Banks and securities firms were collapsing, the mortgage market disintegrating, Wall Street itself was on the rocks, people were losing their life savings, homes and cars, while their credit lines were being cut off for no particularly good reason.

While this was going on, dozens of "senior" SEC staffers were surfing a variety of porn sites as much as 8 hours a day! This excluded the surfing time on taxpayer time and dollars of Elliot Spitzer, Bill Clinton and Barney Frank.

Now, that aging and thankfully retiring genius, who was responsible for the mortgage collapse, Senator Chris Dodd, who also forgot he got a sweetheart mortgage deal from a failed mortgage provider, has been looking to force on the market another Federal monstrosity with no less than 12-14 new departments and bureaucracies to over see the financial markets and firms!

It was Dodd, and his look alike, Barney Frank ( the voice of Yosemite Sam in the cartoons), who fought every attempt to stop the failed policies of FANNY and FREDDIE who they defended their reckless policies and paid millions to their appointed Democrat leaders.

We already have so many overlapping government policing bodies for the securities industry, that I bet Mr. Dodd could not even name several, and he is the chairman of a Senate committee overseeing all types of financial markets. Thankfully he is being chased out of the Senate before the ray of light is shined on his illustrious career of greed, self dealing and ineptness.

This guy has done more to decrease the value of our homes, screwed up our lending industry and all the while enriching himself.

Now he wants to reform the industry...him reforming the industry? LOL.

Dodd is a dud, finally he is leaving. This guy never had a real job in his life and has lived off the public dole his entire life...thank you for finally quitting and don't let the door hit you on the way down and 59 to go!

Senate Democratic leaders set Monday for a key vote on financial regulatory reform legislation, setting off frantic negotiations to complete a bipartisan deal, while President Obama, speaking in New York, urged Wall Street "to join us, instead of fighting us." Right, join us id further destroying the free markets, free enterprise and add countess needless incompetents federal porn surfers.

The effort to reach a compromise on the landmark bill is expected to stretch through the weekend. Negotiations are focused on easing some of the bill's tough proposals on consumer protection, a fund to handle future financial crises and controls on the complex financial derivatives markets.

It is doubtful that any of the writers of this bill even know what a derivative is!

"We cannot turn into a petulant organization that screams at each other," said Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.). Oh really Senator, what really should be done is your mom needs to put you over her knee and spank you till you can finally see the light.

"We are now confronted with another great challenge — whether or not we can address the kinds of issues that will avoid the next financial crisis," Dodd said. Yes the crisis caused by YOU!

"We're continuing to negotiate in good faith, trying to reach a common goal," said Sen. Richard C. Shelby (R-Ala.), who has been working with Dodd to craft a compromise. "I hope it's a bipartisan bill that we can gather a lot of people on both sides of the aisle.… But what is the main goal? To do it right."

Senator, you need to take your meds, so that you know what you are talking about.

The groundwork for the Senate's first vote on the issue was laid Thursday when Senate Majority Leader Harry Reid (D-Nev.) Who voted against his own Health care bill since he appears to have dementia, asked to bring the legislation up for debate. As expected, Minority Leader Mitch McConnell (R-Ky.) objected, delaying action and giving negotiators more time to reach a compromise. Even if no deal is reached, Reid could win over at least one Republican ( dazed or fooled, confused) to circumvent McConnell's objection with a 60-vote majority in Monday's vote to begin formal debate.

Sen. Charles E. Schumer (D-N.Y.), another genius, said he found it hard to believe that Republicans would "all vote no, blocking financial reform." They would not vote no if this was really reform.

"My guess is they won't," he said. But so far, no Republican has publicly announced support for the bill.

The landmark legislation would tighten financial regulations dramatically, alter free markets and create countless new federally mandated porn surfers, with great pension programs at taxpayer's expense.. It would create an agency to protect consumers in the financial marketplace; impose tough regulations on complex financial derivatives; grant shareholders a nonbinding vote on executive compensation ( wee need to vote on the salaries of the senators as well; and give the government authority to seize ( for any reason, and dismantle large firms whose failure would pose a danger to the economy or to their political agenda, to try to avoid future bailouts.

The financial industry, business groups and many Senate Republicans oppose several provisions, including a requirement that large banks such as Goldman and Bank of America spin off their derivatives-trading operations into subsidiaries. Industry executives argued that this could drive lucrative derivatives business overseas.

Democrats and Republicans also were haggling over how much power states would have to enforce national rules that the new consumer agency would write on financial products.

Another focus of dispute, however, appeared close to being solved. Many Republicans strongly oppose a proposed $50-billion fund to cover the costs if the government has to seize and dismantle a large financial firm on the brink of bankruptcy.

