Suggested Answers - First Short Quiz

[johnkarls]

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SUGGESTED ANSWERS TO THE FIRST SHORT QUIZ

Question 1

What is the background of our author?

Answer 1

Suzanne Mettler is the Clinton Rossiter Professor of American Institutions in Cornell University’s Government Department.

Question 2

In her 2008 poll of 1,400 Americans, what percentage said they had NEVER “used a government social program”?

Answer 2

57%.

Question 3

When the same 1,400 Americans were asked later in the poll whether they had ever used 19 specific governmental social programs, what percentage had used at least one? How many had the average respondent used?

Answer 3

94% of the 57% had benefited from at least one. The average respondent had benefited from four.

Question 4

Is part of the explanation of this discrepancy illustrated by the comment of a voter at a 2009 town hall meeting who told his Congressman, “Keep your government hands off my Medicare”?

Answer 4

Yes.

Question 5

Looking at the 19 specific programs (please see the list in the short 2/11/2011 Washington Post article posted in the next section of this bulletin board entitled "reference materials"), how many of them are so-called “tax expenditures”?

Answer 5

Five = education-savings accounts, mortgage-interest deduction, hope or lifetime-learning tax credit, child or dependent-care tax credit, and earned-income tax credit.

Question 6

What is the conservative view of “tax expenditures”? What is the liberal view of “tax expenditures” and is that view justified?

Answer 6

The conservative view of “tax expenditures” is that income belongs to those who have earned it and, accordingly, not taxing a portion of that income (whether by income exemption, expense deduction, or credit for whatever) is not a governmental expenditure.

The liberal view of “tax expenditures” is that all income belongs to the government and, accordingly, whatever the government permits earners to retain is an “expenditure.”

As a practical matter, the liberal view is more legitimate because the cognoscenti realized long ago that the same economic effect as a governmental appropriation (which is part of the governmental budget) can be achieved with a “tax expenditure” which does NOT affect the size of the governmental budget.

FOR EXAMPLE, PLEASE SEE THE DISCUSSION OF PRESIDENT TRUMAN’S “MARSHALL PLAN FOR THE MIDDLE EAST” WHICH HE CLEVERLY DISGUISED AS A FOREIGN TAX CREDIT FOR ARAMCO AFTER INSISTING SAUDI ARABIA IMPOSE AN INCOME TAX IN VIOLATION OF ARAMCO’S EXEMPTION (the discussion is posted as the last item in “Critiques of Benezir Bhutto’s ‘Reconciliation: Islam, Democracy and the West’” posted on this bulletin board for our 3/13/2008 meeting). TRUMAN WAS SIMPLY TAKING ADVANTAGE OF THE FOREIGN TAX CREDIT WHICH WAS ALREADY A FEATURE OF THE INTERNAL REVENUE CODE, BECAUSE HE KNEW CONGRESS WOULD NEVER APPROPRIATE AN EQUIVALENT AMOUNT OF DOLLARS TO PREVENT SOVIET PENETRATION OF THE MIDDLE EAST!!!

Question 7

From an environmental viewpoint, what are the two most-egregious “tax expenditures” even though neither made Prof. Mettler’s list and even though one of them dwarfs in size virtually every other program that made her list?

Answer 7

(1) Converting corn to ethanol for use as a gasoline additive, and (2) U.S. governmental payments for purchases of 100%-electric vehicles such as the Chevrolet Volt.

U.S. governmental subsidies for the corn>ethanol program dwarf in size virtually every other program that made Prof. Mettler’s list.

A thorough discussion of the corn>ethanol program is contained in “The Fraud of Repetto and the Ethanol Fuel Apologists” posted on this bulletin board in the “Participant Comments” section for our 7/13/2011 meeting.

