Obama to Seniors: ‘Drop Dead’

by Robert E. Moffit

According to surveys, no group of Americans is more skeptical of Obamacare than senior citizens—and with good reason.

While bits and pieces of the massive law are designed to appeal to seniors—more taxpayer subsidies for the Medicare drug benefit, for example—much of the financing over the initial ten years is siphoned off from an estimated $575 billion in projected savings to the Medicare program. Unless Medicare savings are captured and plowed right back into the Medicare program, however, the solvency of the Medicare program will continue to weaken. The law does not provide for that. Medicare is already burdened by an unfunded liability of $38 trillion.

Medicare Advantage plans, which currently attract almost one in four seniors, will see enrollment cut roughly in half over the next 10 years. Senior citizens will thus be more dependent on traditional Medicare than they are today and will have fewer health care choices.

Initial Provisions

Under the Medicare Modernization Act of 2003, Congress deliberately created a gap in Medicare drug coverage (the so-called “donut hole”) in which seniors would be required to pay 100% of drug costs up to a specified amount. Obamacare provides a $250 rebate for seniors who fall into the “donut hole” and requires drug companies to provide a 50% discount on brand name prescriptions filled in the hole.

In 2011, Obamacare will also impose a new tax (a “fee”) on the sale of these brand name drugs in Medicare and other government health programs, ranging from $2.5 billion in 2011 to $4.1 billion in 2018. Meanwhile, the law will freeze payments to Medicare Advantage plans and restrict physicians from referring seniors in Medicare to specialty hospitals where physicians have an ownership interest. In 2013, the law eliminates the tax deductibility of the generous federal subsidy for employers who provide drug coverage for retirees. This could further undercut provision of employment-based prescription drug coverage for seniors.

Fewer Plan Choices

With the freezing of Medicare Advantage payments in 2011, Congress has set the stage for a progressive reduction in seniors’ access to, and choice of, the popular Medicare Advantage health plans.

In 2012, the law will begin reducing the federal benchmark payment for these plans. In 2014, these health plans must maintain a medical loss ratio of 85%, and the secretary of Health and Human Services is to suspend and even terminate enrollment in plans that miss this target.

Enrollment in Medicare Advantage by 2017 is estimated to be cut roughly in half, from a projected 14.8 million (under current law) to 7.4 million. Since there are serious gaps in Medicare coverage, including the absence of catastrophic protection, roughly nine out of ten seniors on traditional Medicare already need to purchase supplemental insurance, such as Medigap. Without Medicare Advantage, millions more seniors will have to go through the cumbersome process of paying two separate premiums for two health plans.

Less Access to Physicians

In 2011, the new law provides a 10% Medicare bonus payment for primary care physicians and general surgeons in “shortage” areas. This is a tepid response to a growing problem.

With the retirement of 77 million baby boomers beginning in 2011, the Medicare program will have to absorb an unprecedented demand for medical services. For the next generation of senior citizens, finding a doctor will be more difficult and waiting times for doctor appointments are likely to be longer. The American Association of Medical Colleges projects a shortage of 124,000 doctors by 2025.

Obamacare has not ameliorated the growing problem of projected physician shortages and has surely made it worse. Under the new law, physicians will be even more dependent on flawed government payment systems for their reimbursement. Moreover, the congressionally designed Medicare physician payment update formula, the Sustainable Growth Rate (SGR), initiates cuts that are so draconian that Congress goes through annual parliamentary gyrations to make sure its own handiwork does not go into effect.

Payment Cuts Mean Rationing

The new law also dramatically expands Medicaid, a poorly performing welfare program with low physician reimbursement rates, and this expansion will account for roughly half of the 34 million newly insured Americans. Furthermore, the law creates an Independent Payment Advisory Board, which will recommend measures to reduce Medicare spending.
Formally, the board is forbidden to make recommendations that ration care, increase revenues, or change Medicare beneficiaries’ benefits, cost-sharing, eligibility or subsidies. For the board, reimbursement for doctors and other medical professionals seems the only target left. But payment cuts can effectively ration care.

More Medicare Payment Cuts

According to the Centers for Medicare and Medicaid Services (CMS):

Over time, a sustained reduction in payment updates based on productivity expectations that are difficult to attain, would cause Medicare payment rates to grow more slowly than—and in a way unrelated to—the providers’ cost of furnishing services to beneficiaries. Thus, providers for whom Medicare constitutes a substantial portion of their business could find it difficult to remain profitable and, absent legislative intervention, might end their participation in the program (possibly jeopardizing access to care for beneficiaries).

Indeed, creating a real problem for seniors, the CMS Actuary estimates that roughly 15% of Medicare Part A providers—the part of the Medicare program that pays hospital costs—would become unprofitable within ten years.

