“But if the watchman see the sword come, and blow not the trumpet, and the people be not warned;

if the sword come, and take any person from among them, he is taken away in his iniquity;

but his blood will I require at the watchman's hand."

Ezekiel 33:6

"A righteous man falling down before the wicked is as a troubled fountain, and a corrupt spring."

Proverbs 25:26

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

MoveOn vs. FreedomWorks: The Battle of the Budget

Two Grassroots Titans; One Giant Budget Battle

MoveOn.org, like FreedomWorks.org, is a big grassroots organization with activists all over the country who make our democracy vibrant. FreedomWorks activists frequently find themselves up against the better funded MoveOn activists in battles over economic policy because the two groups have very different views on how the economy works and the proper role of government in the economy.
Few issues illustrate this more clearly than the budget recently introduced by President Obama. We think it taxes too much, spends too much, and borrows too much. And we are not surprised there is bipartisan opposition to this budget. Not only do congressional Republicans oppose the budget, but so do plenty of DemocratsThe New York Times reports that powerful Democrats like “the chairmen of the House and Senate tax-writing committees, Senator Max Baucus of Montana and Representative Charles B. Rangel of New York, have objected to the proposal.” And the Associated Press reports, “Senate Budget Committee Chairman Kent Conrad, D-N.D., said numerous colleagues have cited objections and told him, ‘If this is in, don’t count on my vote.’ It has happened so often, Conrad told White House budget director Peter Orszag.”
While FreedomWorks also opposes the president’s $3.55 trillion budget for a variety of reasons, MoveOn finds many reasons to support it.
FreedomWorks has taken the top 10 points highlighted by MoveOn and refuted each one below.
  1. MoveOn claims the Obama budget: “Makes a $634 billion down payment on fixing health care that will go a long way toward paying for a more efficient, more affordable health care system that covers every single American.”
    FreedomWorks responds: We agree the health care system in America needs fixing, but President Obama’s $634 billion proposal does not fix the problems; it makes them worse.
    The main problem is the lack of a market in health care. One place where this is painfully obvious is in the cost of health care. Everyone knows at least roughly how much a sandwich, a shirt, or even a house costs. We need and use these prices to decide how much of each to consume, which helps keep down prices. But how much does a check-up cost? Or a cast for a broken bone, or a CAT scan? Most people have no idea because the prices are covered by the third-party and government entities that pay most of the bills.
    More government control over health care is not going to make it easier for us to know the true price and make wise decisions. What we need is a more vibrant market in our health care, not a smaller market like the Obama budget proposes. Health savings accounts (HSA) add market incentives to treatment processes, and are illustrative of how a broader market in health care could help lower costs. An HSA allows individuals with high deductible health plans to pay tax free dollars into a savings account that can later be spent on medical care. HSAs cut overall long term health carecosts by about a third by encouraging account holders to shop for the best care at the best value. As one would expect, when HSA holders need health care, they check the price because it’s their money being spent, and savings result.
    The widely varying cost of health care insurance between states also shows how dramatically government involvement in health care can skew costs. Government mandates increase the cost of basic health coverage according to one study by at least 20 percent and sometimes by more than 50 percent. New research claims that the cost of health insurance for families increases about $100 per month when state governments place mandates on insurance. The study reads, “Perhaps the most eye-opening contrast exists in Trenton, New Jersey, where premiums cost about twice as much as those sold across the Delaware River in Pennsylvania.” Tearing down the barriers that prevent individuals from buying health insurance across state lines would instantly allow for money to be saved on health insurance premiums. It would create competition and broaden the market.
    With the government already controlling health care for the young, the old, and the poor, there are too many market interventions to cover in this space. The lack of a market in health care will only increase as the $634 billion Obama seeks to tax and spend will include more mandates and do little to unleash market forces in the health care sector.
  2. MoveOn claims the Obama budget: Reduces taxes for 95% of working Americans. And if your family makes less than $250,000, your taxes won't go up one dime.”
    FreedomWorks responds: While MoveOn has successfully regurgitated the Obama talking points on this one, the claim, no matter how many times President Obama or MoveOn make it, is false.
