Why the Middle Class is Hurting

"The American middle class has absorbed a steep increase in the cost of health care and other necessities as incomes have stagnated over the past half decade, a squeeze that has forced families to cut back spending on everything from clothing to restaurants," reports the Wall Street Journal, which provides this chart on changes spending and income in middle class households since 2007.

Source: Basic Costs Squeeze Families, Ryan Knutson and Theo Francis, Wall Street Journal

Obama's Amnesty Impact on Social Security

The long-term financial condition of Social Security and Medicare will vastly worsen as a result of Obama's executive order legalizing an estimate 5 million illegal immigrants.

• Most workers pay into the programs for their working careers, between 40 and 50 years. But millions of Obama's newly legalized are working-age adults with children, so many could be in their 40s or older.  Thus they could pay FICA taxes for the next, say, 15 or 20 years — less than half the average American worker — and be eligible for the full array of Social Security and Medicare benefits.
• In addition, most will be lower-income workers. The U.S. Bureau of Labor Statistics estimates that foreign-born, full-time workers earn about 80% of native-born Americans ($33,500 vs. $41,900).  Social Security is a social insurance program and is structured to provide disproportionately more benefits for lower-income workers. Medicare pays the same regardless of how much a worker pays in.
• Given the demographic unknowns, estimating the amnesty's financial cost to our retirement programs — and so to U.S. taxpayers — can only be approximate. But using a basic simulation model, we believe the government will receive about $500 billion in payroll tax revenue (including Part B and drug premiums), and expect it to pay out some $2 trillion in benefits over several decades. 
• In one executive order Obama may have created his biggest income transfer scheme yet, and imposed the worst financial challenge to our two already-struggling retirement programs. And millions of Americans can expect to see their taxes go up in the future to pay for it.

Source: Obama's Amnesty Will Create a Fiscal Nightmare for Entitlements, Merrill Matthews and Marke E. Litow, Investor's Business Daily

Univ of Illinois Could Lose $4.5 Million for Hiring Terrorist

A wealthy donor will withhold a $4.5 million planned gift to the University of Illinois if the school goes forward with its plan to pay a convicted murderer and domestic terrorist as a professor, reports Eric Owens @ the Daily Caller.

Last month, the statewide board of trustees cleared the way for the flagship campus in Urbana-Champaign to rehire 1970s-era Symbionese Liberation Army terrorist James Kilgore, a convicted murderer who participated in a 1975 bank robbery during which bank customer Myrna Opsahl was shot and killed.

The 42-year-old mother of four bled to death on the bank floor.

Now, Chicago businessman Richard Hill has notified officials at the University of Illinois at Chicago that he will rescind a pledge to donate $6.5 million to the UIC bioengineering department, the Chicago Tribune reports.

Hill, the retired CEO of Novellus Systems, has already given $2 million. However, he has vowed to withhold every last dime of the remaining $4.5 million if school officials allow Kilgore to teach courses in Urbana-Champaign.

“I no longer wish to be associated with University of Illinois,” the retired CEO wrote in a letter to school officials. “The Academy at the University of Illinois has clearly lost its moral compass.”

Thank US Fracking for Low Gas Prices

"Global energy markets have been upended by an unprecedented North American oil boom brought on by hydraulic fracturing," reports Bloomberg.  With crude oil prices collapsing worldwide (at about $70 a barrel today), Russia and the OPEC cartel are the losers, while American consumers and European economies are among the winners.

The winners:

• With average gas price at $2.77 a gallon, every day American consumers are saving $630 million on gasoline compared with what they paid in June prices.
• Every penny the price of jet fuel declines means a savings of $40 million for Delta Airlines.

 The losers:

• Many OPEC members need oil prices to stay at or near $100 a barrel to break even: $161 for Venezuela, $131 for Iran, and $98 for Saudi Arabia, for example.
• Russia's break-even cost is $105 a barrel. With 50 percent of its revenue from oil and gas, it can no longer relay on the same revenue to rescue its economy already suffering from European and US sanctions.

Meanwhile, "[t]he International Energy Agency estimates most drilling in the [US] Bakken formation — the shale producers that OPEC seeks to drive out of business — return cash at $42 a barrel," reports Bloomberg. According to one expert cited, US shale oil producers may break even at $40 a barrel or less.