McConnell said having such a fund in place would allow it to be used for future bailouts. Dodd and Obama administration officials have said they are not wedded to the prepaid fund. They prefer that all taxpayers instead fund all the costs.


Greece at one time ruled the world, for those of us who remember our high school world history class. Now it is a struggling entitlement laden country of 11.5 million people who are on the verge of bankruptcy due to its $400 billion public debt.

If you were to start mathematically calculating the debt that Greece is struggling with, its debt is relatively equal to the US debt, which is 30 times its population size and equal also in dollar terms, about $12 TRILLION.

So what is the difference between Greece and the USA? Well, on a fiscal basis, none, except that the USA is not part of the European Union ( EU) which can dictate fiscal policies to member countries, and therefore has spared the USA of being a fiscal pariah like Greece is now in the EU zone.

There are of course other factors that create the appearance of fiscal strength on the part of the USA, but they are illusions compared to reality and are based solely on the reputation of the USA, rather than actual financial condition differences.

If Greece collapses financially, which it will and must, nobody outside of that country really cares, and some banks and the various other lenders/creditors/bondholders involved will have to write down the value of those holdings, but the rest of the 6 billion people could care less.

Greece suffers from a malady that we in the USA have now been infected with: "entitlements" that will eventually absorb the budget and everyone living here, in the next generation or two. America will be Greece by 2040-2050.

Currency speculators will be betting against the dollar and selling it, while buying the Yuan or the Rupee! The dollar will be just another battered currency and the country will be one slugging along burdened by unsustainable debt, trading at a deep discount to face value, since it will never be able to pay off that debt, therefore technically a bankrupt state, unable to ever pay its obligations.

Recent news releases have stated that about half of the US population pays no income taxes and a great percentage of the non-payers also actually get a REBATE of someone else's taxes instead! " Let' the rich pay," is a common shout---hello.... the top 25% pretty much pay more than 90% of the taxes already should they pay 100% now, to be fair? What happens when there is nobody left to pay?

Never in the history of this great country have the politicians been as ignorant about fiscal policy, fiscal restraint and spending as now, and this spending spree is being funneled by the least informed Congress who does not even read 2,400 page bills that it passes, knowing nothing of its full contents or implications!

Greece was a former world power...a long...log time's in the history books, and its fall long ago was for the SAME policies as its fall is today!

America is now Greece, and oblivious to the history lessons from its long ago fall as well as its current fiscal destruction.

Advice, buy and hold the Yuan and get a Yuan dominated Visa account at one of the international banks will only gain in value as the dollar must inevitably decline. The unsustainable deficits, new unsustainable entitlement programs and anti-business administration is the beginning of the fiscal destruction of America.

This is the Greek tragedy.

In ATHENS, Greece, civil servants staged a 24-hour strike Thursday against austerity measures and expected job cuts by Greece's crisis-plagued government, and the EU's statistics agency said the country's budget was even worse than previously thought.

The strike disrupted all public services, shut down schools and left state hospitals working with emergency staff. Protesters from a Communist-backed trade union blockaded Athens' main port of Piraeus, disrupting ferry services.

Eurostat, meanwhile raised Greece's budget deficit in 2009 to 13.6 percent of gross domestic product from its earlier prediction of 12.9 percent, while the ratio of government debt to GDP stood at 115.1 percent, the second highest in the European Union after Italy.

In comments that are sure to rattle markets, the statistics agency also expressed "a reservation on the quality of the data reported by Greece." It also said Greek's 2009 figures could be revised further, to the tune of 0.3 to 0.5 percentage points of GDP for the deficit and 5 to 7 percentage points of GDP for the debt.

Markets were shocked last fall when the government announced that the previous conservative Greek government had issued misleading financial data for years.

About 3,000-4,000 protesters marched through central Athens, carrying banners reading "tax the rich" and "Don't take the bread from our table." Scuffles broke out when about 150 demonstrators challenged police lines near the city's central Syntagma Square, and police responded with tear gas.

Greek airports remained open, however, after air traffic controllers suspended their participation in the strike because of the travel chaos caused by Iceland's volcanic ash cloud.

Labor unions fear deeper cuts after the Socialist government began talks this week with the International Monetary Fund, the European Central Bank and the European Commission for a three-year rescue package aimed at easing the country's acute debt crisis.

"The IMF has the same cookie-cutter solution for different economies ... Now they are making a European cookie cutter," said Spyros Papaspyros, head of the civil servants umbrella union, ADEDY.