Higher Taxes

Under the new law, seniors are going to pay higher taxes. The higher taxes on drugs (effective in 2011) and medical devices (effective in 2013) will affect seniors especially, as they are more heavily dependent on those very products. Older people, of course, have higher health costs than younger people. But the existing tax deduction for medical expenses will be raised from 7.5% to 10% of adjusted gross income in 2013. The reduced tax deductibility of medical expenses is waived for seniors only from 2013 to 2016. Likewise, older people have larger investments than younger people—and thus high-income older persons will be more heavily impacted by the new 3.8% Medicare tax imposed on unearned or investment income (effective 2013).

New federal health insurance taxes—both the premium taxes and the excise taxes—will also impact older workers and retirees. The federal premium tax (effective 2014) will be applicable to Medicare Advantage plans and health plans offered to federal retirees in the Federal Employees Health Benefit Program (FEHBP). Likewise, starting in 2018, there is a new 40% federal excise tax on “Cadillac” health plans (defined as $10,220 for individual coverage and $27,500 for family coverage). This will also apply to FEHBP plans, which enroll federal retirees.

A Better Policy

Forcing doctors and hospitals to comply with new rules and shaving reimbursement for treating senior citizens is not real reform. If Congress is going to reduce Medicare and impose a hard cap on Medicare payments to restrain per capita cost growth, at the very least it ought to channel those savings right back into the program to enhance Medicare’s solvency and lay the fiscal foundation for real reform. Seniors deserve better than what Obamacare gives them.

Mr. Moffit is director of the Center for Health Policy Studies at the Heritage Foundation.

Big Banks, Big Government and Big Labor, Oh My….

by Liberty Chick

The financial reform bill is finally in its home stretch in the Senate, but Americans have yet to fully engage on the issue. In fact, in recent weeks as I’ve worked with various grassroots leaders across the country to discuss the bill, its impacts on our economy and on us as American citizens, I must admit, it’s probably the first time I’ve ever found myself frustrated at the progress of activism.

It’s a complex issue, and let’s face it, not exactly an exciting one either. But that’s precisely what the left is counting on. So, whenever I find myself feeling frustrated that others might not share my same level of fervor on the issue, I remind myself of its complexity and lackluster appeal. And then, I proceed directly to the source – the bill itself.

I hone in on a few key points in three categories that resonate with most activists I know: Big Labor, Big Government, and Big Brother. Put those together in the context of Big Banks, and they spell out big disaster.

As the left goes on demonizing Wall Street and big bankers on one hand, Democratic lawmakers on the other hand are busy making sweetheart backroom deals with them up on Capitol Hill, promoting their legislation to the public as “consumer protection.” But really, such measures are nothing more than payback to the likes of three-way mortgage entitlement partnership stronghold of the Bank of America, Center for Responsible Lending and Fannie Mae.

Meanwhile Democrats and Obama allies like Organizing for America are also using the issue as a shameless fund-raising opportunity.

The banks actually SUPPORT this bill – so don’t let that “Main Street Not Wall Street” message fool you, no matter which side of this issue you’re on.

Once many people learn about some of what’s in the bill, their reaction of immediate remorse followed by outrage is completely understandable. Remorse – for some – for not having engaged their grassroots groups earlier. Outrage over just how much this bill would push the country head first toward socialism. That’s right, I said the “s” word. Let’s stop pretending and just call it for what it is, shall we? Even old school Democrats I talk to feel the same outrage and see the “s” word coming as the result of this bill. Facing down the inevitable is the only way we’re going to be able to tackle what the radical left has snuck into this thing. All the while, they have been counting on the apathy of average citizens on BOTH sides, and on the burnout of Tea Party and other patriot group activists.

The reality is this: If we sit back and allow this bill to pass the Senate in its current form, then we deserve the destruction of our privacy, our liberties and of our free market system that will follow. WE will be the only ones to blame. Because as bad as we all thought the Health Care bill was for our freedoms, the Financial Reform bill makes Health Care pale in comparison. No level of remorse could suffice if we failed to engage every last patriot, every last Paul Revere and Sam Adams , during these final days of the legislation.

I’ve found that one way to help other activists digest this bill has been to put all of the actual financial details aside and focus solely on some of the parts of the bill that demonstrate the erosion of our personal liberties and the free market system as we know it.
Big Labor: Dismantling the Free Market System

Under the American Financial Stability Act of 2010 (S 3217), several provisions tucked away in the bill will give labor bosses unprecedented powers that, especially if abused, could threaten the very structure of our free market system.

