Selling Obama's Spending Plans: Just Pay Separate Processing and Handling

Sound familiar? Most everyone has heard it time and time again. It’s the way many TV sales pitches end after seeming to give the viewing audience something for nothing. It’s a sucker’s pitch. It usually works like this: you are offered the gadget of the moment for the bargain price (typically) of $19.95, and you get an additional gadget for free. Then comes the addendum (very quickly and often in a whisper) “just pay separate processing and handling.” The fee is never disclosed, but it’s always there (typically $9.95 for each gadget, or another $19.90 for both which brings the total to $39.85 exclusive of shipping charges) proving there are no free lunches. This deceitful advertising used by television pitchman works so well that its equivalent has become the new Obama-Pelosi-Reid pitch to disguise the true cost of their programs.

And while this may not be a precise analogy for the way things are done in Washington, it’s close enough. “Just pay processing and handling” is our metaphor for the entire panoply of Washington speak that produces programs, the costs of which are often orders of magnitude more than originally represented. We are, almost daily it seems, pitched free lunches or “benefits” by our government. And while the seemingly irreversible debt we are currently piling on our children and grandchildren is truly unprecedented in American history, this administration did not invent the government “free lunch” shell game; they’ve simply refined and extended it with complete abandon. As Ronald Reagan so aptly warned, “The nine most terrifying words in the English language are I’m from the government and I’m here to help.”

Let’s count a few of the ways American consumers and taxpayers have been sold a bill of goods whereby the bill for the goods is, or will be, much higher than the assurance given in the Obama-Pelosi-Reid sales pitch.

Everyone can recall the “deficit neutral” healthcare reform bill. It wasn’t going to add a dime to the deficit “now or in the future.” Then, no sooner than you could transfer a bill into an Act (a law) the essential quarter-of-a-trillion dollar “doc fix,” which had been yanked from the original healthcare reform bill to make it “deficit neutral,” was, a short time later, enacted separately blowing the deficit neutral promise to smithereens — just pay separate processing and handling.

The Pelosi-Reid-led Congress established new high-risk pools in the new legislation and allocated $5 billion to take care of the chronically ill and uninsured until the government-controlled insurance exchanges, which are to be set up under the new law, are up and running in 2014. But no sooner, it seems, was the legislation signed into law than the Chief Actuary for Medicare estimated that the tax-payer funded high-risk pools would run dry in 2011 or 2012, “resulting in substantial premium increases to sustain the program” — another new, hidden and unexpected cost compliments of Obamacare. Just pay separate processing and handling.

Then, while throwing around a few billion here and a few billion there, your Congress established another $5 billion fund to offset health-care expenses for early retirees. While at first blush the fund would seem to subsidize both public sector and private sector early-retirement plans, in reality, relatively few private firms offer early retirement plans, while such lush benefit programs are common in the public sector, compliments of the taxes paid by American private-sector wage earners. This has all of the makings of the biggest boondoggle in the legislation because it could eventually morph into a massive backdoor bailout for cash-strapped states, much like the job-saving bill for which Speaker Pelosi has recalled congress to subsidize state and local governments so that they can continue to avoid facing their bloated payrolls. This temporary fund is also set to expire in 2014, but the same Medicare actuary has warned that this $5billion fund will also run dry before then. We find it hard to imagine that the public employee unions will stand by and let the temporary subsidy lapse for lack of funding.

Many state and local governments are going broke (or have gone broke) paying for such lavish promises they’ve made to, or, more accurately, they’ve had squeezed out of them by, public-employee unions. Less than a year ago the Government Accounting Office estimated that states and localities had more than $530 billion in unfunded liabilities for “post-employment” benefits, primarily for retiree health care. One can bet that states like New York and California will leap at the chance to offload their early retiree costs onto the feds, and that public-employee unions will push hard to expand funding for the early retirement subsidy and to make it permanent. No matter that this federal subsidy was simply supposed to tide these bloated plans over until 2014 when the government controlled insurance exchanges are to become effective. Congress naively expects individual union retirees to transfer into the exchanges in 2014, but it’s hard to imagine unions surrendering their gold-plated plans when the rest of the country is picking up the tab.