Sources:
Oil at $40 Possible as Market Redraws Politics From Caracas to Tehran, Gregory Viscusi, Tara Patel and Simon Kennedy, Bloomberg
Saudis Risk Playing With Fire in Shale-Price Showdown as Crude Crashes, Ambrose Evans-Pritchard, U.K. Daily Telegraph
As Oil Prices Plunge, Wide-Ranging Effects for Consumers and the Global Economy, Steven Mufson, Washington Post

Obamacare's Hidden Taxes on Jobs, Wages

Many have already felt the pain of Obamacare's impact on their health insurance coverage and medical care, but that's only half the story. The other half is the negative, long-term impact Obamacare has on jobs and the opportunity for personal career advancement, as University of Chicago economics professor Casey Mulligan explains in the November Imprimis.

The key is Obamacare's "tax distortions," i.e., those changes in behavior on the part of businesses and households for the purposes of reducing their costs (tax burdens) or increasing their subsidies (tax benefits). These tax distortions "create all kinds of productivity problems and will have visible and permanent effects on the economy."

Obamacare effectively creates three new hidden taxes on full-time employment and business expansion via the employer mandate and the federal premium subsidies:

• Since the employer mandate applies to full-time employment, Obamacare effectively penalizes (or taxes) employers who offer full-time employment to workers and rewards employers who offer part-time employment to workers.
• Since the employer mandate applies only to employer with 50 or more employees, Obamacare effectively discourages (or taxes) businesses that grow and expand, hurting employees who would have advanced financially as a small business grew into a larger, more profitable business.
• Since state exchange premium subsidies (tax breaks) are progressive and based on worker earnings — the more a worker earns, the less he/she receives in government tax breaks — Obamacare effectively creates a new hidden tax on wages.

"In conclusion," writes the author, "I can make you this promise: If you like your weak economy, you can keep your weak economy."

Source: Effects of the Affordable Care Act on Economic Productivity, Casey Mulligan, Imprimis.

US Welfare Spending Second Only to France

"We Americans pride ourselves on not having a 'welfare state'," writes Robert Samuelson. "We're not like Europeans."  In fact, our 'welfare state' is bigger than all European countries but one.

Call it a massive case of national self-deception. Indeed, judged by how much countries devote of their national income to social spending, we have the world's second-largest welfare state -- just behind France.

This is not just conjecture. The Organization for Economic Cooperation and Development (OECD) -- a group of wealthy nations -- has recently published new figures on government social spending. Covered is unemployment insurance, disability payments, old-age assistance, government-provided health care, family allowances and the like. ...

But wait. Direct government spending isn't the only way that societies provide social services. They also channel payments through private companies, encouraged, regulated and subsidized by government. This is what the United States does, notably with employer-provided health insurance (which is subsidized by government by not counting employer contributions as taxable income) and tax-favored retirement savings accounts.

When these are added to government's direct payments, rankings shift. France remains at the top, but the United States vaults into second position with roughly 30 percent of its GDP spent on social services, including health care. We have a hybrid welfare state, partly run by the government and partly outsourced to private markets.

Below are the OECD rankings, courtesy AEI's James Pethokoukis:

Piketty's Progressive Economic Policies Fall Flat

French economist Thomas Piketty was the darling of the Left last year as the champion of progressive policy proposals — including an "80% tax rate on high incomes and progressive tax on great wealth" — to eradicate economic inequality.  He may have sold a lot of books, argues Michael Barone, but "his policies don't seem to be selling well anywhere."

There were no campaign ads calling for Piketty taxes this fall. Raising the minimum wage got some attention, but, writes Barone,

It is only slightly hyperbolic to say that an increased minimum wage is a transfer of income from fast-food customers to fast-food workers minus those who are replaced by kiosks. That's not a very effective way to sock it to the top 1 percent. ...

America already has lots of economic redistribution. American voters evidently sense that more redistribution would sap economic growth. They're willing to throw a little to minimum wage earners, but they don't want to kill the geese laying the golden eggs.

Piketty's progressive policies are faring no better in other nations.

Even in Brazil, with near-zero growth and mush greater inequality than the U.S., incumbent President Dilma Rousseff saw her percentage slip from 56 percent in 2010 to 52 percent this October.

In Britain, facing an election next May, there are calls within the Labour Party to oust leader Ed Miliband, who has called for freezing energy prices and a tax on "mansions," which would hit Londoners hard.

Piketty confesses he has seldom left Paris in his adult years. But even there his policies are in trouble. The job approval of Socialist President Francois Hollande, who imposed a top income tax rate of 75 percent, currently hovers just above 10 percent.

Politicians opposing massive economic redistribution have a hard time coming up with appealing rhetoric. But there seems to be something more powerful working in their favor — a widespread if 8unspoken understanding that government attempts to "spread the wealth around" (as candidate Obama once told Joe the Plumber) tend to destroy it instead.