News of the revised figures sent Greece's borrowing costs shooting up to new record highs. The interest rate gap, or spread, between Greek 10-year bonds and German ones - considered a benchmark of stability - widened to 5.29 percentage points minutes after the announcement, from 5.03 percentage points earlier in the morning. The spreads translate into prohibitively high interest rates of more than 8 percent, more than twice those of Germany's.

Athens said its target of reducing its deficit by at least 4 percentage points in 2010 remained unchanged despite the revision.

"The government has already adopted all the necessary measures in excess of 6 percent of GDP to ensure the achievement of this objective," the Finance Ministry said.

It said the new figures showed the scale of Greece's financial troubles, which it blamed on mishandling by the previous, conservative government.

Greece is struggling to cope with a debt of euro 300 billion ($406 billion) and needs to borrow about euro54 billion this year alone. It has a projected public debt of more than 120 percent of gross domestic product through 2011.

On Tuesday, the government shaved its May borrowing requirement by raising euro95 billion ($2.62 billion) in a 13-week treasury bill auction that was oversubscribed. The public debt management agency said Thursday it had accepted an additional euro450 million in noncompetitive bids for the treasury bill auction, which has a settlement date of April 23.

Comparing the Greek debt to the US, the parallels are almost identical.


Americans are living paycheck to paycheck according to a recent survey.

Almost half of Americans surveyed recently, said that they were not confident that they could raise $2,000 within a MONTH in a crisis, like having an unexpected medical bill, a furnace repair, an emergency car repair or anything unexpected!

This inability to raise the cash included not being able to have sufficient credit card credit, access to loans from friends and relatives or access to any ability to sell assets to get the funds.

Also, surprisingly, 25% of people surveyed who made between $100,000-$149,000 also admitted that they too, would not be able to raise that same $2,000!

Researchers who evaluate these types of statistics were stunned by the results, since in previous surveys, the question was typically asked on the basis of " do you have $2,000?", rather than can you get access to $2, it is quite revealing that fully 46% of the representative population is living in such a tight financial position.



The fiscal year mercifully concluded on September 30. Reckless spending by Congress and the President made it a year in which:

* Government spending exceeded $20,000 per household for the first time since World War II,
* The federal budget expanded by $353 billion over its 1998 level,
* Defense and the attacks on September 11, 2001, accounted for less than half of all new spending since 2001,
* Mandatory spending reached its highest level in history, and
* Spending increased despite net interest costs plummeting by $110 billion.1

This paper examines the colossal expansion of the federal government since 1998. That year, a temporary tax revenue boom brought the first budget surplus in over a quarter-century. Abolishing the budget deficit also eliminated one of the most effective arguments for spending restraint, and the spending floodgates swung wide open. By 2001, the budget surplus was quickly evaporating because tax revenues, back to their historical levels, could no longer keep pace with runaway spending. The 9/11 terrorist attacks then necessitated new spending on national security. But by that point fiscal responsibility was a distant memory, and lawmakers steadfastly refused to balance these new high-priority security costs with savings elsewhere in the budget. As 2003 closes, the nation finds itself burdened by runaway federal spending and massive looming structural budget deficits.1

Overall Spending

Federal spending grew by 7.3 percent in 2003, slightly slower than the 7.9 percent growth rate in 2002. The slower growth rate is encouraging; yet, Chart 1 shows that government is still growing significantly faster than it did in the 1990s. In fact, the 7.6 percent average annual growth over the past two years more than doubled the 3.4 percent average annual growth from 1993 to 2001.2

The total amount of federal spending -- $2,156,536,000,000 -- is too large to fully comprehend (in $1 bills, it would stack halfway to the moon, weigh 10 times as much as the Sears Tower, and blanket the state of New Jersey). A more relatable statistic is federal spending per household, which allows families to measure the costs and benefits of government in their own lives. Throughout the 1990s, real federal spending remained slightly under $18,000 per household. From 1998 through 2003, federal spending jumped by $2,500 to reach $20,300 per household -- marking the first time since World War II that federal spending has topped $20,000 per household (see Chart 2 and Table 1).3

For that amount of government, Americans paid $16,780 per household in federal taxes in 2003 -- a staggering tax burden indeed, but only the beginning. Federal revenues are still $3,520 per household less than federal spending. That difference represents the per-household cost of the $374 billion budget deficit. Since all federal spending must eventually be paid for in taxes, the $3,520 per household represents higher future taxes that must be collected to fund the full $20,300 per household that Washington spent in 2003.

