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shot-in-the-foot

Shooting Ourselves In The Foot: Breaking Down The Sequester

February 27, 2013 by seanolsen 13 Comments

Barring a last-minute deal between President Barack Obama and Republican Congressional leaders, it appears that the sequester — $85.3 billion in spending cuts for this fiscal year (and a total of $1.2 trillion in cuts over the next decade) — will be implemented beginning March 1.

What will the sequester mean?  Let’s take a look.

Details of the cuts

$85.3 billion represents about 2.4% of total government spending.  But the impacts of the sequester will be far more impactful than that, because of the programs that are exempted from the spending cuts.  Additionally, five months of the federal fiscal year has already passed, meaning that the full year value of the cuts have to be taken in a seven-month timeframe.

Half of the spending cuts will come out defense.  $42.7 billion represents 7.8 percent of the defense budget on an annual basis, but compressing those cuts into seven months will result in a 13% cut in defense spending the rest of the year.  There are no significant exceptions to the defense spending cuts, meaning that essentially all items in the defense budget will get an across-the-board cut.  This includes operations in Afghanistan and military aid for Hurricane Sandy relief.  Additionally, President Obama has indicated he will protect soldiers from receiving pay cuts, which means all other programs will see yet larger cuts to make up the difference.  Finally, restrictions in the sequester language mean that the Administration is prohibited from cutting the pay of civilian defense employees and must instead reduce headcount.

The other half of the spending comes out of three categories:  domestic discretionary spending, domestic mandatory spending, and Medicare.  Together, these categories make up the remaining $42.7 billion.  Let’s talk about what is excluded from these three categories first — the list is long and includes Social Security, non-administrative expenses in the Veterans Administration, refundable tax credits (like the Earned Income Tax Credit), Children’s Health Insurance Program, standard unemployment benefits, Medicaid, and most other programs supporting low-income families.  These programs represent over $2 trillion in annual government spending, meaning that all of the cuts are being taken against spending that represents about 40% of the federal budget.

Domestic discretionary spending cuts will total $26.4 billion, representing a 5.2% cut on an annual basis and an 8% cut over the next seven months.  These cuts will hit areas of the budget including education funding for programs like Head Start, will require closing the air traffic control towers at several state airports, federal funding for “Meals on Wheels” programs, and grants for environmental projects.

Domestic mandatory spending will be cut by $5.1 billion, also representing a 5.2% cut on an annual basis and an 8% cut over the next seven months.  These cuts will impact farm subsidies, extended unemployment benefits, and some federal health care programs, such as the Indian Health Care program.

Finally, Medicare will see $11.2 billion in cuts, representing a 2% cut.  Medicare cuts will not impact beneficiaries of the program, but rather reflect a cut in provider and Medicare Advantage reimbursement rates.

What Will Happen?

The budget cuts in the sequester are really just about the worst kind of cuts that could be made.  First off, they are arbitrary and across-the-board.  The President has no discretion on how to distribute the cuts, meaning that effective programs are cut at the same rates as programs that have less impact.  Second, there are too many exceptions.  The cuts, as noted above, represent a small portion of the total budget, but since a majority of the budget is excluded from the cuts, the programs that are hit are hit hard.

These cuts are also going to have major negative impacts on employment and economic growth.  The Bipartisan Policy Center projects a loss of 1 million jobs and 0.5% of gross domestic product.  Other estimates claim job losses in excess of 700,000.  Implementing the sequester is going to seriously damage a still fragile recovery and sluggish labor markets.

Worst of all, the combined effect of all of these impacts mean that we are unlikely to get any meaningful deficit reduction as a result of the sequester.  Slower economic growth means that the economy will produce less tax revenue, making the deficit situation worse than before.  As evidence of how this is possible, one need only look at what is occurring in Europe.  Following rounds of budget cuts, the United Kingdom (which is on the verge of a triple-dip recession), France, and Spain have all missed their deficit reduction targets.  Fed chairman Ben Bernanke warned of the same possibility before the House Financial Services Committee today.

Additionally, the fact that health care and entitlement programs are essentially left off the chopping block means that these cuts do practically nothing to change the long-term debt picture, because that is where the majority of spending (and spending growth) will happen over the coming decades.

The upshot here is that the failure of our political system to take the right path regarding our financial future has us on the verge of a serious self-inflicted blow to our economy.  One might think that the risks here would be enough to get folks looking beyond their own narrow political interest.  But apparently not.  There’s a reasoned approach to be had here, maintaining levels of spending today to preserve the economic recovery while instituting reforms in the medium- to long-term in order to bring debt levels down to a sustainable level.  Who’s going to set aside their party’s political interests to protect the jobs of hundreds of thousands of Americans?

General Sources:

Bipartisan Policy Center (explainer)

Washington Post (state-by-state impacts)

Economy, National, Taxes, U.S. House, U.S. Senate
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34Ortman

Ortman and Leidiger fudge the facts on the payroll tax increase

January 28, 2013 by seanolsen 16 Comments

The release of Governor Dayton’s budget produced the expected responses from members of Carver County’s legislative delegation, pointing out the sales tax changes (focused on the tax on clothing over $100 and services) as the main enemy in the proposal.