So while Obamacare is barely six months old, the nation is quickly discovering what opponents of the legislation (which none of the legislators voting in favor bothered to read) argued all along: that it will cost taxpayers far more than expected and send health-care spending into the stratosphere. The immense federal bureaucracy that is being cobbled together, i.e., rule writers, regulatory enforcers, thousands of new IRS agents (to monitor compliance in order to tax those who they find not in compliance) will cost hundreds of billions of new incremental dollars. Just pay separate processing and handling.

The Congressional Budget Office, shortly after the President signed the Obama-Pelosi-Reid health-care reform legislation into law, reported (a bit late, we think) that the new level of deficit spending and the attendant debt that it imposes on the country is, to use their words, unsustainable. This is, of course, a concern we have voiced in these essays on numerous occasions during the past year. Our concern is not merely the unbridled government spending which drives the deficit and the debt but, even more critically, that the indebtedness the government shows on its books doesn’t begin to tell the story of the mess we’re in. That’s because almost every government entity, federal, state, county and local has gotten into the very bad habit of utilizing multiple “sets of books” to account for debt, deficits, and unfunded liabilities. These include how they account for welfare programs and the costs of their own employee benefits. In some cases, most notably concerning health insurance continuation coverage, there is virtually no unfunded liability disclosed to taxpayers. But trust us, it’s there. It’s just almost impossible to find. For example, the federal government does not include the unfunded liabilities of Medicare, Social Security, or its own retirement programs as part of the official US debt. That’s because it is not considered public debt. It’s money the government owes internally and, theoretically, the government can renege or reschedule these obligations. To make matters worse, virtually all federal and most non-federal public sector entities now also pay higher salaries and offer better benefits to their employees than can be provided in the private sector (which, incidentally, provides the largess sloshing around in the public trough). Small wonder public sector employment has been growing along with public sector union membership.

The massive cost of early retirement for public sector employees, which is often available 10-25 years earlier than is allowed by Social Security, together with free or highly subsidized health insurance during the early retirement years, is generally hidden from taxpayers. There are huge, absolutely unsustainable, understated and underfunded liabilities that are largely hidden from the taxpayers who pay the tab. Misleading or incomplete actuarial and accounting methods that the government would consider criminal in the private sector has become a common ruse employed by public-sector agencies. A report prepared by Andrew Biggs, a scholar from the American Enterprise Institute, states that the disclosed “debt” of non-federal public entities is approximately $2.2 trillion (the sum total of all state and municipal bonds), and that the additional “off balance sheet” unfunded liability for non-federal public sector pension plans is currently stated to be around $400 billion. According to Biggs, the actual unfunded liability for these public sector pension plans would be $3.5 trillion if more realistic and conservative interest rate assumptions were utilized. Admittedly, the precise level of these real but mercurial obligations is very difficult to pin down. What is certain, however, is that the bill, when it is quantified will be far greater than the public imagines, and these chickens will come home to roost.

The true federal debt (including unfunded obligations) would, according to many experts, including the President of the Dallas Federal Reserve Bank, exceed $107 trillion, if one, integrated balance sheet were used — not the $13.0 trillion currently stated as “debt”. The result is that the total federal and non-federal government debt (if unfunded liabilities are included) is an estimated $112+ trillion, or SEVEN TIMES higher than the total $15 trillion currently disclosed to taxpayers.

We could go on and on (and probably will in future essays) writing about the gathering storm building as a result of our profligate elected officials. They are almost all very outspoken about what they have, are and will do for us and, simultaneously, very soft spoken about what it is all really costing us. They seem to believe we’ll walk down the primrose path over and over again and just pay separate processing and handing.

By Hal Gershowitz and Stephen Porter