Is the Price of Getting Out of the Recession Too High? We’re paying the bill for the government spending.

So I have recently started a new job where I at time write blogs on various policy issues that my boss requests and I am quite proud of this first one that I wrote. It's not too complicated so give it a read!

Problem: The economy is sluggish and has been since the recession began in December 2007.

Symptoms of our problem: Economic activity takes a downward trend for an extended period of time. Additionally, when public opinion is that economic activity is going to slow, individuals and business are more likely to save than to invest. Businesses may also choose to lower employment or stop hiring. Lower consumer confidence creates a downward cycle that deepens an economic depression. Production also tends to turn down during a recession. Also, there are more opportunities for mergers between companies (which decreases competition and, in turn, results in negative effects on our economy). Because of increased unemployment, living standards for those whose income is from salaries/wages are more volatile than those whose income is fixed. General instability promotes lower consumer spending.

How do we solve the problem:

1. Lower taxes
2. Stop Federal Spending
3. Boost investments
4. Increase consumer spending ("How to Successfully Stimulate the Economy by William Beach)

So, my question is this: if lower taxes would stimulate the economy, then why are we seeing taxes increase in 2010 (and over the next 10 years)? Did Obama forget his I-won’t-raise-taxes-for-middle-class-families promise? And why are we seeing bill after bill increasing federal expenditures? (The I-won’t-increase-the-national-deficit promise has obviously been forgotten, as well)

American’s will be picking up the check for two bills, in particular, passed in 2010. First, there’s the $503 billion healthcare bill passed in March. How exactly does Obama plan to pay for healthcare for everyone? Curtis Dubay outlines the breakdown of the revenue for the Patient Protection and Affordable Care Act (PPACA).

1) A 40% excise tax will take effect in 2018 and will be applied to healthcare plans above $10,200 for individuals ($27,500 for families). As effect, healthcare plans will be more expensive for everyone including those in the below $250,000 tax group (yah, the same ones President Obama promised not to raise taxes on).

2) The portion of payroll tax taken as Hospital Insurance (HI) will be increased from 1.45% to 3.8% (including the employer’s portion). This tax will begin in 2013 and will mark the first time that a payroll tax has been officially designated to fund an entitlement besides Social Security and Medicaid. (FYI, because the tax brackets are not inflation-adjusted many of the families that are now below the $250,000 threshold will be taking on this tax by 2013)

3) In addition, the newly raised “payroll” tax will also apply to investment income as well as payroll income (Perhaps the tax should be renamed. Before we know it, it will be called the “money-your-grandma-gave-you-for-Christmas” tax).

So, the good news is we got everyone in America healthcare. The bad news is the system will maintain the same inequities and inefficiencies it has now, the coverage will not be any better, the plans will be more confusing, and you and your children will be paying for it…forever.

Second bill (don’t worry, this one isn’t as frightening): August 11, 2010, the “Education Jobs Fund” was passed granting $10 billion to the states to save the jobs of teachers and other government workers and another $16 billion to bail out Medicaid. Congress’ plan to pay for this bill comes in two parts; firstly, tax increases of international business (accounts for about half of the estimated expenditure). The rest of the cost has been accounted for by cuts to children’s nutrition programs scheduled to occur in 2014. Somehow, it feels although that idea will never materialize though. Firstly, will future-Congress be willing to cut the lacking $20 billion from the food stamps and nutrition fund for children when just over a year ago, the stimulus package granted $21 billion to the same sector. Is it just me or are we going in circles here? Unfortunately, this most recent bail out will mostly likely become part of our national deficit or be realized through tax increases in the next ten years.

So, the disaccord still exists. The bills mentioned were passed explicitly to relieve the recession. Yet, the higher taxes leave less money for consumers to invest or spend in the market. Government spending is at an all time high and the national deficit is growing. The payroll tax on Investment income leaves less incentive to invest. The increase in the HI tax will make medical care less competitive. The increased tax to international business decreases incentives to own international business and the United States loses more jobs overseas.

And here’s the kicker – stimulus plans don’t work. It didn’t work in 1930 with the New Deal, it didn’t work in 1990 in Japan, and it didn’t save us in 2008. If there was a money tree from which Congress could pick cash and throw it at the economy to increase demand, it would be a fruitful plan. But since the stimulus plans are paid for by taxes and loans, the money comes from the existing economy. Therein lays the problem of stagnation. All we’ve done by passing more bills is to redistribute the depressed economy. Every stimulus act Americans allow Congress to pass is us figuratively throwing our hands in the air out of confusion and fear, handing over our future paychecks to the all-knowing Obama administration, and saying, “I can’t figure it out, you handle it!” And that’s outrageous! And more importantly, that is not what Americans are about.

France Update

Dear people I love, I know that all of you have been deranged with curiosity of my travels in Europe so I don’t want to allow you to suffer any longer. Here are some quick chronicles of my tour of France with Kelsey and Tyler.