A thorough discussion of 100%-electric vehicles is posted on this bulletin board for our 11/18/2009 meeting on the topic of “General Motors and the E.P.A. Perpetrating Fraud Re the Chevrolet Volt” which takes into account the pollution caused by electricity generation for the Chevrolet Volt so long as any coal-fired electric plants remain on the American electric grid.

Question 8

If Prof. Mettler wants to include “tax expenditures” on her list of governmental programs, why doesn’t she include the cost of governmental “mandates” since the total cost to the economy of governmental “mandates,” though difficult to estimate, probably exceeds the total of governmental appropriations and governmental “tax expenditures” combined?

Answer 8

If she were honest, she would have done so!!!

For example, the “individual mandate” of Obamacare (the term embraced by the President to refer to the Affordable Care Act) shifts half of its originally-estimated $1 TRillion cost onto young Americans in the form of higher medical-insurance premiums than would result from actuarial realities and competition. However, since the cost is imposed on individuals rather than taking the form of a governmental appropriation, this cost is not part of the governmental budget.

Similarly, we have studied several times in the past that President Clinton had refused for more than three years to submit the Kyoto Protocol to the Senate for ratification because our chief negotiator, Al Gore, had defied two 95-0 Senate votes before he left for Kyoto, one of which directed him to agree to nothing that would adversely affect the American standard of living and, upon his return, the US Department of Energy’s econometric model calculated that compliance with Kyoto would have reduced the American standard of living by 25%.

If President Clinton had submitted the Kyoto Protocol and the Senate had ratified it, the 25% reduction in the American standard of living would NOT have appeared as an expenditure in the governmental budget. However, it would have had the same impact on the American economy as a governmental appropriate of 25% of the country’s Gross Domestic Product (GDP) or a “tax expenditure” of 25% of GDP.

Indeed, the cost to the economy of “mandates” in our environmental laws is huge. However, most of us would be willing for the economy to bear such costs for clean air and clean water, even if we knew what the “price tag” was!!! But what enrages many Americans is how such “mandates” in our environmental laws often produce astronomical costs (which, of course, are “submerged”) for virtually no benefit. And causes them to question whether the American public would be willing to incur the cost of the mandate in such circumstances if they knew what the “price tag” was.

Question 9

What proportion of total federal spending comprises social programs? What are the other major components?

Answer 9

The FY2012 federal budget for the fiscal year ending 9/30/2012 has the following major components:

Defense – 24%
Health Care (including Medicare and Medicaid) – 22%
Pensions (including Social Security) – 22%
Welfare – 12%
Interest – 6%
Education – 4%
Transportation – 3%
Protection – 2%
Other 5%

Total – 100%

Question 10

What proportion of America’s Gross Domestic Product (GDP) comprises federal spending, both recently and historically? Federal revenues?

Answer 10

Federal spending averaged less than 20% of GDP from 1995-2008.

From 2009-2012, federal spending has approximated 25% of GDP, reflecting the dramatic spending increase in 2009 which was then adopted as the norm going forward and which has produced our $1 TRillion/year governmental deficits.

Federal revenues, per the OMB & CBO, have averaged 18.1% of GDP from 1959-2008. Because of the current recession, they fell to 15.1% of GDP in 2010, but are expected to recover to the 18%/GDP average -- leaving a going-forward deficit of 7% of GDP (25% spending less 18% revenues).

Question 11

Now that the American government’s outstanding debt of $15.7 TRillion exceeds 100% of GDP (and its annual deficit is exceeding $1 TRillion for the fourth year in a row), are we now in the same league as Greece, Spain, and Portugal?

Answer 11

Of course.

Question 12

If the American government’s debt achieves “junk bond” status and begins to incur an interest cost in the 20% range, will there be any revenue left for anything else in the budget (e.g., social programs, defense, etc.)?

Answer 12

Of course not!!!

Question 13

Accordingly, is Prof. Mettler’s view of the problem an elegant plea to “keep your government hands off my social programs” and either raid the defense budget and/or raise taxes instead?

Answer 13

Of course!!!