Home Blog Page 4

Key Facts & Figures: 6. Vermont’s Recent Economic Performance

Vermont’s economic performance continued to improve nicely in 2018.  This article will review key economic performance indicators, including employment, wages, house prices and total income.  In all cases, Vermont will be compared to both the USA as a whole and New England.

Other than poverty rates, all of the data in this article is derived from the Federal Reserve Bank of Boston’s Monthly Economic Update/ State of Vermont and the Vermont Department of Labor Economic and Labor Market Data as of the second quarter, 2018.

Employment

Vermont’s unemployment rate continued to fall in 2018, to 2.8%.  This rate is significantly below the US average of 3.7% and suggests strongly that Vermont has a very tight labor market.

Paradoxically, while the unemployment rate hit multi-year lows, total non-farm employment in Vermont actually shrank a little bit.  Vermont’s shrinking and aging population is resulting in a smaller total workforce.  A shrinking workforce makes Vermont somewhat unique.  In both the US as a whole and New England, total non-farm employment grew in the 1.5% to 1.7% range over the same period.

A shrinking overall work force combined with very low unemployment rates means there is a very limited supply of labor in Vermont.  Should these conditions continue, the low availability of labor could become a drag on Vermont’s future economic performance.

Wages

Not surprisingly, Vermont’s tight labor market has led to stronger wage growth in 2018. As of June 2018, average wages were up 4.1% from a year ago, to $46,186. While this is a very welcome development, Vermont continues to lag the rest of the country.  Average wage growth in the USA was 4.9%.  Vermont remains very much in line with the New England states, where average wage growth was 4.2%.

Total Personal Income

Total Personal Income is the sum of all wages, compensation, interest, dividends, rents and net transfer payments received by the residents of Vermont.  As of June 2018, Vermont’s Total Personal Income was approximately $33.5 billion, up 3.1% over the same period a year ago.

The reduction in total non-farm employment noted above has a negative impact on Vermont’s Total Personal Income (there are simply less people making a wage).  While Vermont’s Total Personal Income grew at 3.1%, the country as a whole and New England grew at 4.6% and 4.2%, respectively.

 House Prices

2018 is looking to be a very good year for Vermont homeowners.  Vermont’s average house price index (which is based on actual transactions) was up 4.8% over the 12-month period.  After a long period of stagflation, this is a very welcome development for Vermonters.

Unfortunately, owning a home in another state would have been even better.  The average house price indices for the USA and New England were up 6.6% and 5.2%, respectively.

Poverty Rate

The number of people living in poverty remains stubbornly high in Vermont at 11.3%. Vermont’s poverty rate remains below the US average of 12.3%, but is the second highest within New England (Rhode Island at 11.6% is the highest and New Hampshire at 7.7% is the lowest).  The average poverty rate for the New England states is 10.3%.

Summary

The table below summarizes the key economic performance information discussed above.

Vermont’s Key Economic Performance Indicators as of June 30, 2018

Indicator Vermont USA New England Source
Unemployment Rate 2.8% 3.7% 3.6% Federal Reserve Bank Boston
Growth in Non-Farm Employment (0.9%) 1.7% 1.5% Federal Reserve Bank Boston
Average Wage Growth 4.1% 4.9% 4.2% Federal Reserve Bank Boston/Vt. Dept. Labor
Growth in Total Personal Income 3.1% 4.6% 42% Federal Reserve Bank Boston
Growth in House Price Index 4.8% 6.6% 5.2% Federal Reserve Bank Boston
Persons in Poverty 11.3% 12.3% 10.3% US Census Bureau

 

The current economic performance in Vermont is stronger than it has been since the Great Recession of 2008/2009. While Vermont is clearly lagging much of the country in terms of growth rates, the results in Vermont are positive, accelerating and very welcome.

In the next several articles, The Informed Vermonter will take a much more detailed look at economic conditions in Vermont both before and after the Great Recession of 2008/2009, with a particular focus on housing and wages.

Before moving on, here are some selected key facts & figures about Vermont that readers may find interesting:

STATE GOVERMNENT 2016 2017 2018
-Number State Employees 8,237 8,432 8,396
-State Owned Land (Acres) 1,741 1,697 1,732
LAW & ORDER
-Number State Agency Law Enforcement Officials 374 395 na
-Number Sherriff Dept. Officials 131 137 na
-State Police Vehicles 528 496 516
-Total Corrections Population 9,809 9,692 9,809
EDUCATION
-Average Expenditure/Student $18,427 $18,877 $18,778
TRANSPORTATION
-Snowplowing Hours 180,096 191,201 na
-Paving Projects (miles) 220 203 na
LOCAL ECONOMY
-Gallons Maple Syrup Produced 1,990,000 1,980,000 1,940,000
-Ski Visits to Vermont 3,200,000 3,900,000 4,000,000

Source: Vermont Fiscal Year 2018 Comprehensive Annual Financial Report

 

Related Articles

  1. Key Facts & Figures: 2017 Update: https://theinformedvermonter.com/key-facts-figures-2017-update/
  2. Vermont’s Personal Income Profile:https://theinformedvermonter.com/key-facts-figures-vermonts-personal-income-profile/

 

 

 

Revenues & Expenditures: 8. Vermont’s 2017 Federal Grants

In fiscal year 2017, 34% of Vermont’s total state government revenues were federal grants. These grants are the single largest source of revenue for the state government. At just over $2 billion, federal grants are twice net Education Property tax and about two and a half times total individual and corporate income tax receipts.

Every department of the state government is funded in part by federal grants. Some programs, like Medicaid, are match funded by the state and federal governments on a formula basis. Other programs, such as Food Stamps, are fully funded by the federal government.

Each year, the state’s independent auditor (KPMG) prepares the Single Audit Report (also called the Schedule of Expenditures of Federal Awards) that shows all federal grants received by the state. Given the importance of federal grants to the operations of the state, a summary of this report showing grants by federal department and major programs is provided below, going from large to small.

