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Archive for the ‘national debt’ Category

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Just like former President Jimmy Carter, President Obama is doing his best to gift the White House to the Republicans through misguided economic and foreign policies. Nothing from his State of the Union speech signals substantive change for the country.

An economy can grow through either increased productivity or increased government spending fueled by borrowed money. Since 2007, productivity in the U.S. has been growing at half of its historical rate. That means the modest economic gains we’ve experienced were fueled largely by an unprecedented increase in Federal government borrowing and by the printing of money by the Federal Reserve. And the piper will have to be paid in 2016.

Since 2007, the Federal government debt has increased 110% to almost $19 trillion. The debt outstanding has soared from 63% of GDP to 105%. Annually, the Federal government is currently spending around $1 trillion more than it takes in. The U.S. now ranks 11th highest in government debt to output among all the nations in the world.

The fiscal gap, the difference between the present value of all the Federal government’s projected financial obligations and its future tax receipts, now totals $230 trillion…or $721,000 per citizen. The fiscal gap includes such unfunded future obligations as Social Security, Medicare, and the food stamp program (now the Supplementary Nutrition Assistance Program). The fiscal gap is twelve times the national debt and to close the gap we would have to have either a 60% increase in Federal taxes or a permanent 40% cut in transfer payments.
Major nations are now dis-investing in U.S. government debt. So how has the debt spending been sustained? The U.S. treasury securities held by the Federal Reserve have gone from $800 billion in 2007 to $2.5 trillion today. The Federal Reserve has been printing money faster than a third-world dictator.

Where is the economy today?

Inflation adjusted median household and family income is down at least 8% from 2007, and more for blacks and Latinos. The individual poverty rate has climbed by 20% and household income inequality is growing nearly 40% faster since 2007 then in the preceding 7 years.

Transfer payments such as Social Security, Medicaid, food stamps and other welfare benefits are the fastest growing component of personal income. Half of the gain in personal consumption expenditures since 2007 has been funded by deficit-financed transfer payments.
The growth rates in both real per capita personal income and real GDP have fallen more than one-third since 2007.

The stock market has peaked and cracks are appearing. The margin debt is at an all-time high despite a rock-bottom volume of trading. The Schilling PE ratio is nearly 70% above normal and rising interest rates will stop companies from buying back their stock to inflate its value.
Labor force participation is falling and the number of discouraged workers rising. Real hourly wages have been flat since 2007. Home ownership has dropped to its lowest rate since 1965 and rising mortgage rates will do little to change this.

Rising interest rates, falling exports due to a strong dollar, weakening markets for Federal debt, deflating of commodity markets, and a stock market decline add up to a shaky U.S. economy going into the November elections.

The President offers no substantive answers to these challenges.
Dr. John E. Stapleford
Director,   CEPA
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2013 is already upon us, and three days in things are headed downhill. Congress just passed a bill to respond to the so-called “fiscal cliff” by increasing EVERYONE’S taxes at least a little bit, and a lot if you have a high income (note: if your money comes from investments and assets, such as Warren Buffett, your taxes will be unchanged). More battles will come up on the debt ceiling, automatic defense cuts, and future budget deals (if any come), and no doubt the partisanship will continue.

Delaware has its own problems to deal with: unfunded pension liabilities, out of control Medicaid spending, bad deals with Fisker and Bloom Energy, education performances moving sideways and not up, and taxes such as the gross receipts taxes which harm business growth. These are just a sample of the issues facing the state. While CRI would like to resolve every major issue within the state, that is not very likely.

Therefore CRI will spend 2013 focusing on three elements: improving education standards, discouraging corporate subsidies, and preventing the state from passing any legislation which pushes single-payer healthcare by abolishing private healthcare insurance.

Education reform will be CRI’s top priority in 2013. There is general consensus that the education system as currently structured is not serving the students well, particularly those in areas like Wilmington and Dover, where parents usually do not have the  financial means to send their children off to private schools, and who cannot be guaranteed a slot in the charter schools due to bureaucratic processes. CRI is calling for legislative actions to allow the money to “follow the student”, where parents have options such as Education Savings Accounts (ESA) that give parents the financial opportunity to choose where they want to educate their child. We hope to inform and engage the public and the legislators into some serious action this year that will give students a big victory for their future.

