Taxation by Fiat

Door in Fez, Morocco - photo by JoAnn Sturman

by Ed Lembert

After Obama was elected some people heard me say that his agenda was going to be to get free health care and free education for "people of color" which disproportionately means African Americans. I said this because of an interview I read which was conducted in 2004 when he was running for the Illinois Senate. At that time Obama was asked if he favored a bill going through Congress which proposed cash reparations to blacks whose ancestors may have been slaves. Surprisingly, he answered that he was NOT in favor of such reparations. When you read his reasons you will understand his current agenda. I found the old interview. Here is an excerpt:

Obama says an apology would be appropriate but not particularly helpful in improving the lives of black Americans. Reparations could also be a distraction, he said. In a 2004 questionnaire, he told the NAACP, "I fear that reparations would be an excuse for some to say, 'We've paid our debt,' and to avoid the much harder work."

Pressed for his position on apologizing to blacks or offering reparations, Obama said he was more interested in taking action to help people struggling to get by. Because many of them are minorities, he said, that would help the same people who would stand to benefit from reparations.

"If we have a program, for example, of universal health care, that will disproportionately affect people of color, because they're disproportionately uninsured," Obama said. "If we've got an agenda that says every child in America should be able to go to college, regardless of income, that will disproportionately affect people of color, because it's oftentimes our children who can't afford to go to college."


He has already rammed through the health care bill in a midnight vote with zero republicans on board. His first agenda item has been achieved.

Now he is gradually, by executive fiat, accomplishing his second goal of free college education. Earlier this year Obama had the feds take over the student loan program which was being run quite efficiently, thank you very much, by private sector banks with federal back up. There was no reason for the feds to take it over, but shortly after Obama declared he was easing the repayment requirements and significantly curtailed efforts to collect on defaulted loans.

Now, in today's Wall Street Journal the final piece of his second agenda item falls into place. Read the article below and see how he has accomplished another massive entitlement program right under our eyes by just declaring it so. We are already out of cash but I believe that Obama knows that and doesn't care because he knows if he runs the debt up even higher eventually the only way out will be to raise taxes. Guess who will pay those higher income taxes? It'll be the "Joe the Plumbers" among us. Remember Joe the Plumber during the 08 presidential campaign? A plumber named Joe asked Obama how he was supposed to expand his plumbing business if the government kept raising his taxes. Obama told him, "Those of us higher up on the ladder are going to have to give a helping hand to those coming up behind us." (Obama's words) Obama can’t just declare that we hand over our cash "to those lower down on the ladder," but he can get the job done by running up the debt thus making higher taxes inevitable and then use the tax proceeds for more entitlements. The outcome is the same as if we just handed over our cash.

Here's the WSJ op ed on the Student loan give away program:


As the default rate rises on federally backed student loans, President Obama has responded with a plan to make education lending even more expensive for taxpayers. That's hard to do, but he's determined. In his first student-lending reform, which was rushed through the Senate as part of ObamaCare, Mr. Obama added $1 trillion to the federal balance sheet over the next decade by eliminating private lenders. Stage two, which he offered recently at the Denver campus of the University of Colorado, added easier repayment terms and debt forgiveness. Who says Uncle Sam is a scrooge?

Specifically, Mr. Obama wants to accelerate an "income-based repayment" option to forgive more student debt and limit monthly repayments for graduates earning low salaries. Thanks to the 2010 law, this change is already scheduled to take effect in 2014. But in Denver he said, "I'm here to announce that we're going to speed things up. We're going to make these changes work for students who are in college right now. We're going to put them into effect not three years from now, not two years from now—we're going to put them into effect next year." It's good to be the King—even if it's not legal. The 2010 law clearly states that the new repayment option is "for new borrowers on and after July 1, 2014." GOP sources in the House and Senate tell us that the Administration can probably make these changes using the authority in a related program, but they doubt that the President can put them into effect next year. That's because such changes cannot be enacted by executive order. They fall into a regulatory category in which "negotiated rulemaking" is required, meaning the government must convene a panel to consider the proposals. Given the various requirements for rule-writing and allowing for public comment, Capitol Hill staff say there's not enough time to put these rules in place by next school year.

Assuming the panel approves these rules eventually, they will cost taxpayers $575 million a year, according to the Congressional Budget Office's scoring of the 2010 law. Once in effect, borrowers will not have to pay more than 10% of their "discretionary income" each year, regardless of how much they owe. The government defines discretionary income as the difference between the borrower's adjusted gross income and 150% of the federal poverty line. If the money isn't completely paid back in 20 years, the remaining debt will be forgiven. That's right. Wait 20 years and, presto, you're student debt-free.

Remember, student loans from the government are available regardless of credit history or assets, so default rates are high and have been rising—to 8.8%, according to the most recent government data. Add the possibility that people can choose or end up in occupations that pay low salaries, and the taxpayer loses again. A student who finances an expensive education and then pursues a career with meager salaries could be sticking taxpayers with five- or even six-figure losses by year 20. The loan then becomes a very expensive grant.

It gets even more expensive for taxpayers when student borrowers take a "public service" job after graduation, thanks to a program that began in 2007. "Public servants" can get all of their remaining federal student-loan debt forgiven after only 10 years. This applies to government employees such as teachers and to workers at nonprofits.

It's too early to know for sure how this will affect student-borrower behavior, but you can guess. Here we have the federal government offering significant financial incentives to encourage young people to choose what the late Irving Kristol called the politically active "helping professions" over wealth-creating businesses. Go to Georgetown, borrow $100,000 from Uncle Sam, join the Sierra Club, wait a decade and the loan becomes a free lunch.

The larger picture is that the President is pushing hard to turn college into one more new entitlement, regardless of cost or course of study. He said in Denver that "college isn't just one of the best investments you can make in your future. It's one of the best investments America can make in our future."

So, he added, "we want you in school." The only question is "how do we make sure you are burdened with less debt?" His answer seems to be to give kids the money instead of loaning it to them. Along with his new plan to disguise grants as short-term debt, Mr. Obama also takes credit for doubling annual Pell grants since taking office to $36 billion.

Washington's rising subsidies for college are a big reason that tuition keeps rising faster than inflation. Tuition and fees increased 4.5% at private colleges last year and 8.3% at public ones, according to the College Board's latest data. Under Mr. Obama's plan, taxpayers will provide the subsidies that allow colleges to raise their prices even higher.

If he get's re elected he's going to break the bank if he hasn't already. But then again that's EXACTLY what he intended to do ever since 2004.