Obama Cruelly Threatens to Withhold Social Security Payments

There is no cruelty to match that of a frustrated socialist yearning for control over the People.  Obama has told tens of millions of very frightened seniors on Social Security that if the Republicans do not cave-in and give him a blank check to continue spending massive amounts of taxpayer money and then add much more to the national debt, he may not send out Social Security checks in August.  This is probably an empty threat, but that does not diminish the brutality of it.

By any rational analysis, it is also an absurd threat.  In 2010, Social Security income was $677.1 billion according to the Social Security Fund Trustee's Report.  Social Security outgo was $584.9 billion, which means it had a surplus of income over outgo of $92.2 billion.  That surplus was used to help fund the massive deficit spending on all other government programs, as the Social Security surplus has been used for decades.  Because of this, of the $677.1 billion of income, $108.2 billion is interest on government bonds the Social Security Trust Fund bought to help the government finance its deficits in the general fund for decades.

The Obama administration wants to keep spending money it does not have on such things as

• the expenses of setting up the bureaucracy and rules for ObamaCare, 
• setting up the bureaucracy and rules for the Dodd-Frank finance "reform", 
• paying ethanol, windmill, electric vehicle, solar, and other "green" energy subsidies, 
• paying higher electric and gasoline bills because it is foolishly convinced by its own propaganda that man is causing a catastrophic global warming, 
• paying hordes of scientists to prove this false catastrophic man-made global warming hypothesis,
• persecuting business with reinvigorated threats of anti-trust actions, 
• putting more people on Medicaid and Medicare,
• paying bloated union wages on federal contracts,
• using the Labor Department to provide site requirements to companies for their expansions while considering only Union Shop states,
• using the Justice Department to promulgate injustice against the states and the people and discrimination against those not in government-favored minorities,
• funding universities that long ago became bloated with government money and stopped educating students,
• promulgating tens of thousands of new regulations which serve no useful purpose but to increase the power of bureaucrats over the People who do not have the time to read the regulations,
• and providing funding to the United Nations, the IMF, the World Bank and many other international institutions that do not like the U.S. and hate our Constitution and concept of individual rights.

Apparently, Obama is now telling us that he is so unwilling to stop such foolish spending that he is going to transfer more than the surplus in the Social Security Fund income out to cover these other expenses.  It is his decision to do this which will prevent him from sending out the August Social Security checks!  Actually, I do not think the law will even allow him to do this, but then he is accustomed to ignoring the law, so that does not mean he will not do it.

Let us suppose that he chooses not to use the federal income from income taxes, corporate taxes, capital gains taxes, tariffs, gasoline and cigarette taxes, and many other taxes to pay the $108 billion owed the Social Security Fund in current interest payments.  In other words, he might make payments on interest to the Chinese and to investors, but not to the Social Security Fund.  The Social Security surplus of $92.2 billion would then be turned into a small deficit of $16.0 billion.  If he then did not send out that $16.0 billion, but did send out the remaining $568.9 billion of checks, this would mean that 2.8% of Social Security payments would not go out.  But, there is no way that $16 billion shortfall due to the default on the interest payment would not be made up by any President not grasping at power as a lust-driven would-be dictator.

Obama's threat really has struck terror into the hearts of many Americans on Social Security.  This was a totally irresponsible and pernicious act on the part of this cruel and evil man.  It seems to take such people to be the strongest advocates of socialism.  Despite its pretenses of caring for the needs of some of the People, those who pursue this so-called ideal as a career are never actually caring people.