The reality that all spending must eventually be paid for in taxes cannot be overemphasized. Despite its current popularity, the "big-government conservative" model of coupling tax relief with rapid spending increases is not sustainable in the long run. If Washington continues to spend $2,500 per household more than it did in the 1990s, then taxes must eventually rise by $2,500 per household per year. Budget deficits can delay, but not ultimately avoid, the tax collector. Permanently higher levels of spending require permanently higher taxes.

Where the Money Went

Table 2 shows that real federal spending surged by $353 billion between 1998 and 2003. Defense and Social Security combined for nearly half of that increase, which is not surprising given their historically large budgets. However, they did not grow as fast as other categories. For example:

* Unemployment Compensation payments jumped 132 percent to $56 billion. Much of this increase was automatically triggered by rising unemployment claims during the 2001-2002 re-cession. Additional spending resulted when Congress and President Bush enacted several bills extending unemployment benefits to workers beyond their typical 13-week limit. (See Chart 3.)

* Education spending surged by 78 percent, from $34 billion to $58 billion. Nearly all of this growth took place between 2001 and 2003, as the No Child Left Behind Act was being implemented. Most of the new spending was for aid to K-12 schools (including special education funding), which jumped from $19 billion to $32 billion. An $8 billion hike in college student financial aid dominated the rest of the spending increase.

* Health Programs (other than Medicare and Medicaid) leaped 81 percent, from $33 billion to $60 billion. The National Institutes of Health's budget, which expanded from $14 billion to $23 billion, was the main contributor. The new State Childrens' Health Insurance Program (S-CHIP) added $4 billion in new annual spending, and other public health programs accounted for the rest of the increase.

* Agriculture spending increased by 76 percent to $23 billion. Farm spending actually peaked at a record $39 billion in 2000 after Congress overreacted to a slight dip in crop prices by passing a series of massive "emergency" payments. The budget-busting 2002 Farm Bill assured that farm subsidies would not drop back to their 1998 level, even though the farm economy has improved. (See Chart 6.)

Lawmakers have also substantially increased spending for air transportation (100 percent), community and regional development (92 percent), and international affairs (87 percent), but a significant portion of those spending hikes resulted from the 9/11 attacks.

The Role of Defense and 9/11

Any analysis of recent spending trends must take into account the budgetary effects of the 9/11 attacks. Certainly, Americans want Washington to spend whatever resources are necessary to prevent further terrorist attacks. Lawmakers know this, which is why they have been classifying everything from levitating trains to farm subsidies as "defense" or "homeland security." A more evenhanded examination reveals that most new federal spending is not related to defense and the 9/11 attacks.

From 2001 through 2003, the federal budget expanded by $296 billion, of which:

* $100 billion (34 percent) was for defense;
* $32 billion (11 percent) was for 9/11-related spending for homeland security, compensating victims, rebuilding New York, and international assistance and security; and
* $164 billion (55 percent) was unrelated to defense and the 9/11 attacks (see Chart 7).4

What would federal spending look like if the defense budget and all 9/11-related costs were excluded? Chart 8 shows that the portion of the budget unrelated to defense and 9/11 grew by 11 percent from 2001 through 2003 -- the largest two-year increase in a decade. Thus, not only did Congress and the President refuse to cut unrelated programs to fund the war on terrorism, but they also actually accelerated their growth rates. Although a convenient scapegoat, defense and other 9/11-related costs do not sufficiently explain why government is expanding so rapidly.

Mandatory Spending

In 2003, mandatory spending reached its highest level in United States history. After holding between $8,000 and $9,000 per household through most of the 1990s, mandatory spending surged to a record $11,144 per household in 2003, marking the first time that mandatory spending reached 11 percent of the gross domestic product.

Mandatory programs are those whose annual spending totals are not set annually, such as Social Security, Medicaid, and most welfare programs. Policymakers decide who is eligible for a program and what the benefit formula will be. For the next several years, total spending is determined by how many eligible individuals enroll in the program and where they fit in the benefit formula. Consequently, policymakers reject blame for mandatory spending trends that many of them did not vote to create. But elected officials are not forbidden from changing these spending formulas whenever they see fit. In fact, lawmakers have a responsibility to keep mandatory spending levels in tandem with the nation's evolving priorities.

Instead of pulling back these entitlement programs, Congress and the President expanded them. As stated earlier, lawmakers enacted large expansions in farm subsidies and unemployment benefits. They also failed to reform -- and in 2003, increased funding for -- Medicaid, the costs of which have jumped 45 percent since 1998. Social Security and Medicare grew by just 13 percent and 16 percent, respectively, in what is the calm before their coming budgetary storm.