    First, President Obama, along with House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.), have already raised taxes on many families “making less than $250,000”. They did so on Feb. 4, 2009 when they raised the federal tax on cigarettes. It is undeniable that smoking taxes are regressive (meaning they hit the poor harder than the rich), and almost all smokers earn less than $250,000, all of whom had their taxes raised.
    Second, the budget includes plans to institute a cap-and-trade regime. This is a tax on the use of fossil fuels, which are used in the production and transportation of almost every single product we rely on. This tax will be paid for by almost every single American—including those making under $250,000. It will hit the poorest the hardest, as they spend a larger percent of their income on goods and services, which will all be more expensive as a result of this tax.
    In fact, the top 1 percent of income earners now pay more in federal income tax than the bottom 90 percent. Those earning over about $390,000—the top 1 percent—pay about 40 percent of the federal income taxes the government collects. The bottom 90 percent—those earning under $110,000—pay about 30 percent of the federal income tax burden. At what point will Obama and MoveOn feel the wealthiest are paying enough?
  3. MoveOn claims the Obama budget: “Invests more than $100 billion in clean energy technology, creating millions of green jobs that can never be outsourced.”
    FreedomWorks responds: The numbers being used here, like the numbers used in the stimulus debate, are deceptive in that they hide the less rosy bigger picture.
    It is a classic case of “what is seen and what is not seen” as described so clearly by economistsFrederic Bastiat and Henry Hazlitt. What is seen are the jobs that will certainly result from the government spending $100 billion. What is not seen are all the jobs that are lost because the government has to take those $100 billion out of one part of the economy to spend it somewhere else.
    Mom-and-pop stores won’t be able to hire that extra clerk because sales are down, perhaps because cap-and-trade taxes raised the price of their customers’ electricity. Or the baby sitter will not get hired because the new parents, having to pay higher taxes to pay for the $100 billion green job program can not afford to go out to eat at the restaurant that will then have to lay off a waitress.
    The idea that the government “creates” new jobs is like thinking you can fill a swimming pool by taking a bucket of water out of the shallow end and pouring it into the deep end. The government, which only gets its money by taking it out of the productive sector of the economy, is taking buckets of money from the shallow end and pouring them in the deep end.
    While the precise number of net jobs lost or created by such a wealth transfer is difficult to calculate, it is fair to say zero is a reasonable estimate when considering that every single one of the $100 billion taken by Congress for green jobs will have to be taken from other parts of the economy. And since the new job will be the result of the force of a political decision and interests, rather than a voluntary decision created by freely acting individuals, it is likely to result in a net loss for society.
  4. MoveOn claims the Obama budget: “Brings our troops home from Iraq on a firm timetable, finally bringing the war to a close—and freeing up almost ten billion dollars a month for domestic priorities.”
    FreedomWorks responds: We only work on economic policy so, leaving aside the foreign policy dimension, we agree that bringing our troops home from Iraq as proposed would mean less money spent on keeping our troops in Iraq. It is estimated that the Iraq war to date has cost over $600 billion.
    It is important, however, to be honest about the amount of money this would save. As Brian Reidl at the Heritage Foundation has pointed out, Obama’s budget “first assumes that Iraq spending will continue indefinitely at 2008 levels (which was never going to happen, according to the military’s own Joint Campaign Plan), and then calculates $1.5 trillion in savings against that baseline.”
    It is unclear what the true savings will be but, whatever they are, they must be offset by the increase in costs in Afghanistan as President Obama doubles the number of American troops there. The savings also should be calculated from the expected amount to have been spent in Iraq rather than an inflated baseline number that does not reflect actual outlays.
    Moreover, President Obama makes clear he intends to spend those resources on “domestic priorities,” meaning the burden of government does not shrink for the taxpayer. This is the personal budgeting equivalent of saving $2,000 by canceling a family vacation to Paris (or Baghdad) and instead spending $2,000 going to see the Grand Canyon. People will disagree over which is a better use of the funds, but no reasonable person would argue that any money is being saved.
  5. MoveOn claims the Obama budget: “Reverses growing income inequality. The plan lets the Bush tax cuts for the wealthiest Americans expire and focuses on strengthening the middle class.”
    FreedomWorks responds: Not only have the poor gotten richer, but fewer are paying income taxes since the Bush tax cuts passed. The percentage of tax filers that paid income taxes actually decreased after the 2001 and 2003 Bush tax cuts. Ten million fewer people paid taxes in 2004 than in 2000. A study by the National Center for Policy Analysis (NCPA) says the tax cuts actually made the code more progressive, no matter how it is measured.