Our second goal is to reduce, if not eliminate, subsidies for preferred businesses and special interest friends of the government. Bloom Energy and Fisker Automotive are two prime examples of the government handing over “subsidies” for “investment” in these companies, meaning hundreds of millions in tax dollars to give to these companies, money we will in reality never receive payback for. There is no industry in Delaware receiving taxpayer money that can be said to be worth the corporate welfare. Our aim is to educate the public and legislators, and push Delaware to either reduce/eliminate current government subsidies to preferred parties, or else to agree to prohibit future government subsidies via “corporate welfare”.

Our third goal will be to discourage the Legislature from passing any bill which bans private health insurance in favor of “single payer” government. While CRI acknowledges the issues in containing healthcare costs, such as Tort reform, allowing insurance to be purchased across state lines, and using means-tested methods to determine who qualifies for Medicare or Medicaid as opposed to just handing it out to anyone who asks, there is no way the government can raise all the taxes needed to pay for this without destroying job opportunities or sending them out of state. Plus, the government will not be able to manage the insurance aspects of healthcare policy without setting up a massive, inefficient bureaucracy, just like they do with everything else.

What do you think? Are there any goals CRI should work for that are no mentioned above?

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By Joanne Butler, Senior Fellow at CRI’s Center for Economic Policy and Analysis

Although many folks may not ever feel free from government these days, according to the Tax Foundation national “Tax Freedom Day” occurs on April 9th and the date for Delaware taxpayers is April 11th.  Freedom Day is the date at which taxpayers will have earned enough money to pay this year’s tax obligations at the federal, state and local levels.  It takes Delawareans 100 days to just pay their government tab.  When compared to the dates for other states, Delaware ranks 20th, with the worst ranking (#1) going to Connecticut (April 30) and the best ranking to Alaska (March 23).  The following are other current Tax Foundation rankings for the First State.

State and Local Per Capita Tax Burden (FY2008):  With a ranking of 16th, Delaware has a state and local per capita tax burden that is above the median (Wyoming, at #25).  When compared to its neighbors, Delaware has the lowest ranking.  Delaware also has a better ranking than Rhode Island (the other small East Coast state), and Virginia, which traditionally is viewed as a low-tax, business friendly state.

State

Tax Burden:

State & Local

Ranking
Connecticut $7,007 1
New Jersey $6,610 2
Maryland $5,669 4
Virginia $4,669 9
Rhode Island $4,533 10
Pennsylvania $4,463 11
Washington State $4,334 15
Delaware $4,253 16
Wisconsin $4,194 17
Wyoming $3,714 25

State Business Tax Climate (2010) :  Delaware (#8) significantly outperformed its neighbors with regard to its business tax climate.  New Jersey is dead last (#50), with Maryland not far behind at #45 and struggling New York is #49.

State Rank
South Dakota 1
New Hampshire 7
Delaware 8
Washington State 9
Virginia 15
North Dakota 25
Pennsylvania 27
Maryland 45
New York 49
New Jersey 50

State and Local Tax Burden as a Percentage of State Income (FY2008):  Again, when compared to its neighbors, Delaware has a lower state and local tax burden as a percentage of state income.  New Jersey has the highest state and local tax burden as a percentage of state income.  Delaware ranks just above the median (Kentucky at #25).

State State & Local Taxes as

Percent of State Income

Rank
New Jersey 11.8% 1
Maryland 10.8% 4
Pennsylvania 10.2% 11
Virginia 9.8% 18
Massachusetts 9.5% 23
Delaware 9.5% 24
Kentucky 9.4% 25

State Debt Per Capita (FY2008):  Delaware’s state debt per capita is in the top 10 of the nation; it is higher than its neighbors, outpacing New Jersey by $471.  Significantly, Delaware is $3,332 above the median (Pennsylvania at #25).  This is a result of Delaware in recent fiscal years covering the gap between spending and revenues by floating debt.

State State Debt

Per Capita

Rank
Massachusetts $11,024 1
Connecticut $7,882 4
Delaware $6,574 5
New Jersey $6,103 6
Maryland $4,086 14
Pennsylvania $3,242 25
Virginia $2,820 31

Joanne Butler, Senior Research Fellow

Center for Economic Policy and Analysis

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John Steele Gordon has a very thorough commentary on the nation’s national debt at the American.com.