The coming crisis in Social Security and Medicare is staggering. These programs will be able to finance themselves through payroll taxes until approximately 2015, when the costs of funding retiring baby boomers will overwhelm the generation still in the workforce. The tax increase needed to fund the Medicare shortfall is projected to reach $1,500 per household by 2020, and nearly $3,000 per household by 2030. Funding the Social Security shortfall will require additional taxes nearly as large as those for Medicare, and neither the payroll tax nor any of these coming tax increases will be set aside for the worker paying all the taxes. All of it will fund current retirees.

Lawmakers' solution to this coming calamity has been to pile yet another entitlement on top of these, without a plan to pay for it. The proposed Medicare drug entitlement would eventually add another $1,125 per household in additional taxes per year.5 With no entitlement reform plans close to enactment and lawmakers having agreed to anchor another unaffordable entitlement onto future generations, the 2003 record of $11,144 per household in mandatory spending may soon seem comparably inexpensive.

Discretionary Spending

Even judging lawmakers solely by discretionary spending trends does not make them appear any more frugal. Since 1998, real discretionary spending has jumped 36 percent, from $603 billion to $820 billion. The half of the discretionary budget for defense and 9/11-related costs has surged by 45 percent since 1998. Discretionary spending on programs unaffected by defense and 9/11 has increased 27 percent since 1998.

Throughout the 1990s, these non-defense spending increases were balanced by deep defense cuts, leaving discretionary spending levels generally unchanged. The September 11 attacks reversed the downward trend in defense spending and added new costs for homeland security, international security assistance, and rebuilding New York City. Rather than asking non-defense programs to help fund the war on terrorism by sacrificing some of their recent budget increases, lawmakers chose to ramp up the "butter" portion of the budget to match the "guns" portion. As a result, non-defense discretionary spending has reached 3.9 percent of GDP ($3,900 per household) for the first time in nearly 20 years.

The "Interest Dividend"

Spending plummeted in one category. From 1998 through 2003, net interest payments on the national debt dropped from $263 billion to $153 billion. Low interest rates, due more to Federal Reserve policy rather than any deliberate congressional policy, brought the $110 billion in savings. This "interest dividend" is as large as the 1990s "peace dividend" following the end of the Cold War. The interest dividend, however, has gone almost completely unnoticed.

Taxpayers did not notice the interest dividend because they never saw a penny of it. Starting out with such an automatic and painless $110 billion spending cut gave budget cutters the wind at their back for the first time in nearly 50 years. They could have directly returned the interest dividend to the taxpayers with a $1,035 per household tax cut, or they could have used these once-in-a-lifetime savings to restrain the growth of government and pay down the national debt.

Instead, Congress and the President allocated all $110 billion to new spending and, when that money ran out, spent $353 billion more on top of it (making the actual increase in programmatic spending $463 billion, rather than $353 billion, as Chart 10 shows). Lawmakers acted like a shortsighted employee who responds to an unexpected $1,000 bonus by immediately going on a $4,500 shopping spree, thus ending up $3,500 in debt.

Worse, the interest dividend is likely only temporary. As interest rates rise to normal levels, net interest costs will probably return to their 1998 level. The budget deficit would automatically increase by approximately $100 billion, with no new government benefits to show for it.

Nowhere to Cut?

Several lawmakers have asserted that all new spending is driven by necessities and that no programs could be cut without calamitous consequences. These lawmakers typically emphasize essential spending on defense and homeland security, as well as popular spending on education, health, and unemployment benefits. In reality, Congress and the President are throwing vast sums of money at all types of programs. Lawmakers could easily save taxpayers over $150 billion per year by eliminating:

* $80 billion in corporate welfare;
* $20 billion in pork-barrel projects;
* $50 billion in waste, fraud, and abuse identified by the government's own accountants, and
* $17 billion spent each year, for which the government's own auditors cannot account.6

Furthermore, Congress and the President have not even been able to say no to the lower-priority programs. Every dollar spent on these programs represents one less dollar for tax relief, national security, or deficit reduction.

The Consequences Of Unrestrained Spending

Increased government spending weighs down the economy and requires taxes that hinder working families' ability to make ends meet. A growing economy requires a base level of government spending on defense and justice to enforce the property rights and rule of law necessary for markets to function. Public goods, such as roads, are often important for facilitating trade and aiding economic growth. Yet, they can be difficult for the private sector to provide without at least minimal government oversight. In such cases, limited government involvement can aid economic growth.