    According to the Tax Foundation’s research, the top 1 percent of income earners—those earning more than about $390,000—currently pay about 40 percent of the federal income taxes the government receives, up from about 37 percent in 2000. The top 5 percent—those earning over about $155,000—pay about 60 percent of federal income taxes. And the top 10 percent—those earning over about $110,000—pay about 70 percent of federal income taxes. The bottom 50 percent—those earning under about $32,000—pay about 3 percent of all federal income taxes, down from about 4 percent in 2000.
    With the Bush tax cuts already putting more of the tax burden on the rich, we’re curious, how much more do MoveOn and Obama consider their fair share?
    Of course, the numbers can be manipulated to show that “the wealthiest Americans” got the most from the Bush income tax cuts, but that’s because, as these numbers clearly show, they pay most of the income taxes.
    It is important to note, as the table below displays, that income over time for each quintile in America is rising. Notice that, while the top 5 percent’s wealth increases, so does the lowest fifth’s. In fact, each group is becoming wealthier over time. Yes, the rich are getting richer but, as best-selling author P.J. O’Rourke points out, “Wealth is not a pizza, where if I have too many slices you have to eat the Domino's box. In a free society, with the rule of law and property rights, no one loses when someone else gets rich.”
    Upper limit of each fifth (dollars)
    Number (thous.)
    Lower limit of top 5 percent (dollars)
  6. MoveOn claims the Obama budget: “Closes multi-billion-dollar tax loopholes for big oil companies.”
    FreedomWorks responds: Unfortunately, MoveOn is right. President Obama’s budget, despite all the rhetoric about lessening America’s dependence on foreign oil, will make it more expensive to produce oil in America. We are not as excited about higher energy prices as MoveOn is. More expensive energy raises the cost of all goods that require some energy to produce—which is just about everything. The rhetoric says it is a tax on oil companies. But these taxes are ultimately a tax on the consumer.
    This tax increase, too, will hit the poor the hardest as everything becomes more expensive. How much more? The estimated $640 billion cap-and-trade energy tax in President Obama’s budget alone, according to Dr. Margo Thorning, would, “In dollar cost terms, probably [be] an additional $700 to $1,400 per family per year, starting around 2012.”
    The Wall Street Journal reports on a Congressional Budget Office study that finds it “would cost the average household in the bottom-income quintile about 3.3 percent of its after-tax income every year. That's about $680, not including the costs of reduced employment and output. The three middle quintiles would see their paychecks cut between $880 and $1,500, or 2.9 percent to 2.7 percent of income. The rich would pay 1.7 percent.”
    The same editorial concludes, “Cap and trade, in other words, is a scheme to redistribute income and wealth—but in a very curious way. It takes from the working class and gives to the affluent; takes from Miami, Ohio, and gives to Miami, Florida; and takes from an industrial America that is already struggling and gives to rich Silicon Valley and Wall Street ‘green tech’ investors who know how to leverage the political class.”
    But this isn’t a surprise. In fact, while campaigning, President Obama bragged, saying, “Under my plan of a cap and trade system, electricity rates would necessarily skyrocket.”
    On top of that, he plans to increase taxes by another $31.5 billion, as MoveOn gleefully points out, on oil production, including on drilling “leases issued in the late 1990s that allow royalty waivers”according to the New York Times. In 1998 and 1999 taxes were reduced on companies doing deep water drilling for US resources offshore. The companies invested heavily and put expensive rigs in place. Now the president wants to change the rules in the middle of the game by adding fees and taxes on these job-creating American oil companies trying to recover domestic energy resources.
    Changing the rules in the middle of the game will make companies less willing to invest in long-term projects at exactly the time when we need them investing to create jobs.
  7. MoveOn claims the Obama budget: “Increases grants to help families pay for college—the largest increase ever.”
    FreedomWorks responds: This is accurate, but they fail to mention the president’s plan to make it an entitlement. And we would rather be criticizing the $250 billion President Obama sets aside for banks, but it is not in MoveOn’s cheerleading list. They were with us in opposition to the President Bush’s Wall Street Bailout, but seem to be taking a dive on Obama’s similar proposal. Nor is the president’s proposal to cut charitable contribution tax deductions mentioned, and the impact that might have on privately funded scholarships and other charities that serve the needy. But, yes, the Obama budget increases Pell Grants, federal subsidies for college students, to a maximum of$5,550 a year.