Fiscal Year 2017 Federal Grants to the State of Vermont ($)

FEDERAL DEPARTMENT/Program 2017 Grants
HEALTH & HUMAN SERVICES 1,272,655,313
-Medicaid Cluster 1,063,088,915
-Temporary Assistance to Needy Families cluster 33,233,017
-Child Care & Development Cluster 19,511,450
-Low-Income Energy Home Assistance 18,270,805
-Foster Care 12,426,570
-Children’s Health Insurance 11,910,909
-Adoption Assistance 10,217,185
-Child Support Enforcement 9,397,803
-Immunization Cooperative Agreements 9,253,454
-Social Services Block Grant 7,969,006
-Substance Abuse & Mental Health 7,083,281
-Aging Cluster 6,125,720
-Substance Abuse Block Grant 5,592,947
-All Other 58,574,251
DEPARTMENT OF TRANSPORTATION 267,782,340
-Highway Planning & Construction 226,696,449
-Formula Grants for Rural Areas 14,056,482
-Airport Improvement Program 9,457,449
-All Other 17,571,960
DEPARTMENT OF AGRICULTURE 180,508,357
-SNAP (Food Stamp) Cluster 122,167,045
-Child Nutrition Cluster 27,605,411
-All Other 30,735,901
DEPARTMENT OF EDUCATION 116,264,947
-Title I Grants 41,172,907
-Special Education Cluster 27,941,106
-Vocational Rehabilitation Services 12,698,440
-All Other 41,172,907
DEPARTMENT OF LABOR 92,958,057
-Unemployment Insurance 80,995,166
-Work Investment Act Cluster 4,709,383
-Employment Services Cluster 2,694,173
-All Other 4,559,335
DEPARTMENT OF DEFENSE 28,569,199
-National Guard 27,461,777
-All Other 1,107,422
ENVIRONMENTAL PROTECTION AGENCY 25,692,427
-Drinking Water Cluster 13,703,122
-All Other 11,989,305
HOUSING & URBAN DEVELOPMENT 18,926,845
-Community Development Block Grants 12,032,151
-Home Investment Partnership Program 3,107,111
-Disaster Recovery 3,091,360
-All Other 596,223
DEPARTMENT OF HOMELAND SECURITY 18,175,336
-Disaster Grants 5,274,136
-Hazard Mitigation Grants 5,096,546
-All Other 7,804,654
DEPARTMENT OF JUSTICE 8,429,885
-Crime Victim Assistance 3,134,134
-All Other 5,295,751
DEPARTMENT OF INTERIOR 8,247,155
-Fish & Wildlife Cluster 6,448,931
-All Other 1,798,224
SOCIAL SECURITY ADMINISTRTION 6,811,335
DEPARTMENT OF VETERENS AFFAIRS 3,671,984
DEPARTMENT OF ENERGY 2,148,341
US CORPORATION FOR NATIONAL COMMUNITY SERVICE 1,817,881
-Americorps 1,572,458
-All Other 245,423
US INSTITUTE OF MUSEUM & LIBRARY SERVICES 1,005,259
US GENERAL SERVICES ADMINISTRATION 396,538
DEPARTMENT OF COMMERCE 220,721
SMALL BUSINESS ADMINISTRATION 187,451
ALL OTHER FEDERAL DEPARTMENTS 1,185,875
TOTAL FEDERAL GRANTS 2,055,655,246

Source: 2017 Vermont Single Audit Report, KPMG

 

Clarifications

The chart above includes grants that are reflected in the state government’s annual audit. There are some program accounting practices that overstate the amount of federal grants and there are some omissions that have the opposite effect.

The $80.9 million “grant” for Unemployment Insurance is really about $68 million of Vermont state unemployment taxes and $12 million of real federal grants. Vermont’s Unemployment Insurance tax receipts are deposited in a trust fund at the US Treasury Department. As this money flows back to Vermont for unemployment claims, it is recorded as a federal grant.

Not all federal grants are included in the KPMG Single Audit Report. Grants flowing directly to autonomous state government entities are not included.  The largest such grants are the HUD Section 8 rental assistance programs that flow through the Vermont State Housing Authority. In fiscal year 2017, Vermont received $58 million in HUD Section 8 grants.

Downward Trend

Federal grants have been declining over the last three years. In 2017, federal grants to Vermont as reported in the Single Audit Report were down $84 million.Vermont obviously has to make up these shortfalls. In 2017, this was done largely through increased service fees.

Almost every major department of the federal government cut grants to Vermont in 2017. The largest cut came from Health and Human Services, with federal grants down $56 million (of which $18 million was in the Medicaid Cluster). Transportation was down $11 million, with the largest reduction in the Airport Improvement Program. The SNAP Cluster (Food Stamps) was down $7 million. The only department that increased materially was the Department of Defense, which was up $5 million.

Some portion of these declines would be the result of changing circumstances. For example, disaster relief money is down because Vermont has largely recovered from hurricane Irene. With a strong economy, fewer people may be qualifying for income-tested programs.

However, some portion of these declines are certainly the result of changes in policies. The current administration in Washington was in power for only the last six months in fiscal year 2017. The Vermont financial reports for fiscal year 2018 should make for some interesting reading.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vermont’s 2018 Elections: State Senate and House Races

Vermont has 30 State Senators and 150 State Representatives and all of them are subject to this year’s elections. The overall status of these upcoming elections is discussed below, beginning with the Vermont Senate.

Vermont’s State Senate

It looks like 26 incumbents are running for re-election to the Senate. Four existing Senators appear to have retired or otherwise stepped aside, leaving four seats completely open.

Unfortunately, there appear to be six uncontested seats, representing 20% of the entire Vermont Senate. All of these uncontested seats sit within four districts. Presumably, the voters in these districts are happy with their incumbent Senators. However, a bit more competition for the hearts and minds of voters would be welcome.

In total there are 59 individuals running for Vermont’s 30 Senate Seats. In addition to the 26 incumbents, there are 15 Republican challengers, 11 Democratic challengers and 7 Independents/Other.

Vermont’s Statehouse

The Statehouse race is very similar to the Senate race. It looks like 117 incumbents are running for re-election, leaving 33 seats completely open for new people.

There appear to be 70 uncontested seats in 56 districts, representing just over 45% of total House seats. It is disappointing that a) so few people are seeking office, and b) Vermont voters have such limited choices.

All in all, there are 218 candidates running for Vermont’s 150 House seats. Other than the 117 incumbents, there are 57 Democratic Party challengers, 37 Republican Party challengers and 7 Independents/Other.

Voter Turnout

Vermont has a clear pattern of voter turnout: Presidential election years have high voter turnout and mid-term elections have low voter turnout.