Contrary to the fallacy that government spending stimulates the economy, government spending beyond this base level impedes economic growth for three reasons:7

* Diminishing Effectiveness. Governments often begin spending on such necessities as defense, law enforcement, and basic public goods. Empowered by the opportunities for economic growth that these services provide, they mistakenly conclude that they can solve any problem. Consequently, they tend to expand their efforts into services that the market is better equipped to provide, such as education, housing, food, and pensions. With each expansion, the government not only blocks the market from functioning, but also becomes less and less effective itself, until it ultimately becomes a barrier to economic growth.
* Politics. Markets use the profit motive to ensure that resources are allocated efficiently. Businesses seeking profits must consistently respond to consumer demand with quality products at low prices. Governments, by contrast, are monopolies with no real profit motive or incentive to spend money efficiently, so policymakers make re-election their "profit" and consequently allocate resources to even the most wasteful programs if they help ensure their return to office. While innovation and evolving with the changing times are required for businesses to survive, they represent an unnecessary risk for politicians who are guaranteed re-election as long as they do not interrupt the flow of government funds to their districts. Hence, while markets helped the Model T evolve into the Porsche and the Apple IIe into the supercomputer, the federal government continues to run many of the same federal agencies -- now obsolete -- that it established as far back as the 1800s.
* High Taxes. Increased government spending makes it difficult for working families to make ends meet. Even when the government funds itself by borrowing money, repaying those loans will eventually require higher taxes. Unless lawmakers pare back the $2,500 per household spending increase since 1998, the average household will eventually have $2,500 less per year to spend on necessities such as health insurance, retirement, housing, and education. Regrettably, many people praise government spending on families without acknowledging that families first had to be taxed -- and that the burden of those taxes often outweighs the benefits of the government programs.8

In addition to their high cost, taxes hurt the economy by distorting incentives. Families and businesses work, save, and invest because they expect a financial reward. These productive behaviors also make the rest of the nation wealthier by creating additional economic activity. But burdensome tax rates reduce the financial reward for being productive. Consequently, families and businesses cut back their productive behavior to escape taxes, and the entire economy slows down.

To see the consequences of excessive spending and taxation, one need look no further than Western Europe, where politicians have promised to provide for all of their citizens' needs in exchange for higher taxes and bigger government. Western Europeans have incomes 40 percent below Americans' and unemployment rates twice as high. They also pay 50 percent of their income in taxes.


Budgets are about setting priorities. Each day, millions of households find ways to live within their means. All of them would surely like to spend more money than they have; yet, they understand that separating necessities from unaffordable luxuries, even making unpleasant sacrifices, is required to stay out of the red.

Congress and the President have lacked that belt-tightening discipline. As new spending requirements have emerged, they have refused to set priorities and make sacrifices in programs less vital to the national interest. This lack of discipline has raised the cost of government to over $20,000 per household for the first time since World War II. In the absence of responsible spending restraint, the economy will struggle under the weight of excessive taxes and runaway federal spending.

Brian M. Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.


Half of US households escape FEDERAL INCOME TAXES, AND WANT THE "RICH" TO PAY MORE AND MORE. Recession, new tax credits have nearly half of US households paying no federal income tax!

April 15, Tax Day, is a dreaded deadline for millions, but for nearly half of U.S. households it's simply somebody else's problem.

About 47 percent will pay no federal income taxes at all for 2009. Either their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability. That's according to projections by the Tax Policy Center, a Washington research organization.

Most people still are required to file returns by the April 15 deadline. The penalty for skipping it is limited to the amount of taxes owed, but it's still almost always better to file: That's the only way to get a refund of all the income taxes withheld by employers.

In recent years, credits for low- and middle-income families have grown so much that a family of four making as much as $50,000 will owe no federal income tax for 2009, as long as there are two children younger than 17, according to a separate analysis by the consulting firm Deloitte Tax.

Tax cuts enacted in the past decade have been generous to wealthy taxpayers, too, making them a target for President Barack Obama and Democrats in Congress. Less noticed were tax cuts for low- and middle-income families, which were expanded when Obama signed the massive economic recovery package last year.

The result is a tax system that exempts almost half the country from paying for programs that benefit everyone, including national defense, public safety, infrastructure and education. It is a system in which the top 10 percent of earners -- households making an average of $366,400 in 2006 -- paid about 73 percent of the income taxes collected by the federal government.

The bottom 40 percent, on average, make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment.

"We have 50 percent of people who are getting something for nothing," said Curtis Dubay, senior tax policy analyst at the Heritage Foundation.

The vast majority of people who escape federal income taxes still pay other taxes, including federal payroll taxes that fund Social Security and Medicare, and excise taxes on gasoline, aviation, alcohol and cigarettes. Many also pay state or local taxes on sales, income and property.