* Financial institutions and other covered businesses could be required by law to give labor unions “Proxy Access”, enabling union bosses to potentially abuse the system to force unrelated agenda items, like unionizing the firm’s employees, before the shareholders
* New regulations will control how board of director elections are conducted – at private corporations!
o The SEC would be granted the power to force the names of outside nominees onto the corporate ballot (as reported by Politico)
o Directors running in an uncontested election would now be required to win a majority of votes cast, rather than only by the current plurality(as reported by Politico)
* Similar rules will also determine whether an individual may serve as both the CEO and Chairman of the Board – at a private corporation!
* Government and labor unions will have “say on pay” for the annual salaries and bonus compensation of executives and other employees. Essentially, like Obama himself, they can determine at what point “someone has made enough money”

I don’t think anyone’s against shareholders having their proper say and representation in the corporate management process. But that’s not really what’s behind these pieces of the legislation. We’ve seen how today’s labor bosses are abusing their powers and using the shareholder resolution as a hostage weapon to bully corporations into unionization and special union concessions. Just read my prior post, “SEIU’s Secret Weapon: If Obama’s Plan Fails, Brandish the Shareholder Resolution” for a taste of that tactic.

It’s been known for some time that labor bosses are now organizing on a global scale, and as such, have taken to the Participative Management style common in European workplaces. In the U.S., private corporations might typically achieve a similar democratic process of employee participatory management when the company enters into a direct employee ownership plan. The difference here however is that we’re talking about companies that do not belong to the labor unions – these are companies in which the union might have a pension fund investment, or perhaps some of its workers unionized on premise. These are private companies that the unions attempt to overtake through such smaller connections to earn a place on the board, and then change it from the inside out until a Participative Management environment is achieved. If that achievement were to occur, US corporations would quickly fold and restructure under a more socialist model. Eventually, the free market system would erode away as labor unions take over the boards of once privately owned corporations.

For weeks now, Ive been searching for the resources to help me describe this threat in simple terms, and just as fate would have it, my friend Peter List over at LaborUnionReport and RedState pens the perfect post describing this with clarity and precision, in his post titled “Changing America Forever: Behind the AFL-CIO’s Push for Financial Reform.”
Big Government: Power, Control and Everlasting Entitlements

* A new agency, the Consumer Financial Protection Agency, or CFPA, would serve as massive bureaucracy that would control everything from defining the types of loans consumers may be permitted to purchase, to expanding redlining provisions and subsequent mortgage entitlement programs. (And let’s not forget that the head of this agency would be Eric Stein, who ran the Center for Responsible Lending, and before that worked at Fannie Mae)

* The CFPA’s authority goes far beyond banks or financial institutions. This new bureaucracy would have the power to regulate hundreds of thousands of businesses. Examples of small businesses that would be subject to CFPA oversight (as outlined by the US Chamber of Commerce):
o A nonprofit organization that provides financial literacy education
o A software company that creates products to help consumers manage their money
o An advertising company that provides services relating to financial products
o Utilities companies, retailers and even doctors that extend credit to their customers.

* The Consumer Financial Protection Agency, or CFPA, created in the bill would be housed within the Federal Reserve, an already secretive and unchecked force of power in our financial system that insists on going unaudited
* A government agency will have unlimited executive bailout authority, including the power to pick and choose which companies are saved and which are left to fail. This creates serious potential for abuse, as private corporations could literally live or die based upon political decisions
* This bill contains the same language used by groups like the Center for Responsible Lending in the redlining laws and changes to the Community Reinvestment Act in 1995 for special research centers and programs “that promote awareness and understanding of the access of individuals and communities to financial services, and to identify business and community development needs and opportunities”

And we all know what happened as the result of those redlining laws and subsequent CRA changes in 1995.
Big Banks: Empowered by Big Government, Become Big Brother

Finally, in order to justify all these entitlement programs, all this forced unionization, all this takeover of private companies’ boards of directors, the government needs research. Not to worry, the bill creates vehicles for that, like the “Office of Financial Research” and a national database for the collection of your personal bank account and loan information, and various deposit account data.

Fannie Mae and Bank of America will be so thrilled when this passes the Senate (as will ACORN and SEIU). Thanks, of course, to years of lobbying by organizations like the Center for Responsible Lending. After all, they pioneered the use of banking research to mandate mortgage entitlements. Just imagine all the new entitlements that will be created once they can analyze all of that *new* banking information and data on what we’re purchasing. Someone will find some injustice somewhere in there. You can count on that.

If you haven’t been as interested in all the complex language about things like financial derivatives and credit default swaps in this bill, then all of this above should be plenty for you to be concerned about.

Depression 2010?