According to the Vermont Secretary of State, there were 471,619 registered voters in 2016 out of a population of 505,921 voting age citizens. Recent voter turnout ratios have been as follows:

Vermont Voter Turnout: Presidential Election Years

Year Voter Turnout Ratio
2008 66.7%
2012 60.5%
2016 63.3%

Source: Vermont Secretary of State’s Office

Vermont Voter Turnout: Mid-Term Election Years

Year Voter Turnout Ratio
2006 53.8%
2010 49.1%
2014 41.5%

Source: Vermont’s Secretary of State’s Office

The entire USA has the same pattern of voter turnout as illustrated above. However, Vermont actually has materially higher turnout than the country as a whole. In the last three Presidential elections, USA voter turnout was always below 60%. In the three mid-term election years outlined above, staring with 2006, USA voter turnout was only 41.3%, 41.8% and 36.7%, respectively.

Concluding Remarks

In the last three articles, The Informed Vermonter has reviewed the upcoming elections in Vermont, including the US Senate and House seats, the Vermont Executive Branch offices and the General Assembly. A few closing observations are provided below.

Vermont Has Too Many Uncontested Candidates: Both Bernie Sanders and Peter Welch have no real competition for their seats in Washington. As reported above, there are a large number of uncontested Vermont Senate and Statehouse seats. Major changes in outcomes in these legislative elections seem unlikely.

 

It’s All About the Governor: The election for the Governor’s office is hotly contested with four Democrats competing for the nomination and one Republican challenger to Phil Scott. This is a very important election for Vermont.

 

Your Vote Matters: History suggests that voter turnout will be low in the 2018 mid-term elections. With low turnout, every vote matters more.

 

 

 

 

 

 

Vermont’s 2018 Elections: Statewide Races

Every two years, Vermonters elect a Governor, Lt. Governor. State Treasurer, Auditor, Attorney General and Secretary of State. This article will review these races, beginning with the most important.

Vermont’s Next Governor

Phil Scott, the Republican incumbent, is running to be re-elected as Governor. He faces lots of competition.

Five Democrats are competing to be nominated to run for Governor. James Ehlers, the Executive Director of the water quality advocacy group Lake Champlain International has reported $50,000 of campaign contributions. Christine Hallquist, the former CEO of Vermont Electric Co-Op, has raised $112,000. Brenda Siegal, the Director of Southern Vermont Dance Festival, has raised about $14,000. Another Democratic contenders is Ethan Sonneborn, a 14-year old who has thus far raised $1,700 for his bid to become the next Governor of Vermont. Last, John Rogers is running as a write-in in the Democratic primary.  He evidently missed the filing deadline to be included on the ballot.

Keith Stern, a businessman, is running as a Republican against Phil Scott. Among other areas of disagreement, Mr. Stern opposes the gun reforms put into place in 2018 and is opposed to the Affordable Care Act. Keith Stern has reported campaign contributions of $58,000.

Phil Scott has thus far raised more campaign funding than any other candidate. His campaign has reported total contributions of $191,000.

Independent candidates have until August 9th to register to run for statewide offices. So far, two candidates have registered to run for governor. Cris Ericson, a member of the US Marijuana Party, has registered to run as an Independent. She has also registered to run for the US Congress. Cris has run for office many times in the past. Stephen Marx has registered to run for Governor as a member of the Earth Rights Party. He supports a constitutional amendment to protect the “rights of nature”.

Vermont’s Other Executive Branch Offices

There are another five statewide government offices up for grabs in November. The incumbents, all of whom are Democrats, are running for re-election for all five positions. A single Republican candidate has registered to run in each of these races and no Independent candidates have yet emerged. The chart below summarizes these contests.

Candidates for Other Executive Branch Offices

Office Incumbent Party Challenger Party
Lt. Governor David Zuckerman Dem. Don Tucker Jr. Rep.
State Treasurer Beth Pearce Dem. H. Brooke Paige Rep.
Secretary of State Jim Condos Dem. H. Brooke Paige Rep.
Auditor of Accounts Doug Hoffer Dem. H. Brooke Paige Rep.
Attorney General TJ Donovan Dem. H. Brooke Paige Rep.

Source: Vermont Secretary of State

It would appear that Mr. H. Brooke Paige is serving as the placeholder for the Republican Party in Vermont. In addition to the four statewide offices he is running in, he has also registered to compete in the US Senate and House of Representative contests as well.

Vermont’s 2018 Elections: US Senate and House of Representatives

The primary elections are scheduled for August 14 with the general election falling on November 6. This year, both Senator Bernie Sanders and Representative Peter Welch need to run for re-election.

These offices are among the most important political positions that Vermonters have the opportunity to vote on.

As a small state, Vermont needs strong and diligent hands representing it in Washington D.C. A strong field of candidates and an active debate would serve all voters well. There is nothing like a closely contested election to keep our politicians focused on their constituents.

This article will take a quick look at the candidates that have registered to run for Vermont’s Senate and House seats, beginning with the Senate. A strong field of candidates it is not!

Vermont’s 2018 Senate Race

Four Republican candidates, two Democrats and one Independent have registered to run in the Vermont primary for US Senate. With the sole exception of Bernie Sanders, none of these competing candidates have any prior political experience other than running for office unsuccessfully in the past. Two of these candidates don’t even live in Vermont!

One Democratic contender for Bernie Sanders seat is a woman named Folasade Adeluola. According to her Federal Election Commission filing, her primary address is some town in Indiana. LinkedIn lists her current job as some kind of fashion items importer. The second Democratic challenger is Jon Svitavsky, a social worker and homeless shelter advocate.

One of the Republican candidates is H. Brooke Paige. Mr. Paige is a Vermont history buff and has run for various Vermont offices in the past. This year, in addition to the Senate, Mr. Paige is running for House of Representatives, State Treasurer, Secretary of State, State Auditor and Attorney General.

Another Republican candidate for Senate is Jasdeep Pannu, an Essex Junction lawyer. His “Pannu for the People” website outlines his platform, which includes “crayons not computers” as a key education plank and “ end prohibition round 2” as his illegal drug program.

Lawrence Zupan, a real estate agent, is also seeking the Republican Party nomination to run for the Senate. Like Mr. Pannu, Mr. Zupan has no prior political experience. His website states his goals as “lubricate the wheels of progress, reward risk and enterprise, and studiously avoid placing obstacles in the way of greatness”. His slogan is “No More Slogans”.

The last Republican Senate candidate is Roque “Rocky” de la Fuenta. He lives in San Diego, California and is also running for senate in 6 other states.