That helps explain the country's aversion to taxes, said Clint Stretch, a tax policy expert Deloitte Tax. He said many people simply look at the difference between their gross pay and their take-home pay and blame the government for the disparity.

"It's not uncommon for people to think that their Social Security taxes, their 401(k) contributions, their share of employer health premiums, all of that stuff in their mind gets lumped into income taxes," Stretch said.

The federal income tax is the government's largest source of revenue, raising more than $900 billion -- or a little less than half of all government receipts -- in the budget year that ended last Sept. 30. But with deductions and credits, especially for families with children, there have long been people who don't pay it, mainly lower-income families.

The number of households that don't pay federal income taxes increased substantially in 2008, when the poor economy reduced incomes and Congress cut taxes in an attempt to help recovery.

In 2007, about 38 percent of households paid no federal income tax, a figure that jumped to 49 percent in 2008, according to estimates by the Tax Policy Center.

In 2008, President George W. Bush signed a law providing most families with rebate checks of $300 to $1,200. Last year, Obama signed the economic recovery law that expanded some tax credits and created others. Most targeted low- and middle-income families.

Obama's Making Work Pay credit provides as much as $800 to couples and $400 to individuals. The expanded child tax credit provides $1,000 for each child under 17. The Earned Income Tax Credit provides up to $5,657 to low-income families with at least three children.

There are also tax credits for college expenses, buying a new home and upgrading an existing home with energy-efficient doors, windows, furnaces and other appliances. Many of the credits are refundable, meaning if the credits exceed the amount of income taxes owed, the taxpayer gets a payment from the government for the difference.

"All these things are ways the government says, if you do this, we'll reduce your tax bill by some amount," said Roberton Williams, a senior fellow at the Tax Policy Center.

The government could provide the same benefits through spending programs, with the same effect on the federal budget, Williams said. But it sounds better for politicians to say they cut taxes rather than they started a new spending program, he added.

Obama has pushed tax cuts for low- and middle-income families and tax increases for the wealthy, arguing that wealthier taxpayers fared well in the past decade, so it's time to pay up. The nation's wealthiest taxpayers did get big tax breaks under Bush, with the top marginal tax rate reduced from 39.6 percent to 35 percent, and the second-highest rate reduced from 36 percent to 33 percent.

But income tax rates were lowered at every income level. The changes made it relatively easy for families of four making $50,000 to eliminate their income tax liability.

Here's how they did it, according to Deloitte Tax:

The family was entitled to a standard deduction of $11,400 and four personal exemptions of $3,650 apiece, leaving a taxable income of $24,000. The federal income tax on $24,000 is $2,769.

With two children younger than 17, the family qualified for two $1,000 child tax credits. Its Making Work Pay credit was $800 because the parents were married filing jointly.

The $2,800 in credits exceeds the $2,769 in taxes, so the family makes a $31 profit from the federal income tax. That ought to take the sting out of April 15.

Go ahead, make those "other rich people" pay....soon they will be a minority paying for the majority. It is estimated that by 2050, only 25% of people will actually pay tax, the rest will be not paying anything toward any government costs, and in fact they will be net takers of services.


U.S. companies are rethinking outsourcing to China, even though for the last several years, conventional wisdom has held that moving manufacturing operations to China from the United States was a smart move that could return significant savings in costs of goods sold. However, recent industry trends indicate that more and more companies are making the decision to keep manufacturing stateside. Even more telling? Some companies are actually deciding to move operations back to the U.S. from China.

Key to understanding why many American companies are moving from outsourcing to "in-sourcing" is to first address the question, why is manufacturing in China so appealing? The short answer lies in the abundance of cheap labor in a growing industrial complex hungry for outside business. Despite obvious drawbacks to manufacturing in China (long shipping distances, significant lead times, etc.) any labor-intensive goods produced in adequate volume that could be affordably shipped seemed like ideal candidates for Chinese production.

The initial challenges in setting up operations in China proved to be significant. American firms faced large upfront investments in time, effort and travel expenses; and the cultural, language and even time zone barriers were not easy to bridge. But once these investments were made and the cheap goods started rolling off the manufacturing line, the investments paid off. At least at first...

An emerging market is a fragile market and early movers into China may have saved money on labor, but they also learned hard lessons about moving critical operations to a developing economy. According to Ralph Keller, President of The Association for Manufacturing Excellence, "Many companies today are rethinking their off-shoring strategy due to escalating costs, quality concerns, the long lead-time required and the fact that they have not realized anywhere near the savings they had anticipated due to the hidden costs of managing suppliers half way around the world."

