Tampa

After wasting the past year bitterly battling for healthcare reform, the Obama Administration now claims that it will focus on employment, as if that were not the intent of last year’s $862 billion stimulus. The Administration assured Americans that the so-called stimulus would keep the unemployment rate below 8%, but a year later it was over 10%. In addition to the usual self-congratulatory rhetoric, teleprompter-fed lectures, deceitful claims, and fallacious depiction of opponents that accompany any Obama initiative, the Administration is attempting to put a new spin on its failure by touting some of the stimulus’ most impressive projects. Projects about which the Administration is especially enthusiastic are the high-speed rails across the country, particularly between Tampa and Orlando. Although the Administration considers this rail a success story, it is actually an impending disaster for Florida, and an example of how stimulus spending will burden state budgets.

The best policy to increase employment during a recession is to let the business cycle work naturally, allowing depressed markets to purge excesses and find their bottom. Any action taken to expedite recovery should be to benefit the supply-side of the economy, such as tax-rate cuts or deregulation. Naturally, Obama will not do this, and will likely do the opposite. Since his presidential campaign, Obama has been terrorizing businesses, investors, and entrepreneurs with the threat of anti-growth policies, such as the stimulus, cap and trade, and healthcare reform. Frightened by Obama’s radical rhetoric of redistribution, this productive class is reluctant to take any risks – investing or expanding, for instance – which means employment will stay stagnant.

To increase employment – what last year’s stimulus utterly failed to do – Obama is demanding even more government spending. While most of last year’s stimulus spending went to bail out state and local governments, this year projects more infrastructure projects. Obama is championing a high-speed rail in Florida – between Tampa and Orlando – to illustrate such infrastructure spending. Descending from on high in D.C. to Tampa, the change god pontificated about the virtues of the rail to a congregation of local acolytes.

Florida, a decisive swing state, as well as a battlefield in the war between the GOP’s liberals – Governor Charlie Crist, who betrayed his party to embrace the stimulus and Obama himself – and conservatives – former Speaker of the House Marco Rubio, currently leading in polls – is a fateful place for Obama’s stimulus to make its last stand. If it succeeds, the Obama agenda will be vindicated, its critics shamed and silenced. If it fails, however, Obama’s ambitions will suffer a mortal blow, limping along to die an ignominious death in 2012. Of course, Keynesian policies have been failing spectacularly since the New Deal, and there is no reason to assume that Obama’s oratory will negate the laws of economics ensuring their demise.

The Obama Administration estimates that the high-speed rail will cost $1.25 billion, but this is certainly wrong. Florida’s Department of Transportation estimates $3.5 billion, and a 2009 Government Accountability Office report suggests that costs could be $51 million per mile, totaling $4.28 billion. Since the federal government has only granted its projected $1.25 billion to Florida, Floridian taxpayers will be responsible for the expected cost overruns.

Politicians regularly trout out high-speed rails for different reasons, and this year it is to “create jobs and generate and economic activity.” Of course, these would not be real jobs created in the private sector, but taxpayer-funded jobs protected by politics. In 2014, when the project is completed, the construction jobs will disappear, and the only thing left behind will be needless new costs for Floridians.

The Tampa-Orlando high-speed rail will serve no useful purpose, cost far more than expected, and burden Floridians with new taxes that will jeopardize Florida’s success.

Tampa and Orlando are completely arbitrary destinations; there is no relationship between Tampa and Orland to justify connecting the two. Orlando residents are not regularly traveling to Tampa – to cheer on the 3-13 Buccaneers, for example – in significant numbers. Orlando may be a popular vacation destination due to its amusement parks, but Tampa residents do not visit Disney World any more than anyone else in the United States. Based on this rationale, Orlando could just as logically be connected to Lewisburg.

Driving the 84 miles between Tampa and Orlando takes about 90 minutes on I-4, a federal highway through each city. A high-speed rail would make the trip 30 minutes faster. Rails make more sense when built over long distances – like they are in Europe and Japan – not between two close cities in the same state. Even if the rail only costs Obama’s rosy $1.25 billion, spending that much for a slightly-faster 84-mile drive is wasteful.

Although riding the rail would yield gas savings, there is not enough regular traffic between the two cities to make a meaningful difference. Saving a Tampa family the cost of gassing up the minivan every summer does not justify such an expensive endeavor. Furthermore, without a car, visitors to each city must either call a cab (negating any gas savings) or impractically trudge around town. If the rail connected Tampa to Disney World, this flaw might not be so bad, but Disney is several miles outside of downtown Orlando.

In addition to financing the high-speed rail’s busted budget, Floridian taxpayers will also be responsible for operating and maintaining the rail. Floridians understand this, and so have voted three times – as recently as 2004 – to reject plans for a high-speed rail. Floridian voters are against the rail because they know it is impractical, expensive, and would threaten their state’s unique appeal. Florida’s warm weather and beautiful beaches are not its only attractive quality. Low taxes – no income or estate tax, for example – have promoted strong economic growth, making Florida one of the most prosperous states in America. Over-taxed residents from other states (like New Jersey) move to Florida to avoid oppressive tax rates, and businesses invest in Florida because their after-tax return is higher there than elsewhere.