The Independent Candidate is Bruce Busa, who has a handful of YouTube spots that can be reviewed.

With two exceptions, all of these candidates have filed with the Federal Election Commission (for some reason, Lawrence Zupan and Bruce Busa appear not to have filed yet). Of all these candidates, only Bernie Sanders has reported any campaign contributions ($7.79 million). While the filing deadlines have not yet been met, it would appear there is little or no money being invested in Bernie’s political rivals.

Vermont’s 2018 Congressional Race

Two Democrats are challenging Peter Welch for the Democratic nomination and two Republicans have registered as well. Cris Ericson had registered to run as an Independent.

Both of the Democratic contenders describe themselves as “Progressive” Democrats and both think Peter Welch is an “establishment” Democrat who should be replaced. Dan Freilich, a doctor with a long career as a Navy officer, is particularly focused on government corruption, campaign finance and the influence of special interests through PAC’s. Benjamin Mitchell, a long term educator, describes himself as a “Democratic Socialist” and supports a broad progressive political agenda.

The Republican candidates for Congress are H. Brooke Paige (see above) and Anya Tynio. It would appear that Ms. Tynio has not yet put together a campaign website. Neither of these two candidates has yet filed with the Federal Election Commission.

Cris Ericson, the Independent candidate, has run for office several times in the past as a Republican, a Democrat, a United States Marijuana Party member and an Independent.

All three Democratic candidates have filed with the Federal Election Commission. Peter Welch is reporting $561,749 of donations, Dan Freilich $53,076 and Benjamin Mitchell zero.

Observations

Vermont’s Senate Race Looks Uncontested: Given Bernie Sander’s position on the political spectrum, there would appear to be room for an established Democratic Party challenger for his seat. It is understandable that no experienced Democrat chose to do this, but it is hard to understand why the Republican Party failed to post an experienced contender. They must view his seat as unassailable.

Vermont’s House Race Looks Like Democrats vs. Democrats: The real contest for Peter Welch’s seat in Congress is between the progressive wing of the Democratic Party and the traditional wing. As with the Senate race, the Republican Party looks to have no real contenders for the Congressional contest.

The Money Is With The Incumbents: Both incumbents have war chests ready for the 2018 campaign. The only contender with any reported campaign funding is Dan Freilich, and Peter Welch has already raised 10 times more than Mr. Freilich.

Open Seats Are Coming: Peter Welch is 71 and Bernie Sanders is 77. At some point in the not too distant future, these gentlemen will likely retire. Once any of these seats opens up, it should be easier for competing candidates from any political party to raise money and mount a serious bid.

 

Corporate Welfare: 3. Tax Expenditures

“Tax Expenditures”, when used by the federal government, refers to the loss of tax revenue as a result of exemptions, exclusions, deductions and credits contained in the US tax code. It is effectively a government subsidy provided through the tax code to both individuals and businesses.

US individual taxes are reduced each year by many tax expenditures. Some of the larger ones include the deductibility of mortgage interest, state and local taxes and charitable contributions.

The US corporate tax code also contains a wide variety of exemptions, exclusions, deductions, accounting methods and credits that greatly reduce the tax payments made by American businesses.

Each year, the US Treasury Department prepares a “ Tax Expenditure Report” that estimates the value of all the tax expenditures contained in the US tax code. The most recent report covers fiscal year 2017 and outlines 168 separate exemptions, exclusions, deductions and credits available to both individuals and corporations. This report itemizes 1) total tax expenditures, 2) corporate tax expenditures reflected in corporate tax returns, and 3) individual tax expenditures flowing through individual tax returns.

Remember that a large number of businesses are structured as sole proprietorships, partnerships, S Corps and LLC’s. All of these businesses flow their income through to the individual owners, who then pay tax through their individual tax returns.

To determine the total value of tax expenditures benefiting US businesses, The Informed Vermonter took all the exemptions, deductions and credits that apply to corporations and tracked them through the report on individual tax returns, thereby measuring the total tax expenditures available to businesses.

In 2017, total tax expenditures for businesses was $266 billion, of which $217.2 billion went to corporations and $48.8 billion went to LLC’s, S-Corps and other flow-through business entities (see chart below).

To put this is perspective, total corporate tax receipts in 2017 were only $299.1billion. The various exemptions, exclusions, deductions and credits in the corporate tax code basically reduced corporate taxes by 42% in 2017. Some of the largest tax “loopholes” are described below.

  1. Deferral of income from controlled foreign corporations. In the baseline tax code, US tax is calculated on all income, both foreign and domestic. To avoid double taxation, any foreign tax paid on income becomes a tax credit for US tax purposes. Over the years, this baseline tax system has been eroded to the point where only foreign income actually transferred in cash back to the USA was subject to tax. By allowing companies to avoid paying any tax at all on foreign income, the US basically subsidized foreign investment by US corporations. This tax expenditure was $107 billion in 2017 and totaled almost $1.5 trillion over the last ten years. A similar provision for financial service firms was another $16 billion in 2017.
  2. R&D expenditures & R&D tax credits. In the baseline tax system, research and development expenditures are capitalized and amortized over time to reflect the long-term benefits. To motivate high levels of R&D spending, the tax code now allows companies to expense R&D upfront, thereby reducing their taxable income on a dollar-for-dollar basis. Tax credits are available for companies that increase R&D spending above predetermined baseline levels. R&D tax expenditures were $19.8 billion in 2017.
  3. Accelerated depreciation of machinery and equipment. In the baseline tax system, investments in machinery and equipment are depreciated over a period corresponding to their useful life. To incentivize investment, the tax code allows businesses to expense their investments over a much shorter time period, thereby reducing their taxable income. Accelerated depreciation generated $44.3 billion of tax expenditures in 2017.
  4. Deduction for US production activities. The baseline tax system generally would tax all income under the regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income. In contrast, the tax code allows for a deduction equal to a portion of taxable income attributable to domestic production. This tax expenditure was $13.5 billion in 2017.
  5. Deferred gains for like-kind exchanges. The trouble with accelerated depreciations is capital gains. If you write down the value of an asset faster than its useful life and then sell it, you are likely to have a capital gain. To avoid the tax on capital gains, the tax code allows the deferral of the gain if the proceeds of the sale are invested in similar equipment or machines. This tax expenditure was $7.7 billion in 2017.