The question he asks and answers is:

How did the richest country in the history of the world—and one with great international financial responsibilities—get into a position where its debt might easily spiral out of control? A little history explains a lot.

Gordon comes to this question after a brief foray into how our debt as a percent of GDP currently stacks up against other economies. Our debt is similar to that of France and Canada, less than that of Japan and not surprisingly well above the debt as a percent of GDP for both China and India.

The entire piece is worth reading though there are a couple of excerpts that help explain how we arrived at our current predicament.

When Franklin Roosevelt first ran for president he still echoed Smith. “Let us have the courage to stop borrowing to meet continuing deficits,” he said in a radio address in July 1932. “Revenues must cover expenditures by one means or another. Any government, like any family, can, for a year, spend a little more than it earns. But you know and I know that a continuation of that habit means the poorhouse.”

Roosevelt, in office, quickly accepted the need for “passive deficits,” those resulting from the poor economy. Then in 1936 John Maynard Keynes published The General Theory of Employment, Interest, and Money. Keynes argued that while supply and demand must balance in the long run, in the long run, as he famously quipped, “we are all dead.” In the short run, Keynes thought aggregate supply can outstrip demand (producing depression) or vice versa (producing inflation).

Keynes argued for “active deficits”—deliberate spending in deficit to increase demand and bring the economy into balance in times of depression. Keynes also argued, of course, that when the economy overheated, the government should be in surplus to soak up excess demand.

Economists took to Keynesianism immediately. It is not hard to see why. First, it gave economists a powerful new analytical tool. Second, it greatly increased the power and influence of economists. Before Keynes, presidents had not needed economists any more than they had needed astronomers. But if government was now to be the engineer of the national economic locomotive, revving and braking through Keynesian means as needed, then government needed experts to guide it.

Gordon proceeds to mention the practice of impoundment – something I was not aware of. Noting that the President doesn’t have the line item veto power that many governors have, impoundment became the method by which the President could withhold funding for projects.

Instead, presidents from Thomas Jefferson forward have used “impoundment,” simply refusing to spend moneys the Congress appropriated. In 1966, Lyndon Johnson impounded no less than $5.3 billion out of a total budget of $134 billion, including such politically popular items as highway funds, agriculture, housing, and education. As a Democratic president with a Democratic Congress, he was able to get away with it.

But when Richard Nixon vetoed a $6 billion water pollution bill and impounded the money after Congress overrode his veto, Congress reacted angrily. As Nixon’s power slipped away in the Watergate scandal, Congress passed the Budget Control Act of 1974, which outlawed impoundment and created the Congressional Budget Office.

In addition to reinstating the ability to “impound” funds, Gordon nails it when stating what reform must be undertaken.

As he states, “Taking away the power of Congress and the president to decide how to keep the government’s books would also be a big step in the right direction and require only congressional action. Wall Street recognized more than 100 years ago that corporate managements could not be trusted to keep honest and transparent books and neither can the managers of governments because, like corporate managers, they are human and therefore self-interested.”

What does Gordon call for?

An independent accounting board, modeled on the Federal Reserve (which keeps the power to print money out of the hands of Congress) would accomplish that. It should have the power to set the rules of accounting for the federal government, “score” the costs of new programs (which the Congressional Budget Office does now), and monitor all federal programs for cost-effectiveness (something Congress often forbids government agencies to do, obviously fearing what it might learn).

Finally, the adoption by Congress of a limit on total spending, so that it could only increase to reflect population growth and inflation, unless a two-thirds majority agreed to suspend the limit, would force Congress to make the hard choices it now works so hard to avoid. Several states have similar provisions in place, and these are the states suffering the least from the downturn in revenues due to the current recession. California’s budget began to go out of control in the early 1990s precisely because it effectively repealed such a law.

Gordon isn’t foolish. He realizes that Congress’ job is to send money back to members’ home distritcs. Rightly or wrongly, this is the case in America. And, they aren’t about to change that which helps them continue political careers.

Sadly, even with the increased attention paid to the spending problem in this country and the states, I’m not sure such reforms are possible; the political pressure simply isn’t there.

Hopefully folks will increase their awareness of the problem and others will keep beating the drum explaining this critical issue in an understandable way.

A great start is watching I.O.U.S.A. which can be seen at the link below.

http://www.youtube.com/watch?v=O_TjBNjc9Bo

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