Property and sales taxes were Florida’s main source of government revenue, but have been undermined by the housing crisis and recession. Last summer, Florida struggled to balance its $66.5 billion budget, relying on $4.7-billion stimulus bailout, as well as a new revenue from tobacco taxes and gambling. Given the precarious condition of Florida’s economy and budget, new multi-billion dollar spending should be out of the question, yet that is exactly what the high-speed rail will bring. Construction of the rail is not financed beyond the federal grant of $1.25 billion, which means the state will raise taxes or cut spending to afford the rail. Once the rail is built, Floridian taxpayers will also be responsible for the maintenance and operation of the rail, which will require additional revenue or savings. The most recent budget dispute, however, suggests that the government is more likely to increase taxes than decrease spending.

Florida has succeeded because its low taxes encourage investment and expansion. Projects like the high-speed rail, however, threaten Floridians with higher taxes, compromising the state’s economic growth. A state income tax on “the rich” to pay for the rail, for example, would diminish Florida’s appeal to businesses, investors, and other over-taxed Americans. Instead of moving to or investing in Florida, they would select states where they have the sense not to punish their most productive citizens. Fortunately, Florida is currently one such state, though it is poised to forfeit that advantage. Rather than clamoring for stimulus funds it cannot handle from D.C., Florida should continue to uphold its pro-growth policies, trusting the free market to triumph over the central planning of politicians. An even-faster trip to Disney World may be a child’s dream come true, but its cost is an adult’s worst nightmare.

As if this were not bad enough, White-House court jester Joe Biden described this multi-billion train wreck as mere “seed money” to lay the foundation for more federal meddling in Florida, such as another connecting rail to Miami. An expensive and useless catastrophe careening towards taxpayers, the high-speed rail may darken Florida’s sunny future.

Naturally, Obama blames the need for such deficits on the Bush Administration. Obama did indeed inherit a deficit, though as a senator in a Democratic-controlled Congress, he voted with a majority of other Democrats for legislation that created the deficit, such as TARP. As President, however, Obama has only worsened the deficit situation, presiding over a $1.4 trillion deficit in 2010, now proposing a $1.56 trillion deficit for 2011, and projecting future deficits for the rest of his term.

There is also a great deal of grandstanding about the budget’s “freeze” on some discretionary programs. This proposal, which applies to only 17% of the budget for three years, conveniently occurs after large increases in appropriations to discretionary programs. Despite the fact that it will have a negligible effect on the projected deficits of the United States, Obama is peddling the gesture as evidence of his commitment to fiscal responsibility.

This budget is based on the mistaken economic theory that government expenditures – in this case, deficit-financed expenditures – have a beneficial macroeconomic effect by increasing “aggregate demand,” and thus output. Government spending, however, must be financed by taxes and borrowing, which undermines the net effect of any expenditure. For every dollar of spending, the government confiscates one dollar from the private sector, canceling out any supposed benefits.

Taxes and borrowing also distort the economic activity upon which they are levied, leading to microeconomic inefficiencies in the markets. This “efficiency cost” reduces economic activity, ultimately decreasing the economy’s output and the government’s tax revenues. To increase output and tax revenue simultaneously, the government should implement policies that promote economic activity, particularly supply-side incentives.

Obama’s 2011 budget is oblivious to the abject failure of the government’s stimulus efforts, and is a grave threat to future generations of Americans. Fortunately, for all their power, politicians cannot repeal the laws of economics.

1) “Let me repeat: we cut taxes. We cut taxes for 95 percent of working families.”

First of all, 95% of Americans do not pay taxes, and it is impossible to cut taxes for those who pay none. In fact, according to the latest Census, the bottom 40% of Americans paid no income tax, while the top 5% (whose taxes Obama refuses to decrease, and is in fact planning to increase) paid 60% of income taxes. True, “working families” pay the payroll tax, but that grants eligibility in entitlement programs like Social Security and Medicare, as well as insurance for unemployment or disability.

What Obama and Congress did was issue “refundable tax credits” to Americans, most of whom have little or no tax liability. Typical tax credits are reductions in an individual’s owed taxes, but “refundable” tax credits  are not limited by any tax liability. So even if an individual owes no taxes, he is still eligible for a refundable tax credit (or according to Obama, a “tax cut”), paid to him as income rather than as a decrease in tax liability. A more accurate term for this policy is “income redistribution,” since it is essentially redistributing income from taxpayers to non-taxpayers.

Refundable tax credits have no significant effect on long-term economic performance. People’s consumption is based on a projection of their permanent income over their lifetime, and is not very responsive to brief fluctuations. Effective tax policy should permanently decrease tax rates on payroll, income, and capital gains. Permanently lowering these rates creates firm incentives to spend, save, and invest, which will increase output, improve economic efficiency, and expand employment. Temporarily redistributing income does nothing to ensure lasting prosperity.