Tax Reform Act

The 2018 Tax Reform and Jobs Act materially changed some of these tax expenditures and the impact won’t be seen or known until the next Tax Expenditure Report is published next year. Two changes are worthy of note.

First, for the next five years, the Tax Reform Act permits businesses to write-off 100% of capital investments in the year incurred. This is accelerated depreciation on steroids and will serve to increase tax expenditures.

Second, the taxation of foreign income has been materially changed. There is now a minimum tax on the income of the foreign subsidiaries of US companies. It is all very complex, but for simplicity lets call it a 10.5% tax. Subject to this minimum tax, foreign income can now be repatriated to the US parent with no additional tax. There is a one-time, mandatory tax on all foreign accumulated earnings and profits (“E&P”) since 1986. There is an estimated $2-3 trillion dollars of accumulated earnings sitting in off-shore accounts. The one-time tax is 15.5% on E&P held in cash and cash equivalents and 8% on any residual amounts. Companies can pay this tax over 8 years in installments.

The Tax Reform Act of 2018 reduced corporate tax rates to 20%. As noted above, some of the exemptions, exclusions and deductions have been altered, but largely remain in place. As a result, the effective tax rate for corporations, which was just about 20% before the Tax Reform Act, will be significantly lower and tax receipts from corporations and businesses will be greatly reduced.

Key Observations

Tax Expenditures Are Subsidies: Tax expenditures represent government spending via the tax code. There is no economic difference between reducing a corporation’s tax bill by $1 million or granting a corporation a $1 million cash grant. The real difference is transparency. The recipient of a grant is reported. The recipient of the tax cut is not.

Corporate Welfare Is A Big Expense: As noted above, total business tax expenditures in 2017 were $266 billion. Corporate grants, direct subsidy payments, loans and loan guarantees can be measured in the tens of billions annually. In total, US businesses are getting over $300 billion a year in handouts from the federal government.

Note:  Federal Business Tax Expenditures Fiscal Year 2017 ($ millions)

Tax Expenditure                       Corporate Individual Flow Through Total
International Income      
-Deferral of Income from controlled foreign corporations 107,200 107,200
-Deferred taxes of financial firms on certain overseas income 16,080 16,080
-Inventory property sales source rules exemption 3.320 3,320
Total International Income 126,600 126,600
General Science, Space & Technology
-R&D expenditures 7,620 710 8,330
-Credit for increasing R&D activities 10,520 980 11,500
Total Science, Space & Technology 18,140 1,690 19,830
Energy
-Expensing of exploration & development costs (470) (180) (650)
-Excess of percentage over cost depletion: fuels 350 90 440
-Enhanced oil recovery credit 220 50 270
-Energy production credit 1,190 400 1,590
-Energy investment credit 1,390 460 1,850
-Temporary 50% expensing for refining costs (1.380) (1,380)
-13 other deductions, exemptions & credits 850 330 1,180
Total Energy 2,150 1,150 3,300
Natural Resources & Environment
-Excess of percentage over cost depletion: minerals 120 20 140
-Exclusion of interest on bonds for water, sewage… 130 290 420
-Expensing of multi-period timber growing costs 210 130 340
-Tax incentive to preserve historic structures 430 70 500
-Industrial CO2 capture tax credit 190 190
-4 other deductions, exemptions & credits 90 120 210
Total Natural Resources & Environment 1,170 630 1,800
Commerce & Housing
-Accelerated depreciation for machinery & equipment 28,810 15,490 44,300
-Deduction for US production activities 9,930 3,570 13,500
-Credit for low income housing investment 7,890 420 8,310
-Deferred gains from like-kind exchanges 6,000 1,690 7.690
-Exemption of credit union income 2,918 2,918
-Exclusion of life insurance death benefits 2,870 11,880 14,750
-Exemption of insurance income earned by tax-exempt org. 720 720
-Exclusion of interest on mortgage subsidy bonds 350 800 1,150
-Exclusion of interest on rental housing bonds 320 740 1,060
-Accelerated depreciation of rental housing 360 1,730 2,090
-Depreciation of non-rental housing (3,860) (4,940) (8,800)
-Graduated corporate income tax rates 1,550 1,550
-5 other deductions, exemptions & credits 570 3,260 3,830
Total Commerce and Housing 58,428 36,640 93,068
Transportation
-4 deductions, exemptions & credits 200 160 360
Total Transportation 200 160 360
Community & Regional Development
-New markets tax credit 1,430 30 1,460
-7 other deductions, exemptions & credits 530 820 1,350
Total Community & Regional Development 1,960 840 2,800
Education, Training, Employment & Social Services
-Work opportunity tax credit 1,001 319 1,320
-Exclusion of interest on bonds of non-profit education facilities 690 1,560 2,250
-5 other deductions, exemptions & credits 470 770 1,240
Total Education, Training, Employment & Social Services 2,161 2,649 4,810
Health
-Tax credit for orphan drug research 2,240 40 2,280
-Exclusion of interest on hospital construction bonds 1,031 2,349 3,380
-Special Blue Cross/Blue Shield tax benefits 590 590
Total Health 3,861 2,349 6,250
Income Security
-Special ESOP rules 1,960 120 2,080
Total Income Security 1,960 120 2,080
Social Security
-Credit for certain employer contributions to Social Security 490 550 1,040
Total Social Security 490 550 1,040
Agriculture
-Expensing of multi-period production costs 20 290 310
-Capital gains treatment of certain income 1,360 1,360
-5 other deductions, exemptions & credits 50 380 430
Total Agriculture 70 2,030 2,100
TOTAL CORPORATE TAX EXPENDITURES 217,190 48,848 266,038

Source: US Treasury Tax Expenditure Report, 2017 Tax Year

 

 

 

 

US Corporate Welfare: 2. Corporate Gravy Train

The total amount of subsidies paid to businesses and corporations by the federal government is unknown. However, the amount paid to a particular company or for a particular program is reported and available.

To help illustrate the size and scope of federal subsidies to business, this article will provide information on the largest grants, large corporate beneficiaries and foreign corporate beneficiaries. It will also comment on government contracts and bailouts.

Federal Grants Can Be Very Large Indeed

The largest single “for profit” beneficiary of federal subsidies is Amtrak, at over $1 billion annually. The next five largest corporate beneficiaries now being subsidized by federal grants are outlined below.