By Robert Samuelson

WASHINGTON — It is now conventional wisdom that the world has avoided a second Great Depression. Governments and the economists who advise them learned the lessons of the 1930s. When the gravity of the financial crisis became apparent in late 2008, the response was swift and aggressive. Central banks like the Federal Reserve and the European Central Bank dropped interest rates and lent liberally to threatened financial institutions and rattled investors. The United States and many countries approved “stimulus” programs of tax cuts and additional spending. Panic was halted. A downward spiral of falling private spending and rising unemployment was reversed. The resulting economic slump was awful. But it was not another Great Depression. The worst has passed.

Or has it? Greece’s plight challenges this optimistic interpretation. It implies that celebration is premature and that the economic crisis has moved into a new phase: one dominated by the huge debt burdens of governments in advanced societies. Comparisons with the Great Depression remain relevant — and unsettling. Now, as then, we may be prisoners of deep and poorly understood changes to the world economic system.

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Historians increasingly attribute the Depression to broad geopolitical upheavals. World War I shattered the existing global economic order. Dominated by Great Britain, it fostered vibrant trade and rested on the gold standard. (Under the gold standard, paper currencies could be converted into gold coins or bullion.) The war also spawned huge international debts, reflecting German war reparations and large U.S. loans to Britain and France. It was impossible to reconstruct the prewar order. Britain was too weak, the gold standard was too constricting, and the debts were too heavy. But countries tried, because the prewar order had delivered prosperity. This futile effort brought on Depression. Only when economic hardship became unbearable were unrealistic goals (keeping the gold standard, repaying debts) abandoned.

There are eerie, if crude, parallels now. The welfare state is today’s equivalent of the gold standard. With aging societies, advanced countries have promised more benefits than their tax bases can support. Hence, high government debt. Greece is merely the canary in the coal mine. But politicians resist cutting popular benefits except under extreme pressure. It takes a crisis. Greece, again. Another unsettling parallel is the global economy. The United States’ leadership since World War II is eroding before China’s ascent. There’s a danger now, as then, of a power vacuum. Witness the long delay in coming to Greece’s aid. No one country acted decisively, even as markets grew nervous.

Of course, these parallels do not preordain a second Depression. But they at least clarify today’s confusing economic outlook. There’s a tug-of-war. The normal mechanics of the business cycle signal recovery, while deeper economic weaknesses threaten it. In late 2008 and early 2009, fear and hysteria were almost palpable, especially in the United States. Consumers and companies cut spending anywhere they could. From September 2008 to June 2009, the U.S. economy lost 6 million payroll jobs. In 2009, American car sales were almost 40 percent lower than in 2007. Governments’ frenetic interventions stabilized confidence. People and firms are opening their wallets again, here and abroad. The world economy will grow almost 4.3 percent in 2010 and 2011, with the United States expanding at an average of nearly 3 percent, reckons the International Monetary Fund.

But the deep-seated problems remain. Three stand out: first, the weight of the welfare state and aging populations; second, the burden of huge private debts (mortgages and consumer loans in America and elsewhere); and finally, huge imbalances in global trade, with some countries — notably China — running massive surpluses and others — notably the United States — having large deficits. Each threatens a vigorous recovery that could conceivably plunge the world back into a protracted slump.

To cope with big budget deficits, developed countries would cut spending or raise taxes. These steps would weaken recovery. The problem is that failing to do so might have the same effect by creating a financial crisis. Lenders, scared by mounting debt, would insist on higher interest rates. The value of older government bonds, issued at lower interest rates, would drop. Banks around the world, which are big holders of various countries’ bonds, would suffer huge losses. So would other investors and financial institutions. The financial system might again seize up.

The dilemma posed by Greece isn’t unique. It’s different only in degree. In 2009, Greece’s budget deficit was almost 14 percent of gross domestic product (GDP) — its economy. Its accumulated debt was 115 percent of GDP. Meanwhile, Italy’s deficit was 5 percent of GDP and its debt 116 percent of GDP. Spain’s deficit was 11 percent of GDP and its debt 53 percent. Germany’s deficit was 3 percent and its debt 73 percent. The U.S. deficit — calculated slightly differently — was 9.9 percent of GDP; the debt, 53 percent of GDP. Most developed countries, representing about half the world economy, are caught in the same trap.

The same is true, though to a lesser extent, of heavily indebted households in the developed world. As they pare back, or lenders tighten lending standards, consumer spending will remain subdued, depriving the recovery of another powerful propellant. It wasn’t just Americans who enjoyed years of easy credit. In the United States, household debt reached 138 percent of disposable income in 2007, reports the Organization for Economic Cooperation and Development. Elsewhere, comparable figures were also high: 138 percent in Canada; 128 percent in Japan, 186 percent in Britain; 102 percent in Germany. There is no precise threshold as to what constitutes too much debt; but these levels suggest restraint and retrenchment, not exuberant spending.

