U.S. Taxpayers to Bailout Portugal Through International Monetary Fund

Originally posted at FreedomWorks.org.

It is often said that Benjamin Franklin once wrote “in this world nothing can be said to be certain except death and taxes.” The dreaded Tax Day has finally arrived. Due to the District of Columbia observing Emancipation Day on Friday, Tax Day official lands on April 18th this year. This means that we are all forced to surrender our hard-earned money to the federal government by the end of the day today. Anyone who owes taxes has to pay up to Uncle Sam or ultimately end up behind prison bars.

Our tax dollars go to fund many senseless programs. According to a report released by Sen. Coburn (R-Okla.), taxpayers paid for poetry in zoos, studies on the video game World of Warcraft and Super Bowl commercials last year. No one should be forced to pay for any of these projects. Advocates of these projects should pay for them privately instead of looting taxpayers. As wasteful as these projects may be, they did go through our legislative process at the very least.

The dirty secret is that our tax dollars go to fund many things not even approved by our elected representatives. The International Monetary Fund comes to mind. Last year, the International Monetary Fund (IMF) sent $145 billion to Greece and $122 billion to Ireland. Neither of these bailouts was subject to congressional appropriations. This has opened up the floodgates to massive bailouts of European welfare states. Many people do not realize that U.S. taxpayers are the largest contributors to the IMF. We pay roughly 17 percent of the IMF’s total funding.

Recently, Portugal officially requested a $116 billion bailout from the European Union and the International Monetary Fund. The IMF has agreed to provide the country a bailout but the international bureaucracy is still hammering out the details of the loan. Rep. Cathy McMorris Rodgers (R-Wash.) states that “while the IMF refuses to provide a reliable number, we estimate that America’s contribution to a Portuguese bailout is equal to writing a check worth $600 for every man and woman in Portugal.”

Just like Greece and Ireland, Portugal is a country that spent well beyond its means for many years. Socialist José Sócrates has been the Prime Minster of Portugal since 2005. Portugal’s debt as a percentage of GDP will rise to 87.9 percent in 2011 and 88.1 percent in 2012. It’s no wonder that Portugal’s economic growth has averaged less than one percent a year in the past decade.

Why should U.S. taxpayers be on the hook for the mistakes of Portugal’s socialist government? U.S. Treasury Secretary Timothy Geithner met with José Sócrates over the weekend. With the highest voting share in the Fund, the U.S. is the only nation with the power to veto all major IMF decisions. Timothy Geithner is the one man who has the authority to put an end to the international bailout madness. We need to put pressure on him to veto these reckless IMF bailouts, which only encourage reckless behavior.

Government and banks are more willing to take risks if they know the IMF will grant them a bailout if they fail, something economists call “moral hazard.” The international bureaucracy has institutionalized too big to fail on a global scale. We ought to allow socialist countries to fail in order for them to correct their mistakes. The IMF would hurt Portugal in the long run by subsidizing their poor economic policies. It has been reported that Spain, Italy and Belgium may be next in line to seek funding. On Tax Day, it’s an unfortunate reminder that our tax dollars go to fund unconstitutional international bailout funds.

Congress Must Veto Taxpayer Bailout of Ireland

Originally posted at FreedomWorks.

Last week, the International Monetary Fund (IMF) announced plans to bailout Ireland. Since U.S. taxpayers pay 17 percent of the IMF’s funding, we are the world’s largest contributors. This means that American taxpayers will be on the hook again for billions of dollars to prop up failed economic policies overseas. With the largest share of voting power, the U.S. government has the authority to veto any IMF bailout. For the sake of American taxpayers, Congress should reject any effort to bailout profligate European countries.

Earlier in the year, the U.S. government sent 145 billion taxpayer dollars to Greece. The economic fiascos in Greece and Ireland are remarkably similar. Both countries spent more money than they could reasonably afford. In Commentary, Jim Glassman writes:

Greece has been behaving as if it were truly rich. The secret was borrowed money. At the end of 2009, the country had a public debt equivalent to 114 percent of its GDP… Meanwhile, Greece consistently violated the EU’s rules for minimum deficit and debt levels. The Greeks, however, lived better and better, with an official retirement age of just 58.

Unfortunately, Ireland’s government also made a series of irresponsible and costly decisions. On the heels of the financial crisis, Ireland responded by increasing the size and scope of government. The Carnegie Endowment for International Peace points out that “European monetary policy…was far too loosefor Ireland.” Just as we saw in the US, Europe’s loose monetary policy caused the supply of credit to explode followed by a foreseeable crash. This bust is an inevitable consequence of excessive credit creation by central banks.

The best solution is to let the market self-correct. This may be a costly and sometimes painful process but increased government involvement will ultimately worsen the problem. However, Ireland wrongly responded to the crisis by “injecting” more money into the economy and purchasing trouble assets. As the Carnegie Endowment further discusses,

These measures obviously took a heavy toll on government finances. At 13.9 percent of GDP, estimated financial sector stabilization costs through 2009 are the highest of any advanced country.

In many ways, Ireland and United States reacted in similar ways to the financial crisis. The US has recently passed a series of poor economic policies—TARP and the “stimulus”—that have failed to produce long-term recovery. We may be following in Ireland’s footsteps.

As the graph below shows, Ireland has spent money at unsustainable levels for the past few years.

Instead of massively cutting spending, Ireland is asking the European Union and IMF—thus American taxpayers— for about 95 billion Euros or $130 billion. Even still, fixed-income strategists at Lloyd TSB Corporate Markets Charles Diebel and David Page state that “the markets currently have virtually zero confidence that the bailout in Ireland will solve the European crisis.” They’re right. Since a taxpayer bailout would encourage reckless behavior, it will actually make fiscal problems worse in the long run.

It is hard to justify that those European countries with foolish economic policies should be rewarded overseas taxpayer funds. The Wall Street Journal reports“the concern is that by rescuing a country that for years flouted fiscal discipline, the European Union would be encouraging such behavior rather than discouraging it.” If Ireland receives a bailout, it is reported that Portugal and Spain may be next in line to seek funding.

We cannot allow this to continue any longer. Congress should veto all proposed international taxpayer bailouts that only reward poor economic decisions. Ireland needs to take full responsibility for their actions. Not force us to pay for their mistakes.