Largest Federal Grants 2017 ($ millions)

Beneficiary Grant Amount Purpose Period Federal Agency
Summit Texas Clean Energy 354.8 Clean Coal Carbon Capture 2010-2017 DOE
Petra Nova Parish Holdings 352.4 Clean Coal Carbon Capture 2010-2019 DOE
Hydrogen Energy California 336.7 Clean Coal Carbon Capture 2009-2017 DOE
Archer Daniels Midland 281.3 Clean Coal Carbon Capture 2009-2017 DOE
Bannister Transformation & Development 211.2 Environmental Remediation 2017-2023 DOE

Source: USASpending.gov

Money for Those That Need it the Least

To get a sense for the depth and breadth of government subsidies to business, The Informed Vermonter simply looked up top US corporations across a variety of different industries. The table below shows the total number of grant, direct payment and loan awards received from 2008 to 2018.

Federal Subsidies to Selected US Corporations: 2008-2018

Company Number of Grant Awards Number of Direct Payments Number of Loan Awards Largest Single Grant/Direct Payment ($ millions)
ADM/Archer Daniels Midland 11 682 281.3
Air Products & Chemicals 28 568.0
American Airlines 11 6.1
Boeing 78 1 28.5
Cargill 19 40 1,618 5.9
Chevron 8 116 30.6
Duke Energy 5 200.0
Dupont 5 88 4 3.7
GE 181 1 70.3
GM 48 1 105.7
Johnson Controls 6 184.0
PG&E 6 1 25.0
Raytheon 29 53.0
United Technologies 136 4 12.6

Source: USASpending.gov

The chart above excludes the value of tax credits, deductions and exemptions that these corporations also receive from the federal government. These will often be much greater than the direct handouts they receive via grants, subsidies and loans.

Foreign Corporations Line Up for Federal Money

It’s not just U.S. businesses that benefit from the federal government’s generosity. Foreign corporations are getting their fair share as well, at US taxpayers’ expense.

Abengoa, a Spanish alternate energy company, has received 28 federal grants and two loans to finance a large number of solar and biofuels power facilities in the USA. The largest grant was for $97.5 million and the largest loan was $127 million. The subsidy cost of the loan was $33 million.

LG Chemical, Korea’s largest chemical company, has received a $151 million grant for lithium-ion battery manufacturing.

Ineos, the UK’s largest chemical company, has a $50 million federal loan guarantee to finance a biofuels plant in Florida.

This list goes on. All of the above activities are creating businesses and jobs in the USA. However, enriching foreign owners with US subsidies may not be the wisest use of taxpayer money.

The Government is Also a Big Customer

In addition to getting outright grants, direct subsidy payments and subsidized loans, large US corporations are also selling their goods and services to the government on a very large scale. According to USASpending.gov, Boeing was awarded 72,071 federal government contracts from 2008 to 2018. GE had 31,741, United Technologies 12,792, Chevron 3,235, Air Products 1,739 and Archer Daniels Midland 788.

Given the scale of activity, its impossible to judge or even measure how profitable or competitive these government contracts are. However, given the very high number of contracts, these companies must like them. By the way, all the companies listed above have PAC’s for campaign contributions.

Bailouts

When grants, subsidies, loans and government contracts aren’t enough to keep a major corporation afloat, there is always the chance of a federal government bailout to save the day. General Motors would be gone if it wasn’t for the 2008 federal bailout. Citibank would also be gone. AIG would be gone. Fannie Mae and Freddie Mac would be gone. George Bush Senior had to bail out the entire S&L industry.

There were good reasons for all of these extraordinary government bailouts.   The systemic risks to the economy as a whole were simply too great to be ignored. However, the terms of these bailouts, the selection of those who get saved and those that don’t and the sharing of losses and gains as between taxpayers and shareholders can and will be debated for some time to come.

Some Observations

The USA likes to think of itself as a bastion of capitalism, free enterprise, free trade and the private sector. Just get the government out of the way and let the private sector take care of everything.

The truth is very different indeed. As illustrated above, the federal government channels countless billions into the coffers of US businesses. If you stripped away all the grants, subsidies, loans and government contracts, many of America’s corporate champions would certainly be smaller and possibly less competitive on the world stage.

Reducing a business’s tax bill is the functional equivalent to providing direct cash contributions via a grant or subsidy program. In the next article, the Informed Vermonter will explore the many tax loopholes available to US businesses.

 

US Corporate Welfare: 1. What Is It? Where Is The Money Going? How Big Is It?

“Corporate Welfare” refers to government subsidies given to businesses. There are many hundreds of corporate and business subsidy programs provided by the federal government as well as local and state governments.

Generally speaking, these subsidy programs can be classified into five categories, as follows:

  1. Cash Handouts: The federal government provides a vast number of grants and/or direct subsidy payments to for-profit enterprises around the country.
  2. Risk Absorption: The government also has a wide variety of loan and loan guaranty programs available to US businesses. Here, the government is either assuming the risk of a project or transaction via a government guarantee or subsidizing the cost of capital through a below-market interest rate loan.
  3. Tax Breaks: The US tax code contains hundreds of tax credits, exemptions, exclusions, deductions and accounting gimmicks that serve to reduce the taxes of businesses.
  4. Trade Restrictions: Trade restrictions permit producers of one product or commodity to charge higher prices than they otherwise could. These producers benefit and every consumer of the protected product or commodity pays the cost.
  5. State and Local Government Subsidies: These business handouts typically take the form of tax credits or tax abatements. Property tax abatements, pursuant to which property taxes are reduced or eliminated for some period of time, are common across the country.

Limited Transparency

If you want to know how much the government is spending on the Food Stamp, Temporary Assistance for Needy Families or Medicaid programs, the information is easy to find. If you want to know the total value of subsidies handed out every year to US businesses, you are out of luck. However, the situation is improving a bit.

USASpending.Gov, a government sponsored website, reports all contracts, grants, loans and direct payments. You can review the data by state, by government department, by recipient and by type of recipient (for example, “for profit entities”). Unfortunately, there remain many faults with the available information. First, there is no attempt to tally up the totals, so getting a handle on total cost for any category is difficult at best. Also, there is no mapping of subsidiaries and parent companies. Unless you know the name of every subsidiary of Cargill or General Motors, you cannot get an accurate assessment of the volume of grants, direct payments and loans going to these companies in the aggregate.