On paper, the escape from these problems seems plain. China, India, Brazil and other “emerging market” countries would become the world’s engine of growth. Their appetite for advanced goods from the developed world — airplanes, power plants, earth-moving equipment, medical instruments — would raise their living standards and sustain production and employment in advanced countries. This could be happening. The latest IMF forecasts have poorer countries (“emerging and developing economies”) growing at about 6.5 percent in 2010 and 2011 compared with 2.4 percent for all developed countries. The trouble is that this shift requires that China and other Asian countries permanently renounce export-led growth. It’s not clear that they can or will.

Everywhere countries face changes of policies, practices and habits that are deeply woven into their social, political and economic fabrics. Can developed countries gradually rein in their welfare states? Will Asia’s relentless export economies shift to domestic-led growth? Will Americans save more and spend less — and the Chinese do the opposite? As after World War I, reverting to what’s familiar, comfortable and understood may be hazardous. It was the inability to see and adapt to change in the 1920s — a process complicated by the war’s animosities — that fundamentally caused the Great Depression, economic historians Barry Eichengreen of the University of California, Berkeley, and Peter Temin of the Massachusetts Institute of Technology have argued.

The case that we have dodged a second Great Depression rests on a narrower notion: that the Depression was preventable; and that advances in economic knowledge allowed us to do so. If we knew then what we know now, governments could have averted the tragedy. Despite some disagreements, economic scholars subscribe to a broad consensus about what went wrong in the 1930s. Government central banks, like the Fed, were too passive. They didn’t halt bank panics. Intervention at decisive moments (perhaps the failure of the Bank of the United States in late 1930 or Austria’s Credit Anstalt in spring 1931) could have changed history. Instead, mounting unemployment and falling prices fed on each other. Debtors couldn’t repay loans, leading to more bank failures, a contraction of credit and deposit losses. But this time the mistakes were not repeated. Despite criticism, banks were “bailed out.” Money was pumped into credit markets to pre-empt a downward spiral.

By this reading, the world has bought itself time to deal with underlying problems. As the economic recovery strengthens and lengthens, the politics of confronting unstable export-led growth (for Asia) or unsustainable welfare spending (for developed countries) will grow easier. People will be more optimistic about the future; they will be more open to necessary, if not popular, adjustments. This could happen. The world may muddle through, making gradual and messy changes that ultimately defuse another large crisis.

But there is another more sobering reading of the Great Depression. It is that painful and once unthinkable changes are made only under the pressure of acute crisis. One reason that central banks were so passive is that they clung to the gold standard: Relaxing credit policies too dramatically to rescue banks might lead to a loss of gold; people would demand metal to replace paper money. Gold was abandoned in various countries only after it seemed untenable. Similarly, the post-World War I debt problem wasn’t “solved” until repayment was impossible. As for Britain’s place as global leader, the United States assumed that role only in World War II.

Against that backdrop, today’s unresolved problems — over the welfare state, leadership in the global economy — become more ominous. They suggest that major adjustments won’t be made until they’re compelled by some sort of crisis. This possibility defines the present economic drama. Will the recovery encourage conscious changes? Or is recovery providing a false sense of security? The stakes are, of course, enormous, because — as everyone knows — the economic suffering of the Great Depression transformed many countries’ politics for the worse and led to World War II.

Who Will Bail Out America?

By Peter Ferrara

Social Security, Medicare and the retirement of the baby boom generation wasn’t enough of a burden for the American taxpayer. We will now be paying as well for the generous pensions of Greek bureaucrats retiring in the warm Mediterranean sun at age 55, thanks to the foresighted leadership of our very own international statesman, Barack Obama.

Just last year President Obama proposed, and his overwhelmingly Democrat Congress approved, an additional $100 billion line of credit from the USA to the International Monetary Fund (IMF). On Sunday, the IMF approved a contribution of $40 billion to the Greek bailout, with America voting yes for yet another raid on its own taxpayers.

But this is only the beginning. What the trillion dollar Euro bailout fund has done is to create the perverse incentives of Too Big to Fail for fiscally irresponsible Eurostates. Do those literally murderous Greek rioters look ready to accede to austerity budgets with massive tax increases and massive benefit cuts? Political leaders in the Mediterranean states in particular, faced with short-term financial and political pressures, will be too tempted to put off the pain a little longer, hoping that EU bailouts will save them in the end. Indeed, voters in Spain, Italy, Portugal, and elsewhere may well think they should get their share of those bailout funds too, voting out leaders who try to be responsible, and voting in the worst demagogues trying to take advantage of the situation to gain political power.