    The money initially comes from the stimulus bill, despite it being unclear how subsidizing college students creates short-term economic stimulus. Starting next year (2010) President Obama wants to make this grant a new entitlement program and increase it annually based on the inflation rate. As existing entitlements like Social Security, Medicare, and Medicaid are threatening to bust the budget, most people concerned about the federal budget are looking for ways to curb entitlements and get them off this type of auto-pilot, not create new ones.
  8. MoveOn claims the Obama budget: “Halves the deficit by 2013. President Obama inherited a legacy of huge deficits and an economy in shambles, but his plan brings the deficit under control as soon as the economy begins to recover.”
    FreedomWorks responds: We find it difficult to celebrate a $533 billion deficit by 2013—which would be a record setting one any year but this one. It’s tough to celebrate a half trillion deficit after complaining about Bush’s for years, which set records, but were between $150 and $450 billion. According to Obama’s own forecasts, the federal government will run a deficit larger than half a trillion dollars for at least the next ten years.
    The recipe to “cut the deficit in half” goes a little something like this: Take one part bloated Bush budget, add a cup of one-time spending bills like the Wall Street bailout, add a teaspoon of on-time $1 trillion stimulus legislation and stir. Next, throw in a pinch of $1.3 trillion in tax increases and assume they won’t slow the economy, blend with savings from war spending that wasn’t planned and, presto, just a $533 billion deficit in 2013.
  9. MoveOn claims the Obama budget: “Dramatically increases funding for the SEC and the CFTC—the agencies that police Wall Street.”
    FreedomWorks responds: As they say, one man’s trash is another man’s treasure. It is true the Obama budget dramatically increases funding for the SEC and the CFTC—the budget dramatically increases many agencies’ budgets.
    But the question is, why is this a good thing? Between the stimulus bill and the omnibus spending bill, nine federal agencies are seeing their budget’s increase by an average of 80 percent this year!
    The SEC gets a 13 percent increase in its funding in Obama’s budget. We could not find what MoveOn had to say about President Bush increasing funding for the SEC by 30 percent in 2002 and by 10 percent more in 2005.
    That may be because these facts suggest that the problems surrounding the failure of the SEC are not because of a lack of funding. And they are not the result of a lack of legal authority. They result from a combination of the regulators failing to do their jobs and investors being lulled into complacency about who they invest with by the assurance that the government is keeping an eye on things. Extra funding did not prevent the financial crisis, and further funding after the SEC failed will only encourage more failures to generate future spending increases.
  10. MoveOn claims the Obama budget: “Tells it straight. For years, budgets have used accounting tricks to hide the real costs of the wars in Iraq and Afghanistan, the Bush tax cuts, and too many other programs. Obama’s budget gets rid of the smokescreens and lays out what America’s priorities are, what they cost, and how we're going to pay for them.”
    FreedomWorks responds: On the budget, Obama, like Bush, does not tell it straight.
    The gimmicks used by the Bush administration were unacceptable. Unfortunately, while Obama ends some of Bush’s budget tricks, he introduces too many of his own.
    Obama claims to “save” $2 trillion over the next 10 years. But about $1.5 trillion of that is from his calculation of future Iraq war costs. As his budget director Peter Orszag told Rep. Paul Ryan, the budget savings assume Iraq spending would continue at 2008 surge-level for 10 years, counting dollars not spent at surge-level between now and 2019 as a savings. But by definition, something that “surges” increases suddenly then comes back down. And President Bush signed an agreement with the Iraqi government last year to pull out troops from active combat duty by the end of 2011—a date Obama is planning to move up by 5 months.
    Orszag excuses it as the “traditional way in which budget projections have been done.” We had hoped they would change that tradition.
    This is like a college senior planning a 10 year budget that projects paying for 10 more years of college then claiming a giant savings when, instead, he graduates and gets a job as planned.
    The budget also counts some tax hikes as “savings”—although they will be anything but a savings for those of use who pay them. His budget includes trillions of dollars in tax increases, including $645 billion from his cap-and-trade tax, discussed above, corporate tax hikes, and income tax hikes. But his Obama’s budget numbers also assume higher taxes will not change behavior. History says they do. Like they say, if you want less of something, tax it. Higher taxes discourage more of whatever is taxed, including work, resulting in fewer dollars coming in that expected. When New Jersey raised cigarette taxes in 2007 the state actually lost $24 million in revenue. The opposite is true for tax cuts. Following the Reagan tax cuts of the 1980s, not only did the economy grow but tax receipts increased.




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