U.S. Postal Service Default

No, the U.S. Postal Service won’t close on August 1st because it can’t afford to make a required $5.5 billion payment into a federal fund for postal retiree health benefits. Yes, the entire situation with the USPS is a mess. But when you have politicians ultimately trying to run a commercial operation, constant clean ups in aisle four are to be expected.

Here’s the situation:

1. The USPS is bleeding billions of dollars in red ink and has just about maxed out its line of credit with the U.S. Treasury.

2. In April, the Senate passed a bill that would buy the USPS time by effectively kicking the can down the road.

3. A more aggressive bill in the House sponsored by Rep. Darryl Issa (R-CA) is unpopular with the postal unions, Democrats, and apparently enough Republicans that the votes are reportedly not there to get it passed. And if the votes are there, the House Republican leadership doesn’t appear to be interested in bringing it to the floor.

4. Even if the House passed a bill, it wouldn’t be easy for House and Senate conferees to hammer out a compromise given the differences between the two bills. Because there isn’t much space left on the legislative calendar, and it’s an election year, it’s hard to imagine that there would be enough time to get something done to avert a default.

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Will Farm Bills Save Taxpayers Money?

The Congressional Budget Office’s score of the farm bill passed in the Senate estimates that it would save $23 billion (versus the current baseline) over ten years. It’s score of the bill that came out of the House Agriculture Committee estimates savings of $35 billion. However, the previous three farm bills ended up costing more than the CBO originally…

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Get the Feds Out of the Rail Racket

The California Senate’s recent vote to authorize $8 billion for the first segment of a widely panned plan for high-speed rail is another example of why the state remains on fiscal suicide watch. And because federal taxpayers are on the hook for $3.2 billion of the plan’s cost, it’s another example of why the federal government should not be subsidizing rail projects.

If California’s voters and the officials they elect want to blow the state’s taxpayers’ money on high-speed rail, then so be it. But taxpayers in the other 49 states shouldn’t be on the hook. Likewise, Californians shouldn’t have to subsidize rail projects in the other 49 states. Indeed, the federal Department of Transportation acts like a money laundering operation: money taken from each state’s taxpayers goes to Washington, gets “washed” on Capitol Hill, and then gets sent back to the states (minus a cut for the bureaucracy) as directed by the Beltway bosses.

Take, for example, Rep. Don Young’s (R-AK) “railroad to nowhere,” which was featured on Politico last week:

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Republican Freshmen Protect Big Government

The Community Development Block Grant program is a perfect example of the blurring of responsibility between the federal government and the states. The program’s roots go back to the Great Society and the wishful belief that the problems of urban Americans could be solved with handouts from Washington. Instead, the program “has degenerated into a federal slush…

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Political Support for Energy’s Loan Guarantees

Several weeks ago, 127 House Republicans joined 155 Democrats to defeat an amendment introduced by Rep. Dennis Kucinich (D-OH) and Rep. Tom McClintock (R-CA) that would have shut down the Department of Energy’s Title 17 loan guarantee program. That’s the program that gave birth to Solyndra, which has come to symbolize the failure of the Obama administration’s crony capitalist policies.

Why would members of Congress, and Republicans in particular, continue to support this federal boondoggle incubator? A new paper from Cato adjunct scholar Veronique de Rugy that looks at the Energy loan guarantees explains:

One reason is it serves three powerful constituencies: lawmakers, bankers, and the companies that receive the subsidized loans. Politicians are able to use loan programs to reward interest groups while hiding the costs. Congress can approve billions of dollars in loan guarantees with little or no impact to the appropriations or deficit because they are almost entirely off-budget. Moreover, unlike the Solyndra case, most failures take years to occur, allowing politicians to collect the rewards of granting a loan to a special interest while skirting political blame years later when or if the project defaults. It’s like buying a house on credit without having a trace of the transaction on your credit report.

Veronique notes that most of the money for the loan guarantees issued under section 1705 of Title 17 have gone to large and established companies:

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Republicans Join Democrats to Save Corporate Welfare (Again)

Rep. Tom McClintock (R-CA) introduced three amendments to the recently passed Energy & Water appropriations bill that would have eliminated a slew of business subsidies at the Department of Energy. Unfortunately, House Republicans once again teamed up with their Democratic colleagues to keep the corporate welfare spigot flowing.