Another good primary source of information regarding corporate financial assistance is the annual Tax Expenditure Report prepared by the Treasury Department. This report estimates the cost of every tax exemption, credit, exclusion and deduction contained in the US tax code. Unfortunately, while this provides the annual cost of the Intangible Drilling Oil & Gas Deduction, for example, it does not let you know which companies are benefiting.

Who’s Getting the Money?

Government subsidies to businesses are not paid out equally. First and foremost, certain industries are definitely favored over other industries. Secondly, the bulk of the money is going to very large businesses.

Some of the key subsidized industries in the US are as follows:

  1. Farming: In 2014, a new Farm Act was passed. This bill eliminated most of the programs that provided direct subsidy payments to farms and replaced them with several crop protection insurance programs. Instead of paying farmers directly, there is now a highly subsidized crop protection insurance scheme with private insurance company intermediaries. The government pays a subsidy of 60% of the insurance premium cost, pays certain of the administrative costs of the insurance companies and even shares the cost of insurance claims. Corn, wheat, soy and rice dominate the program and the top 10% of producers receive 77% of the subsidies. Estimated annual cost is circa $20 billion, depending on weather.
  2. Fossil Fuels: A comprehensive study conducted by Oil Change International in 2017 estimated total annual subsidies to the fossil fuel industry to be $14.7 billion plus $5.8 billion from state governments. The oil & gas sector received 80% of the total with the coal industry getting 20%. Subsidies consist of a wide variety of tax exemptions and deductions as well as “royalty free” federal government leases on certain oil, gas and coal properties.
  3. Electric Energy: According to the U.S. Energy Information Administration, total federal subsidies to the power industry in fiscal year 2016 were $15 billion. This was comprised of $8.8 billion of tax expenditures, $4.7 billion of direct payments and $ 1.5 billion of Research and Development grants. Low-income energy assistance and conservation accounted for about $4 billion. Subsidies for biofuels, solar, wind, coal, transmission, nuclear and other renewables made up most of the balance, pretty much in the order presented here.
  4. Big Pharma: The National Health Institute spends in excess of $30 billion annually on Research and Development. About 10% is expended directly by the NHI’s own research staff. The balance is handed out as grants to universities and drug companies. Many of the drugs sold by major pharmaceutical companies were in fact developed by the NHI or with NHI money. Guess where the profits are going.
  5. Defense: The defense industry may be the single biggest beneficiary of federal government subsidies. In fiscal year 2017, for example, the Department of Defense spent over $70 billion on Research and Development. Most of this money is provided to major defense contractors under multi-year R&D contracts.

Much of the money doled out to corporations takes the form of R&D grants. The research being financed by the government runs from pure science to applied research to commercialization. While some portion of this federal R&D spending is probably a complete waste of money, much of it also results in very valuable new discoveries and technologies.

From a taxpayer’s perspective, government R&D grants are asymmetrical. Taxpayers take all or a significant portion of the risk and the corporate beneficiaries get all or most of the upside from successful projects. In the case of new drugs and new weapons systems, the government is also the largest customer.  This looks like win/win for the corporations and lose/lose for the taxpayer.

How Big Is It?

No one in the federal government is keeping track of the total amount of money being given to for-profit enterprises every year.   The sum of grants, direct subsidy payments and loans to for-profit entities is certainly measured in the tens of billions and the total amount of tax loopholes is over $250 billion. In total, something like $300 billion per year is a decent educated guess.

While the exact numbers remain uncertain, there is a great deal of anecdotal information that helps to define the scale of “corporate welfare”. The next article will provide a number of case studies on grants and loans provided to sample corporations and industries. After that, The Informed Vermonter will take a look at corporate tax expenditures.

 

Military Machine: 4. War In The Middle East And Africa

One of the consequences of the US superpower strategy seems to be a tendency to get involved in many wars around the world.

The author was born in 1954. Since then, the US has fought wars or had direct military engagements is Korea, Vietnam, Laos, Cambodia, Cuba, the Dominican Republic, Bolivia, Mexico, Panama, Granada, the Philippines, Lebanon, the Congo, Serbia and Kuwait. Since the “War on Terror” began in 2001, which is the topic of this article, this list of countries has about doubled.

The US Congress has not issued a declaration of war since World War II. Wars are very risky and can go badly wrong politically. Instead of stepping up to the plate, Congress has instead passed a number of resolutions that authorize the President to use military force, leaving the real decision and most of the blame on the President’s shoulders. The Tonkin Gulf Resolution and the Iraq Resolution are both good examples of this.

This article will focus on the current war in the Middle East and Africa, which began in 2001 and is still going strong 17 years later. This is now the country’s longest war and there is still no end in sight.

Legal Basis for the War in the Middle East and Africa

On September 18, 2001, seven days following the attack on the World Trade Center and Pentagon, Congress passed an Authorization for the Use of Military Force. This act authorized the President to “use all necessary and appropriate force against those nations, organizations, or persons he determines planned, authorized, committed, or aided the terrorist attacks that occurred on September 11, 2001, or harbored such organizations or persons, in order to prevent any future acts of international terrorism against the United States by such nations, organizations or persons”.

With this Authorization in place, the war on Afghanistan began on October 7, 2001.

Expansion of the War

As it turned out, Afghanistan was just the beginning. According to the Congressional Research Service, the 2001 Authorization to Use Military Force has now been used by Presidents 37 times in 14 different countries. The War on Terror has become a war in the Middle East and Africa. The US has had or is currently having active military engagements in Iraq, Yemen, Saudi Arabia, Pakistan, Somalia, Syria, Mali, Libya, the Sudan, Niger, Chad, Cameroon and Uganda.

Why this expansion is taking place, where it is all going and how it will end are all highly uncertain. What is not uncertain is the cost.

Overseas Contingency Operations

They don’t label it a war in their budgets and financial reports. Instead, funding for the war in the Middle East and Africa is labeled “Overseas Contingency Operations” in the annual Agency Financial Reports of the US Department of Defense.

In the five fiscal years ended September 30, 2017, expenditures classified as “Overseas Contingency Operations” totaled $370.7 billion. According to the Government Accountability Office, total Overseas Contingency Operations expenditures since 2001 have exceeded $1 trillion. Keep in mind that this excludes the cost of CIA operations and the Veterans Administration, which lie outside the Department of Defense.

Given the nature of the conflicts in the Middle East and Africa, it is not at all clear when all this will come to an end for the USA and Overseas Contingency Operations can stop being funded.