Imagine if each of the American states could run deficits with a federal bailout fund to back them up. Could we count on the voters of California, New York, New Jersey, Michigan, and Illinois to support candidates promising crippling austerity budgets, with draconian benefit cuts and skyrocketing taxes, so they can do the responsible thing? This is the system the EU has just adopted. What that means is get ready for still more IMF bailouts financed by American taxpayers.

Unemployment Still Rising

Yet, America is still plagued with its own problems, poised soon enough for yet another ride down the roller coaster. The unemployment report just last Friday showed unemployment rising again in April, from 9.7% to 9.9%, almost two and a half years now after the recession began in December, 2007. Since World War II, the average recession has lasted 10 months, and the longest has been 16 months. Yet, 28 months after the last recession began, unemployment is still 10% and rising.

And that is only scratching the surface. Besides the 15.3 million officially unemployed, the army of the underemployed included 9.2 million described by the Bureau of Labor Statistics as “working part time because their hours had been cut back or because they were unable to find a full time job.” Another 2.4 million were marginally attached to the labor force, meaning they were not in the labor force, but “wanted and were available for work, and had looked for a job sometime in the prior 12 months.”

That leaves a total of nearly 27 million Americans still unemployed or underemployed. With a labor force of 154.7 million, that translates into a total underemployment rate of 17.4%. Moreover, of the officially unemployed, close to 50%, or 6.7 million, were long-term unemployed, meaning they had been unemployed for 27 weeks or more, the highest total since the recession began over 2 years ago, and still rising.

While President Obama and his party-controlled media ballyhooed the 290,000 new jobs created in April, 66,000 were temporary census workers. Moreover, that is still not enough new jobs created to reduce unemployment. Given the natural rate of new entrants to the work force, close to twice that many must be created each month to reduce the unemployed.

The Recovery: Hopelessly Too Little, Shamelessly Too Late

Yes, with the U.S. economy growing again, economic recovery is technically underway. But that is an inevitable, natural, cyclical recovery, as I predicted in this column over a year ago. The notion that the economy was going to tumble ever downward without some magic from Obama the Magnificent was always a fairy tale bedtime story for small children and their mental equivalents. As mentioned above, the average recession since World War II has been 10 months, and those recoveries were not due to magical Big Government rescues.

The way to evaluate the current recovery is by comparison to other recoveries after downturns of similar magnitude. Historically, the deeper the recession the stronger the snapback recovery. The Bureau of Economic Analysis reports that economic growth in the first 3 quarters after the 1981-1982 recession was 5.1%, 9.3% and 8.5%. Yet, economic growth in the first 3 quarters after this last recession was 2.2%, 5.6% and 3.2%, not even half as much.

Moreover, in 1984, real economic growth boomed by nearly 7%, the highest in 50 years. That recovery then lasted 92 months without a recession until July, 1990, when the tax increases of the 1990 budget deal killed it. This set a new record for the longest peacetime expansion ever, the previous high being 58 months. During that recovery, the economy grew by almost one-third, the equivalent of adding the entire economy of West Germany, the third largest in the world at the time, to the U.S. economy.

Real per capita disposable income grew by nearly 20% during that boom, meaning the American standard of living increased by that magnitude. Real median family income had declined by almost 10% from 1978 to 1982, with income falling by 14% for the bottom 20%. But in a stunning reversal, real median family income grew by 11% during the recovery, with incomes increasing by 12% for the bottom 20%. The poverty rate, which had started rising despite trillions spent on the war on poverty, reversed and declined every year during the recovery as well.

Note also that the 1981-1982 recession resulted because Reagan had to slay a historic inflation. Inflation roared over 1979 and 1980 by 25% (11.6% in 1979 and 13.5% in 1980), after accelerating throughout the 1970s. But Reagan backed strict monetary policies at the Fed reining in the money supply, and inflation was slashed in half by 1983 as a result to 6.2%, and by half again in 1984 to 3.2%. Every school of economic thought, from Keynesian textbooks to the most free market “Austrian” economics of Friedrich Hayek and Ludwig von Mises, preaches that ending inflation inevitably produces a period of unemployment and recession.

In diametrically opposing contrast, instead of ending a historic, raging inflation, like Reagan, President Obama is creating one.

Indeed, everything critical to the American economy of today is the reverse of what it was during the economic boom starting in 1983-1984, reflecting that President Obama’s policies are the opposite of Reagan’s. Interest rates were heading sharply lower back then from historic highs, with the prime rate peaking at 21% in 1980. Today, as the Wall Street Journal commented on May 1, “[T]he Fed has held short-term interest rates at close to zero for 16 months. The only question is how soon and how high rates will rise.”

