a drag on the economy, raise less money than claimed, and embolden Congress to spend even more.

      Government spending seems rather skimpy to some other people (who might be termed “fiscal liberals,” although no one calls them that), at least for healthcare, education, etc.  If there is a deficit, no problem, just raise taxes – not on us, of course, but certainly on “the rich.”

      Even if fiscal conservatives carry the day, they will have to give the other side some of what it wants – higher taxes.  The question then becomes, what would be the least worst way to raise taxes in the context of an overall deal on fiscal policy.

      Gregory Mankiw, a former chairman of the Council of Economic Advisers, recently made the case for a big increase in gasoline taxes.  Here is a tax increase on consumption, that’s good.  Almost everyone pays, it would encourage more prudent consumption of a valuable natural resource, and part of the increase would effectively come out of the pockets of the OPEC producers. “Raise the Gas Tax,” 10/20/06 Wall Street Journal.

 

Matches – leave IV (four in Roman numerals).

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TIDBITS FROM DICK REESE

I wonder. . .would two canes make walking twice as easy.

Dangerous forgetfulness . . .brakes or accelerator.

A hot message . . . when your temperature indicator points red on your car dash.

I don’t know . . . what I’m looking for.

That big dark gray SUV ahead of us . . . would have been very handy for General Patton during the Battle of the Bulge in WW II.

Children think. . . parents are ridiculous.

Parents think . . . children are ridiculous.

Sunflower seeds . . . that which baseball players chew and spit out the shells when they’re sitting on the bench.

On this day, Saturday, June 24, 2006 at 3:00 p.m. . . . not one inch of parking space is available in Ocean City, New Jersey.  So don’t come.

Doesn’t surprise me. . . when people say they have a hard time reading my handwriting.  So do I.

Total embarrassment . . . when the pinch runner gets picked off.

Standing like Buckingham Palace guards . . . for decades upon decades the familiar blue standup mail collectors on street corners and at curbs.

Longest day of the year is approaching. . . I’m not counting.

This little island town Ocean City, NJ. . . is made up of realtors, contractors, electricians, plumbers, carpenters, landscapers, heating and air conditioners, Italian restaurants, pizza shops, Mexican immigrants and a few “year-rounders.”

 

Reminder: Join our cause. Go to Join us to apply for membership or to renew your dues. Stay aboard, encourage family members and friends to join, and help us avert a fiscal meltdown! 

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