From The Hill:

The largest spending cut proposal came from Rep. Tom McClintock (R-Calif.), which would have eliminated the Energy Efficiency and Renewable Energy account at the Department of Energy and used the $1.45 billion in savings toward deficit reduction. Like other Republicans, McClintock argued that this account needlessly spends money on questionable private investments that have not led to any measurable returns. But the House rejected McClintock’s amendment in a 113-275 vote, in which 113 Republicans voted for it but 107 Republicans joined every Democrat in opposition.

From a second article from The Hill:

Rep. Tom McClintock (R-Calif.) proposed ending all nuclear energy research subsidies to private companies, which would have saved $514 million and used that money to lower the deficit. But the House rejected that amendment in a 106-281 vote that divided Republicans 91-134. McClintock also proposed language cutting fossil energy research subsidies, which would have saved $554 million. But the House killed that amendment 138-249, as Republicans split again 102-123.

A few comments:

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My ‘Fiscal Cliff’ Prediction

Policymakers have been kicking the fiscal policy can down the road for years. That can is going to reappear shortly after the November elections when policymakers will be forced to confront scheduled tax increases, mandated spending cuts, and – once again – the debt ceiling. (I’m assuming, quite confidently, that nothing gets resolved before the elections.) The combination of events is being called the “fiscal cliff” as the failure to resolve these issues would cause the economy to go back into recession in 2013 according to conventional economic forecasters.

The Congressional Budget Office recently upped the alarm ante with its projection that the combination of tax increases and spending cuts would cause the economy to contract in the first half of 2013. The CBO also warned, however, that “eliminating or reducing the fiscal restraint scheduled to occur next year without imposing comparable restraint in future years would reduce output and income in the longer run relative to what would occur if the scheduled fiscal restraint remained in place.”

The cynic in me believes that this is precisely what policymakers want to hear.

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Disadvantaged Minority: Non-Beneficiaries of Government

The Hill reports that “The Commerce Department is considering naming Arab Americans a socially and economically disadvantaged minority group that is eligible for special business assistance” through its Minority Business Development Agency. I would argue that the federal government should not favor people of one particular ethnic backgrounds over others. However, I think the bigger issue here is that a Commerce determination in the affirmative would be yet another step in the direction of greater government dependency.

Citing Census Bureau data, the Wall Street Journal’Phil Izzo recently reported that 49.1 percent of the U.S. population “lives in a household where at least one member received some type of government benefit in the first quarter of 2011.” According to Izzo, that’s up from 30 percent in the early 1980s.

More troubling figures come from economist Gary Shilling. The October 2009 edition of Shilling’s Insight investment newsletter (not available online) provided updated figures for government dependency that he has been calculating for decades. Shilling separates Americans into two categories, government beneficiaries and non-beneficiaries, and defines the former as people who “depend on government, directly or indirectly, for a major part of their income.”

As of 2007 (before the recession), Shilling estimated that 58.2 percent of the population were government beneficiaries. That figure would have certainly risen through the recession and, as he notes, the upward trend in government dependency “is ominous because it’s only a taste of what lies ahead when the postwar babies retire and move heavily into Social Security, Medicare and Medicaid.”

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White House Cronyism Is Disturbing, But Not New

The Obama campaign is trying to hang so-called “vulture” capitalism around Mitt Romney’s neck, but as two excellent opinion pieces explain, it’s the administration’s crony capitalism that’s the really disturbing story.

The first piece, written by the Wall Street Journal’s Kim Strassel, explains the difference:

Like Mr. Romney, Mr. Obama has presided over bankruptcies, layoffs, lost pensions, run-ups in debt. Yet unlike Mr. Romney, Mr. Obama’s C-suite required billions in taxpayer dollars and subsidies, as well as mandates, regulations, union payoffs and moral hazard.

Strassel singles out the Solyndra debacle and the administration’s bailout of the unions General Motors. She notes that the alternative to profit-driven free enterprise, which the president is critical of, “is an Obama capitalism that is driven by political favoritism, government subsidies, mandates, and billions in taxpayer underwriting.”

In the second piece, Washington Post columnist Marc Thiessen says that “if Romney’s record in private equity is fair game, then so is Obama’s record in public equity—and that record is not pretty.” Thiessen lists numerous examples of companies that the administration gambled on with taxpayer money and lost. But what’s really disturbing is the administration’s cronyism:

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