Articles

Obama and Other People's Money

February 15, 2012

Former British Prime Minister Margaret Thatcher once said that the problem with socialism is that eventually you "run out of other people's money." And it's not just tax dollars she was talking about, as the Obama presidency has shown.

Take the decision to force Catholic institutions to provide health-insurance coverage for sterilization, contraception and abortion-inducing drugs. When this decision caused an outcry, Mr. Obama offered the following compromise: Insurance companies will be ordered to provide such coverage "free" to employees of Catholic churches and organizations.

But of course, this coverage won't be free. Insurance companies will pass the cost on to policyholders, including those same Catholic institutions. In short, Other People's Money will be used.

Another example: To appear empathetic about housing foreclosures, the Obama administration pressured five banks to cough up $25 billion—$3 billion to the federal and state governments, and nearly $22 billion for payments to people foreclosed upon and to reduce the principal of mortgages with balances greater than the home's current value.

This will bail out no more than 10% of homeowners whose mortgages are underwater, according to an estimate by Chris Papagianis of the nonpartisan policy-research institute e21, who notes there is roughly $700 billion in residential negative equity across the country.

But the political optics are good—the banks can be tarred because of their paperwork foul-ups—and the $25 billion isn't from the federal budget. This also constitutes a use of Other People's Money, paid by all bank customers through bigger fees and higher interest rates.

Similarly, when Mr. Obama set up a Consumer Financial Protection Bureau in 2010 to make sure people are treated fairly, he wanted to hide the new bureaucracy's cost and limit congressional budget oversight. So he gave it an automatic draw on the Federal Reserve's balance sheet. Now the massive new financial regulatory agency will take money collected from every bank and institution (and, in turn, their customers) that does business with the Fed.

This tactic should no longer surprise anyone. Consider the provision in the president's health-care law that prohibits insurers from charging younger, healthier policyholders substantially less than older, less healthy policyholders. The upshot: Healthy 30-year-olds who go to the gym pay higher prices for health insurance than they should, thereby subsidizing the insurance of older policyholders who drink and smoke. The subsidies are all "free"!

Candidate Obama promised to cut taxes for 95% of Americans. But according to the Tax Policy Center, some 76 million Americans who file income-tax returns, or 46.4% of the total, won't pay any taxes. No problem. Through 2018, according to the congressional Joint Committee on Taxation, the administration's "Making Work Pay" program—if it is made permanent—would take $640 billion from people who do pay income taxes and give to those who don't in the form of a refundable tax credit.

In other words, the government will cut them a check. That was once called "welfare." Using Other People's Money allows Mr. Obama to call it "tax cuts."

Mr. Obama used taxpayer dollars for most of his auto industry bailout—with $37 billion still outstanding, most of which is probably lost forever. Even then, he still needed Other People's Money. About $20 billion was taken from bondholders and given to the United Auto Workers, which ended up owning a slug of GM and Chrysler. Fairness, at least to the president's union supporters.

Fannie Mae and Freddie Mac, those two failed government-sponsored enterprises, will cost taxpayers as much as $333 billion—according to the Congressional Budget Office—as Mr. Obama gave them an unlimited draw on the Treasury. Everyone whose mortgage isn't securitized by Fannie or Freddie ends up paying higher interest rates and larger fees as a result.

Government spends taxpayer dollars and liberals want to spend more of them. But what sets Mr. Obama apart—what places him in a category of one—is how eager he is to find ways outside the normal appropriations process to fund his schemes in the name of fairness, or to make them appear free.

For Mr. Obama, helping political supporters and those he believes deserving, while shifting the costs onto those he considers undeserving, may be jolly good fun. But the question is how deep of a hole he'll leave all of us to dig out of when he vacates the Oval Office.

This article originally appeared on WSJ.com on Wednesday, February 15, 2012.

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