Charlie Barnhart, Co-founder and Managing Principal at Charlie Barnhart and Associates LLC, a company that studies outsourcing, added that "China has a fragile supply chain. During this economic downturn, thousands of companies have gone out of business in China. Companies call their suppliers to see what's going on and nobody answers the phone." In addition to an unpredictable supply chain, the long lead times associated with poor infrastructure and the great distance from the manufacturer to the consumer make it difficult for companies to meet fluctuating demand for their products.

In an emerging market, things change quickly and as more manufacturing moved to China, the law of supply and demand inevitably kicked in, causing increased demand for labor and upward pressure on wages. According to a recent article in the New York Times, labor shortages are now rampant in China, caused by a booming economy and the rapid expansion of factories even though the number of Chinese workers entering the workforce has leveled off.

Austin English, President of RCF Associates, a manufacturing consulting company, stated that "due to the economic slowdowns of last year, many of the people working in affected factories in China went back to [the rural interior of the country] and have not returned. This has brought a local bidding war for the remaining employees and has forced one of our clients to budget for a 30% pay hike in 2010."

In addition, the cost of shipping goods back to the U.S. has skyrocketed due to a shipping capacity shortage and rising energy prices. According to an article in the China Economic Net, freight prices doubled in the 30 days leading up to December 2009. Stephen Sykes, Vice President of Marketing for Artco-Bell Corp., a producer of classroom furniture for children, said that his company's shipping costs for a single container have increased from $2,200 to over $7,000 over the past eight years.

The effect of these labor and shipping shortages is an overall upward pressure on costs that make China less appealing as an outsourcing partner. According to, manufacturing in China is 15-20% more costly that it was just four years ago.

There have been other, less tangible costs tied to manufacturing in China. Our media have broadcast reports about contaminated pet food and lead paint on children's toys from China. Unfortunately for the U.S. companies affected, saving a few dollars on labor has cost them an incalculable amount in negative PR and lost consumer trust. For other firms, shoddy manufacturing has quietly eroded brand equity.

I have found on my own that products that were made in China, looked good in the store or home center, but poor quality paints, finishes and fabrics proved the supposedly great bargain price to be no bargain, as the product deteriorated quickly and were literally unusable after a season of outdoor use.

Still other companies have fallen victim to unscrupulous Chinese companies who take advantage of their underdeveloped intellectual property laws to steal their client's designs and produce counterfeit goods. The flood of cheap counterfeits on the local market all but prevents American firms from introducing their own products to the growing Chinese marketplace.

Of course, wages in the U.S. are still several times those in China, and will remain so for some time. To a growing number of companies, however, the benefits of moving operations back to the U.S. are compelling.

For some companies, the higher shipping costs alone are enough to sway them toward domestic production. For others, the stability and skill level of the U.S. labor market, the easy scalability of production in U.S. factories, and the ability to exercise greater quality control are critical factors that keep them at home or bring them back. A contribution to the local economy and the ability to say "Made in the U.S.A." are powerful brand equity builders as well.

Case Study 1:

Artco-Bell Corp of Temple, Texas is a children's furniture manufacturer. The company recently moved production of all steel and polypropylene goods from China back to the U.S. While the move actually increased their per-unit manufacturing cost, the elimination of the long ocean voyage between the U.S. and China has reduced their total expenses by 20%. Stephen Sykes, Vice President of Marketing, commented that "For a while, [the Chinese] were buying steel better than we could buy steel. But as the scales began to balance as far as what they were purchasing in raw and what we were purchasing in raw, then the freight became the issue. The great equalizer is the boat ride back over."

Case Study 2:

Sauder Woodworking Co. of Archbold, Ohio provides products to Wal-mart, Target, Lowe's, and other large retail stores. In recent years, the company has experienced intense competition from foreign companies along with increasing pressure from their customers to meet shorter delivery times with lower inventory levels. Norm Hoeppner, Vice President of Procurement, says that these factors have led Sauder to reassess their supply chain and move some elements of production to local manufacturers. According to Hoeppner, "one of our biggest strengths is our flexibility and speed of service to our large retail customers. We can't meet this service when it takes three months to obtain parts from offshore."

What's the future of worldwide manufacturing?

If the trends of higher labor and shipping costs combined with the lower quality and legal standards in China continue to play out, they will increase the shift back to domestic production. Manufacturing companies in the U.S. have a significant opportunity to win back contracts from China, and they should do what they can to position themselves to be more competitive.

Perhaps Harry Kazazian, Chief Executive Officer of Exxel Outdoors Inc., a top U.S. producer of outdoor recreational gear, said it best. "You're never going to have $2-an-hour labor in the United States," he commented, "but with quality, time, efficiency, you close the gap."