2) “Because of the steps we took, there are about 2 million Americans working right now who would otherwise be unemployed.”

Obama is referring to the utterly specious “created-or-saved” concept, something never before measured in economics until his infamous stimulus. White House economists concocted this bogus metric to insure against the failure of the stimulus; “jobs saved” could always be cited as an illusory caveat to “jobs lost.” When the stimulus failed to keep the unemployment rate below 8% (it has grown to 10.8%), Democrats began trumpeting “jobs saved,” rather than “jobs created.”

To illustrate the absurdity of the “created-or-saved” fiction, if there are only 3.5 million jobs – the amount which Obama swore he would “create or save” – left in the United States in 2012, Obama will be able to claim that he fulfilled his stimulus promise.

3) “According to the Congressional Budget Office — the independent organization that both parties have cited as the official scorekeeper for Congress — our approach would bring down the deficit by as much as $1 trillion over the next two decades.”

This outrageous claim is based upon a deceptive budget trick devised to hide the full cost of ObamaCare from the public. Nevertheless, Democrats have shamelessly seized this flawed factoid to hype healthcare reform as fiscally responsible, though in reality it is prohibitively expensive and ultimately unsustainable.

The Senate healthcare bill implements new taxes years before new expenditures, phasing in the full cost later to make it appear more affordable in the short-term. In fact, 98% of the bill’s new expenditures occur after 2014 – so much for all the hysteric the-time-is-now rhetoric – though new taxes – such as a payroll tax increase of .9% on income exceeding $200,000 – begin immediately in 2010. Unsurprisingly, the media has mostly fallen for this gimmick – front-loading taxes and back-loading expenditures – and have only publicized the Congressional Budget Office’s evaluation of the deceptive initial ten-year projection, ignoring that the next ten years are estimated to cost an additional $2.8 trillion (three times the cost of the first decade), totaling $3.6 trillion over 20 years, or $180 billion per year.

4) “We have made substantial investments…”

The Democrats have cleverly misappropriated the term “investment” to replace “spending.” In the State of the Union, Obama celebrated new government “investments” – rather than more spending – in environmental technology, education, healthcare, and the military. Investment has a more positive connotation than spending, since the former expects a return while the latter does not. Describing government expenditures as investments makes the spending sound less wasteful and arbitrary, and gives the impression that it will yield something valuable over time.

Government expenditures, however, do not even slightly resemble investments. An investment is the purchase of an asset – such as a stock or commodity – which may depreciate or appreciate in value over time. When the government budgets tax revenue, it is not investing in assets, but either consuming goods and services or redistributing income. Neither of these activities can be considered an investment in anything except perhaps the careers of politicians.

5) “Starting in 2011, we are prepared to freeze government spending for three years. Spending related to our national security, Medicare, Medicaid and Social Security will not be affected. But all other discretionary government programs will.”

This pledge is mere political posturing, not meaningful policymaking. Obama has shown no real concern for the economic consequences of deficit-financed spending, though he is fond of lecturing others about them between bouts of fiscal incontinence. Over the past year, Obama presided over an 18% increase in federal expenditures of $536 billion. After accounting for all the exceptions to his “spending freeze,” the proposal only applies to 17% of the federal budget, the annual appropriations of which Obama already increased by 22%.

This spending spree is not fully financed by tax receipts. The Congressional Budget Office estimates that in the next three years of the Obama Administration, outlays will exceed receipts by $3.7 trillion. The CBO projection, however, fancifully assumes that Congress will repeal all of Bush’s 2001 and 2003 tax cuts, make unrealistic decreases in Medicare reimbursements which lawmakers have avoided doing for over a decade, and does not even include the impending cost of ObamaCare. Discounting the CBO’s optimism, Obama’s deficits could easily exceed $4 trillion.

Now, after setting record increases in the budget, senselessly approving wasteful deficit spending, and adding vast sums to the national debt, Obama is now preaching fiscal discipline, and will “freeze” his recently bloated budgets to much fanfare. This utterly insincere gesture will have a negligible effect on the government’s unsustainable spending trends and mounting debt, forcing future generations to answer for the fiscal profligacy of politicians like Obama.

The State of the Union betrayed Obama’s ideological radicalism and staggering arrogance. Obama has committed to a divisive agenda of intrusive government, and is employing dishonest tactics to disguise his liberal agenda of intrusive government as “common sense” and “pragmatism.” Rather than assume responsibility for his failures, Obama blames others – Republicans, Wall Street, Big Oil, Fox News, and insurance companies – for the country’s problems. The redistribution of resources from useful sectors of the economy to useless sectors, nationalization of failing industries, corrupt dealings with favored special interests, and shakedown of businesses will continue to plague American prosperity. Under the Obama Presidency, the United States faces a dismal future.