Never Ending Conflict

The US has placed itself in the middle of a conflict that has no end in sight and no clear path to achieve a military victory.

For the last sixteen years, despite our military effort, the situation has simply eroded. In fact, the Middle East and North Africa are in the midst of a giant and complex civil war that is likely to last for decades.

First, there is a Sunni vs. Shite conflict, with Saudi Arabia and the United Arab Emirates bankrolling the Sunni’s and Iran the Shite’s. This conflict has been around since the Moslem religion was created. Within this conflict are embedded many other conflicts among ethnic groups, including Arabs, Kurds, Turks, Persians, Bedouins, Alawites, Yazidis, Armenians, Druze and Palestinians. Within the ethnic groups are thousands of tribes, clans, houses, extended families, militias and warlords all fighting for some level of autonomy or supremacy.

All these conflicts are fueled by the demographic profile of the region: over 50% of the population is under the age of 24. There is basically a never-ending supply of young, unemployed male Jihadists.

After 17 years, perhaps its time for the US to reassess its strategy. Absent such a reappraisal, this conflict and the resulting human and financial costs look likely to continue for a long tome to come.

Military Machine: 3. How Does The USA Compare To The Rest Of The World?

So, is $900 billion per year in defense spending the right amount for the US? Do we face grave national security risks that suggest a greater level of spending is needed or are we exaggerating the risks we face and spending way too much?

This article will try to help answer that question by comparing US defense spending and force levels to the rest of the world. Lets start with spending.

There are a variety of international organizations that track defense spending around the world and they all paint the same picture. The US outspends every other country by a very wide margin, as follows:

2016 Military Expenditures: Top 15 Countries

Country 2016 Military Expenditures ($ billions)
USA 611.2
China 215.7
Russia 69.2
Saudi Arabia 63.7
India 55.9
France 55.7
UK 48.3
Japan 46.1
Germany 41.1
South Korea 36.8
Italy 27.9
Australia 24.3
Brazil 22.8
UAE 22.8
Israel 17.8

Source: Stockholm International Peace Research Institute

So, in 2016 the US spent more money on defense than the next 8 countries combined and spent more than twice the combined spending of China and Russia.

Keep in mind that the total disbursements of the US Department of Defense were $895.6 billion in fiscal year 2016, or about $284 billion higher than the amount on the table above. As outlined in an earlier article, the “Defense Budget” which is the source of the information in the table, is only a portion of the total appropriations granted to the Department of Defense.

It is also important to note that all of the top 15 countries, excluding Russia and China, are allies or friends of the USA. The combined spending of the US and its allies dwarfs that of Russia and China.

Foreign Bases

Foreign bases provide an interesting strategic snapshot for a country. Many foreign bases in areas far from the homeland suggest a strategy of projecting military power. Such a posture is offensive as opposed to defensive. Few or no foreign bases suggest that a nation’s military strategy is focused on the defense of its homeland. With few of no foreign bases, the ability to project military power far from home is strictly limited.

Foreign Military Bases by Country

Country Number of Foreign Base Countries Number of Bases/Installations
USA 31 64
UK 10 15
Russia 9 14
France 9 9
China 1 1

Source: Wikipedia. US Department of Defense Base Structure Report for USA.

The US is the only country with a global footprint of foreign military bases covering the globe. The US has multiple facilities in South America, Europe, Asia, Africa and Australasia.

With the exception of Syria, all of Russia’s foreign bases are located in ex-Soviet republics lying in close proximity to the Russian homeland.

China has a single foreign base in Djibouti, along with the USA, France, Italy and Japan. These bases serve as the base for anti-piracy activities in the Indian Ocean.

Comparative Force Levels

The next several charts will simply illustrate how basic military force levels compare, including active military personnel, military aircraft and naval capabilities.

Active Military Personnel: Largest Countries

Country Active Military Personnel 2016
China 2,200,000
India 1,400,000
USA 1,300,000
North Korea 1,200,000
Russia 800,000
Pakistan 700,000
South Korea 600,000
Iran 500,000

Source: International Institute for Strategic Studies

Many countries will have reserve and or domestic police operations that could be added to the personnel levels outlined above. The USA, for example, has an additional 865,000 national guard and reserve personnel.

Military Aircraft

Military aircraft includes fighters, bombers, helicopters, transport, tankers and training aircraft. The top ten air forces ranked by total number of aircraft is provided below.

Country Total Number of Military Aircraft
USA 13,717
Russia 3,547
China 2,942
India 2,086
Japan 1,590
South Korea 1,429
France 1,287
Egypt 1,133
Turkey 1,007
North Korea 944

Source: FlightGlobal and Teal Group

The USA has 26% of the world’s total military aircraft. Not only does its air power dwarf all other nations in sheer numbers, it is also highly advanced technologically. The chart below ranks fighter aircraft fleets by technical age.

Top Fighter Aircraft Fleets

Country 2nd Generation 3rd Generation 4th Generation 5th Generation
USA 1,226 193
Russia 275 855 1
China 484 509
India 245 214 311
France 259
Japan 217
UK 146 1

Source: FlightGlobal and Teal Group

Naval Power

The chart below outlines the naval resources of the six countries that currently have nuclear ballistic missile submarine capability.

Selected Naval Fleets

Country Supercarriers Cruisers, Frigates & Destroyers Ballistic Missile Submarines Amphibious Craft
USA 10 93 54 31
China 1 78 52 4
Russia 1 32 49
India 1 28 14 1
France 1 23 14 3
UK 1 19 7 6

Source: International Institute for Strategic Studies

Summary

The US is the only military superpower in the world today. It spends more on its military than the next eight countries combined. It is the only country with a global network of military bases extending to the four corners of the globe. Its air fleet is four times larger than the next largest country. It is the only country with a fleet of aircraft carriers and amphibious assault vehicles. It also employs the most advanced military technology in the world.

The cost of this superpower strategy is staggering: $800 to $900 billion per year, adding to an unsustainable federal deficit and massive levels of federal debt.

It might be healthy for the country to engage in a more active debate regarding its military strategy. Here are a few key questions to think about.

  1. Is the country trading military might for financial weakness?
  2. Is the global military dominance strategy really in our best interests?
  3. Do the majority of US citizens really benefit from this strategy?
  4. Would a strategy more focused on homeland defense and less focused on far- flung regional conflicts make sense?
  5. What domestic sacrifices do we want to make to support the cost of the current military strategy?