Moreover, the 1983-1984 recovery was launched just as the Reagan marginal tax rate cuts became fully effective. But today we are set for historic tax rate increases to kick in next year. While the Tax Foundation reports that the top 1% of income earners already pay more in federal income taxes than the bottom 95%, President Obama says their taxes should be raised even more so they can pay their “fair share.” So next year, capital gains tax rates will soar by close to 60%, tax rates on dividends by roughly 200%, and the top income tax rate by close to 30%.

In addition, as the 1983-1984 recovery launched, “an era of deregulation was lowering costs across most industries,” as the Journal also commented, whereas today, “Washington is raising costs for business by expanding its regulatory reach via tougher antitrust enforcement, mandates on health care and energy, more political limits on telecom investment, restrictions on bank lending, and much more.”

What this means is that instead of sustained recovery, what we are heading for is Art Laffer’s Coming Crash of 2011. President Obama’s economy is at its peak performance right now, however stunted that is.

President Obama’s Grecian Formula

For 2009, Greece’s budget deficit came in at 13.6% of GDP, and its national debt grew to 115% of GDP. President Obama has America on this exact same track. Our budget deficit for this year is nearly 11% of GDP. By 2020, according to the CBO, America’s net national debt held by the public would be 90% of GDP. Total gross federal debt, which includes such items as the debt held in the Social Security trust funds (real debt that will have to be paid in the future), would be 122% of GDP.

But it’s even worse than that. For the top 1% will get their revenge for President Obama’s tax piracy. Instead of raising revenues through his top income tax rate increases, he will be lucky if revenues do not decline. For capital gains alone, every tax rate increase over the last 40 years has produced less revenue rather than more. President Obama’s class warriors also do not understand that dividend payments will collapse next year as a result of their tax increases, and so will revenues from taxes on those dividends.

Lower than expected revenues, even if they do not absolutely decline, will mean still higher deficits and debt. Even more so as net interest spending increases as a result. If interest rates rise more than the modest increases President Obama’s budget projects, even more likely with the growing world debt burden, then the vicious death spiral takes another tumble downward.

If the economy turns downward in 2011 rather than upward, then all of this will explode out of control right there. America will also be effectively defenseless at that point, for we will not be able to borrow the still greater funds that would be necessary for any protracted conflict. (Is that what the ultraliberal President Obama and George Soros planned all along to get America “under control,” so to speak?). That condition of vulnerability, of course, again just the opposite of President Reagan’s peace through strength, invites war.

If the totally irresponsible new Obamacare entitlements end up costing more than planned when they start in 2014, as is likely, the phrase “adding fuel to the fire” seems inadequate. How about firebombing the fire?

And we haven’t even factored in renewed inflation yet. The EU bailout only encourages weak monetary policies from the European Central Bank, and further extended lax policies by the Fed. If this finally leads to inflation, as it did in the 1970s, the Fed would be faced with either raising interest rates, contributing to extended economic weakness and downturn, or letting inflation roar, until it returns to 1970s levels, or worse.

Maybe that is why the price of gold is already higher than the S&P 500. The truth is we are on the path to a worldwide flight from increasingly irresponsible fiat currencies. This is well beyond the issue of a declining or even collapsing dollar.

Even the shortsighted stock market, which usually looks only about 6 months ahead, is signaling trouble. For all the talk of a booming stock market recovery over the last year, it has never returned near to its peak over 14,000. It is stuck hovering about 25% below that peak. With the above economic prospects, there is no longer enough upside in trying to game the stock market to milk any remaining short-term gains.

Rest assured that when the credit markets tell America “No Mas” to record-shattering borrowing, there will be no one to bail out the USA. No one is big enough to even try it. Rather, the vultures will circle.

The only possible bailout will come on Election Day, 2010. Unless the American people send a message that rocks Washington like never before, 2012 may well be too late.

FEDERAL GOVERNMENT – LEAVE SMALL BUSINESSES ALONE!

By Neal Boortz

When Barack Obama and the Democrats were trying to push ObamaCare, what was the line that we heard over and over and over again? Let me remind you: “45 million Americans don’t have health insurance!” Well despite the fact that that number is entirely incorrect, the point is that Democrats wanted to push the idea that a lot of Americans were without something that they were entitled to .. in this case, it was health insurance. As we know, eventually the Democrats succeeded by implementing an individual mandate; now it is against the law NOT to have health insurance.