Oh Paris!
We began in Paris and took to the streets for 2 days. At first the tale of our story seemed to be getting lost in the train stations. Metro stations in the states can be fast paced confusing places and the language barrier here just added to the trouble. But we made it to all our destinations eventually. Destinations included the Louvre, Versailles, the Eiffel Tower, and more. The Louvre was giant and full of tourists! Tourists swarmed the city like ants. There were people from every country taking pictures, eating pastries from street vendors, and gawking at statues of historical figures. The most amazing part to me was that every building we saw is about a billion times older than any other historical site I’ve ever been to.
To my great pleasure, we spent the last day in Paris shopping and having lunch at an adorable café. I ventured into French clothes stores but of course insisted upon visiting both H and M locations. I found great stuff but in H and M couldn’t figure out some of the pricing of a couple items and after spotting some young women near by struggled through an explanation in French that I was American and didn’t understand the pricing in France and could they tell me how much my nightie cost. When they stared at my blankly I assumed it was the usual reason people stare at me blankly when I attempt to speak French, but then they answered in ENGLISH! They were visitors as well and didn’t understand the pricing either. They may not have been able to help me but at least they were oblivious to my poor French. Actually many people in Paris spoke English, a blessing I should have cherished more when I was there because it has been rare since we began traveling south.

Bordeaux and the Tour de France (or Tour of France for my American amis)
We made a quick stop in Montpillier to drop of our bags and headed straight for Bordeaux after finishing in Paris. Our goal: see Lance Armstrong and other noteworthy athletes in the time trials on Saturday. Time trials are one of the many competitive areas of the Tour de France that I don’t understand but the basic idea is that all the competitors ride the same route starting a few minutes apart and just ride for time. It’s like a sprint portion (a 52 km sprint, that is) and they time is taken into account toward the final time for the Tour or something like that.
So on Friday afternoon we went to the train station in Montpillier but were disappointed to find that the next available train to Bordeaux departed at 8 pm and arrived in Bordeaux around 1 am… Since we were relying on hostiles to stay in and we arrived so late, we felt maybe we shouldn’t go wandering around the city looking for a hostile at 1 am. Hence, how we came to sleep on the platform of the train station in Bordeaux. We weren’t the only ones. We were accompanied by different groups of young backpackers and of course, strange ragged men who mumbled while they wandered around. All in all, I slept for 2 hours between 5 and 7 am. The biggest irony came when after our miserable night sleeping on the floor we walked out of the train station to see an entire block of hotels.
The Tour de France was awesome! Before the competition started a parade of sponsors through out tons of Tour swag. Then all the racers took off one at a time. We were in the very front and could see all the racers at the starting point. It began at 10 am and continued until 4 pm. I’ll admit I took a nap on the grass for few hours in the middle. At last, we sprinted to the train station and boarded a train to Montpillier to finally rest in a warm bed.

And of Montpillier…
We arranged ahead of time to stay in the home of a French family in the small town in the south of France called Montpillier. The town is just 10 miles north of the Mediterranean Sea and the people we are staying with are a retired seventy-something couple. On the weekends, they cook amazing, 5 course, 2 hour meals and talk about the history of the region and the food. The food is better than anything I ate in Paris and I’ve become addicted to the salad and cheese courses at the end of every meal. They also grow a lot of fruit in this area so we eat tons of fresh, cheap fruit for our other meals. During the week, Kelsey, Tyler and I cook our own meals and have attempted a few French meals out of the lady’s cookbook. Most have ended tragically and since we have resigned ourselves to cooking our regular meals with French groceries we have had much more success. My basic diet consists of peaches, cereal, bagettes, and nutella.
In addition to my excellent diet, Tyler, Kelsey and I have begun extreme work out sessions everyday. They usually consist of inhumane amounts of pushups/sit ups in the morning and long runs in the evenings. I also try to do some yoga every morning in an attempt to recover from the previous night’s run. Other activities include going to the beach often and visiting the nearby complex called Comodie, a small village of stores and an art district. All throughout July there was a music festival taking place in Comodie where there were free concerts of all different types of music from 12 – 10 pm. We went to classic piano, jazz guitar, and rock concerts in the time the festival was going on.
Last Saturday, we participated in a huge hike with the lady we are staying with. We hiked 9 km up a mountain in between the Pyrenees and the Alps. We traveled 20 more km along the ridge of the mountain and finally descended. The day totaled at 12 hours of walking. My feet and knees have still not recovered!

Well that’s where we are now after 2 weeks. We’ll be here a little less than two weeks more. So what are my number one bests and worsts? Best – sunset from the top of the Arc de Triumph in Paris. The Eiffel Tower lights up with sparkling lights on the hour starting at 10 pm. Worsts – everyone in France smokes! I can’t spend time in a crowd without getting a headache from the smoke.
I’m excited to return home in a couple weeks. Me and Kyle will be roadtripping it out to Washington DC where I’ve received an internship with the Heritage Foundation for the fall. The wedding is September 18th and I hope to see you all there if you are able.

Congrats if you’ve made it this far. I know this has been a marathon of an email. If you’ve only scanned and now reached this point, shame on you! Are you really that busy?? Finally, if you’ve received this email, you may think you are just many among a mass and in some ways you are right but the truth is I love you all very much and are very desirous to hear what you are doing in your life. I long for your stories and adventures. Write me and tell me about life.

Love,
Alyssa Grace Esquibel