This entire fuss about the debt ceiling is due to the failure of the Senate to produce a budget for over two years.  The House would not produce one either until the Republicans took it over.  But, the Senate and the President have ignored their budget.  Since no agreement has been reached on what the government will spend in 2012, there is no basis for an agreement on what spending cuts will be made to reduce the deficit to some manageable proportion of our GDP.  All we know is that the record over the last three years was for the government to spend an average of more than 24% of GDP, while before 2008, the spending was below 20% of GDP.  Obama and the Democrats appear to want to continue spending much more than 20% of GDP even though that will mean huge on-going deficits.  Apparently, they intend that this funding will be the result of many more continuing resolutions on spending, so they will never have to recognize that the welfare and crony mercantilist government they want is not sustainable.  They can ignore the failure of big government socialism as long as they do not have to produce an actual budget.  Unless, of course, we collapse as Greece is and Italy may be on the verge of doing.

A 4% of GDP reduction in government spending is more than a $600 billion reduction per year.  It is clearly easy for the government to function at its 2007 spending levels, so there is no excuse for spending cuts that are not in the $600 to $700 billion per year range relative to the spending of this year and the two previous years.

The California State Budget Shortfall

The state of California had disappointing tax revenues in April, which were $3.6 billion or 26% below the estimate.  Earlier, California had expected an $18.6 billion shortfall of revenue for their 2010-2011 budget, but this has now grown to $19.1 billion.  The 2007-2008 budget was $103 billion.  Then California had a $60 billion shortfall on the budget in the 2009-2010 budget.  California increased sales and income taxes on a temporary basis.  It also made "payments" with IOUs.  Gov. Schwarzenegger has called for budget cuts for the last three years and did win some in 2009-2010 after a hard-fought battle.  On Friday, he called for $12.4 billion in cuts and called upon the federal government for much of the remaining $6.7 billion.  Part of that remainder is to be covered with "funding shifts" according to the Wall Street Journal, but other sources claim that federal payments are hoped to be as high as $6.9 billion, though the federal government has so far only guaranteed payments of $3 billion.

Schwarzenegger's proposed cuts will produce a state general-fund 2010-2011 budget of $83.4 billion, which is 81% of the 2007-2008 budget.  Education spending is nearly 50% of the budget.  Health and Human Services spending is 25%, and Corrections and Rehab is 9%.  The Governor wants pension, budget, and tax reform in the new budget.  He is not calling for tax increases, which will only drive more businesses out of the state already known for its high taxes.  He says he wants to eliminate the CalWORKS welfare program to save $1 billion and eliminate child care funding except for pre-school and after-school programs to save $1.2 billion.  Many earlier attempts to save money in the Health and Human Services part of the budget were ruled against by courts.  The Democrats are criticizing the Governor for being anti-child, while claiming he should increase taxes and eliminate $2 billion of planned corporate tax breaks.  Of course, this ignores the fact that children survived before California got heavily into the child care business and that California has a great problem with businesses leaving the state.  Of course, we know that a school voucher program would save California a huge sum of money over the next few years given the post on wasteful government-run schools of 12 April 2010.

California's tax revenues break down as 52% from personal income taxes, 28% from sales and use taxes, and 11% from corporation taxes.  The share of the corporation tax has fallen to about half of what it was in 1981.  Corporations faced with high taxes will find ways to operate that minimize those taxes.  In California's case, this has often meant that corporations have fled the state.  The collapse of the real estate and financial markets has been particularly severe also in California.  As I have often pointed out, this is in good part due to the widespread restrictions on land use and building in California, on which Dr. Thomas Sowell agrees.

All of this is very important, because California is now considered to be one of the top ten most likely to default governments in the world!  Financial experts are saying it has a 20.07% probability of defaulting over the next 5 years.  Their evaluation is given in the table below:

The last time a state of the United States defaulted was in the 1840s!  It might be very chaotic if California defaults.  The Mid Spread rating means that if you hold $10 million of California bonds and you want to fully insure them against loss for 5 years, the annual insurance premium will be ($10 million) (254.1/10,000) = $254,000.  For a much less risky state, the corresponding cost might be about $25,000.  It is a very sad commentary that Hezbollah has not managed to make Lebanon quite as risky as the Democrats have managed to make California.  On the other hand, with so many Democrats admiring Hugo Chavez, they may have their sights set on the lofty 50.79% default probability estimated for Venezuela!