Well if Democrats were up in arms over 45 million Americans, wait until they get a load of this number: 78 million. What is that number? That is the number of Americans who “aren’t able” to systematically save money for retirement through automatic paycheck deductions. In other words, they work for someone who does not provide access to employer-based retirement accounts. So here we go – another mandatory entitlement that Congress would be able to provide to 78 million Americans! Washington has already forced employers to provide access to healthcare coverage, or face a fine, why not do the same for retirement plans? I can hear the campaign soundbites now, “And I supported legislation that forced your employer to provide you with a retirement plan!”

Barack Obama is already working on a “solution.” Included in Obama’s budget proposal is a plan for “Automatic IRAs,” which would require companies to offer workers automatic deductions into individual retirement accounts. That plan would be for the big fish in the pond, but what about the little guys? More than 30 million Americans work for businesses with less than 100 employees and are not offered the benefit of an employer-based retirement plan. This does not mean that 30 million employees don’t have access to a retirement savings plan; it simply means that they must save on their own, rather than through an employer. So along comes an idea called the Multiple Small Employer Plan, which would enable small employers to join together to offer a single retirement program. These are often negotiated by unions .. but that is a whole other issue. Is this concept sounding familiar? Similar to what ObamaCare does – creating these pools for small businesses to buy into. But what else does ObamaCare do? It then mandates that these businesses provide health insurance .. wonder if it will be the same in terms of providing automatic retirement accounts?

At this point you are probably thinking, “Yeah right. You are a conspiracy nut.” Well Democrat Rep. Ron Kind has already introduced legislation called the SAVE Act – Small Business Add Value for Employees – which would include provisions for Automatic IRA enrollment and these Multiple Small Employer Plans. The legislation would, according to Investors Business Daily, do the following:

* First, it would mandate many of the ‘best practices’ of traditional defined contribution plans, including automatic enrollment and automatic contribution escalation. The bill would also direct the IRS to develop a model plan to ensure consistency across plan providers and keeping costs low.

* Second, the SAVE Act would remove a significant disincentive to pooling that exists today. Under current multiple employer plans, noncompliance by a single employer can jeopardize the tax-exempt status of the entire plan. Rep. Kind’s bill seeks to eliminate this obstacle.

* Finally, the bill includes a provision to align a plan sponsor’s fiduciary responsibility with its decision-making authority.

This legislation echoes some of Barack Obama’s proposals in his 2011 budget. As I already mentioned above, automatic IRAs is one idea, but there are more. Here, according to US News and World Report, is what the president has asked Congress to fund …

* Automatic IRAs. Companies that don’t offer a retirement plan may soon be required to enroll their employees in an IRA account. Under Obama’s current proposal, 3 percent of employee pay would be direct-deposited into a Roth IRA, the default savings vehicle. Workers may opt out, chose a traditional IRA, or elect to save a different amount. Small firms with 10 or fewer employees or companies that have been in business less than two years would be exempt from participation. Employers could claim a temporary tax credit upon automatically signing their workers up for the IRA for $25 per enrolled employee up to $250 for two years. Another tax credit would be available to small businesses that begin their own retirement plan equal to 50 percent of the start-up expenses for establishing or administering a new retirement plan up to $1,000 per year for three years, an increase from the $500 businesses are eligible for under current law. The proposal would become effective in 2012.

* A government 401(k) match. The Obama administration is proposing expanding the Saver’s Credit in 2011 to provide a 50 percent match on the first $500 of retirement savings for individuals who earn less than $32,500 annually. Couples who take home less than $65,000 could receive a match on their first $1,000 of savings and the match would be gradually phased out for couples with income between $65,000 and $85,000. The maximum credit would be $250 for a single filer and $500 for a married couple and be fully refundable.

* New 401(k) regulations. The White House supports adding more consumer protections to 401(k)s. The administration is calling for legislation that will require a transparent list off all 401(k) fees charged and disclosures about how target-date funds work. The Department of Labor also aims to streamline the process for workers to annuitize their retirement assets and outline who can give retirement savers investment advice to prevent conflicts of interest.

* More Social Security funding. Obama’s budget allocates $12.5 billion to the Social Security Administration, up 8 percent from 2010’s budget. The increase in funding is primarily to boost the number of employees, who will focus on processing retirement and disability claims and disability appeals faster. Also, $796 million is designated to scrutinize Social Security payments to make sure that only eligible beneficiaries receive checks and are paid the correct amount.

* Caregiving assistance. The Administration on Aging would be given $103 million, according to the budget, for a Caregiver Initiative that will allocate funds to agencies that provide senior and caregiver support services such as transportation and adult day care.

It’s coming, folks .. Democrats will remind you that you were the ones who wanted them to focus on small businesses, so this is their way of doing so. Look for the “crisis-speak” to ramp up, then the federal government will be the knight in shining armor swooping in to save us from our own inabilities … our inability to be self reliant and save for our own retirements.