Interestingly enough, though, both State Senator Julianne Ortman and State Representative Ernie Leidiger took another shot at Democrats over taxes — this time at the federal level.

From Ortman’s January 23, 2013 Capitol Report:

In addition to Governor Dayton’s proposed tax increases, President Obama has two major tax increases that will take even more money out of the pockets of hard-working Minnesotans.

This month, wage earners will notice an increase in the amount that they pay for the federal payroll tax. Since the first of the year, most Minnesotans have already seen this happen on their paychecks.

From Leidiger’s January 28, 2013 e-mail to constituents:

Look at it this way: a hardworking middle class family will not only have diminished take-home pay because of higher social security taxes, but they will also have to dig deeper in their pockets for everyday items and services.

Ortman and Leidiger are referring to the expiration of the payroll tax cut on January 1, 2013.  This change increased the Social Security payroll tax rate by 2%, back to its statutory rate of 6.2%.  The rhetoric of the two legislators – particularly Ortman — might lead you to believe that this tax increase was just another way that so-called tax-and-spend Democrats are out to get the middle class.

Well, that just isn’t so.  In fact, when it comes to payroll taxes, Democrats have been the defenders of giving taxpayers a break.  The temporary payroll tax cut was passed in the lame-duck session following the 2010 midterm election and was designed to be a one-year only provision, expiring at the start of 2011.  Over the objections of his caucus, Republican Speaker of the House John Boehner agreed to another one-year extension in the 2011 showdown over the debt ceiling.  And as we approached the fiscal cliff, we should recall that no Republicans were standing up for continuing the extension.  Not Boehner.  Not Mitch McConnell.  Mitt Romney didn’t support extending the payroll tax cut, either.

And while President Barack Obama didn’t make the extension of the payroll tax cut a “must-have” in fiscal cliff negotiations the way he did in 2011, he was forced to scrap plans for an alternative middle- and lower-class tax cut in order to secure the needed Republican votes for passage.

So, let’s recap:  Republicans are blaming Barack Obama for adopting the policy they themselves insisted on.  Ain’t politics grand?

Carver County, Legislative Watch, State Legislature, Taxes
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Francisco de Goya's And There's Nothing To Be Done. Courtesy: Metropolitan Museum of Art.

And There’s Nothing To Be Done

December 28, 2012 by seanolsen 55 Comments

Our nation finds itself in the midst of two significant discussions right now.  The first is about how to resolve the so-called “fiscal cliff”, the wholly manufactured end-of-the-year crisis created by the utter inability of our elected officials in Washington to get the basics of their job completed in a reasonably competent manner.  The second is about what to do in response to the spate of mass shootings that have taken place in the second half of this year, culminating in the slaughter of 26 in Newtown, Conn. a couple of weeks ago.

What strikes me about both conversations is that one side of the aisle has shown a tendency to throw out ideas they don’t like solely on the basis that such ideas don’t solve the entire problem.  Take, for instance, Mark Thiessen’s column in today’s Washington Post.  Thiessen argues that since President Obama’s proposed tax increase on high-income Americans won’t close the deficit completely that we shouldn’t do it.  Or, better yet, we should raise taxes on everybody just to teach them a lesson!

Sorry, taxing the rich won’t solve our problems — that’s nothing but fiscal snake oil the president has been selling. He is demanding $1.3 trillion in higher taxes on the wealthy over 10 years. Imagine he got it. We are adding nearly that much to the national debt every single year. Taxing the rich would not put even a minor dent in our debt. It would pay for less than three weeks of federal spending every year. The only way to pay for the current expansion of government is to raise taxes on the middle class.

So let’s do it.

But such arguments have also found a home in the debate about whether or not there should be additional gun control measures should be enacted following Newtown.  Here’s an example of such an argument from the National Review’s Rich Lowry:

How many guns are in the United States? The answer is 280 million. In a country with that many guns, how is gun control possibly going to succeed? If you ban a small subset of new guns for sale, what are you going to do about the rest? Let’s say you succeed beyond anything that is remotely possible. Let’s say you somehow stop the new sale of guns altogether and somehow decommission half of existing guns. What are you going to do with the other 140 million guns?

There are numerous problems with such specious lines of argument.  The first, and most obvious one, is that proponents of such ideas are not and have not suggested that these solutions — be it taxing the rich or banning high-capacity magazines — are complete solutions to the problem.

But these arguments are even more dishonest in another way.  As we’ve discussed before, these sorts of arguments are just other ways of framing the debate to protect entrenched interests at the expense of everyone else.  Thiessen and conservatives may be opposed to Obama’s tax increase on the wealthy, but their proposals are equally (or even more) inadequate in addressing the nation’s fiscal challenges.

For instance, over the last month, Speaker of the House John Boehner has included in his proposals provisions that would change the way inflation benefits are calculated for Social Security recipients and he also proposed increasing the eligibility age for Medicare from 65 to 67.  Combined, these two proposals would reduce the deficit over the next decade by less than Obama’s tax increase on the wealthy.  And, of course, Boehner’s proposals would have very real consequences for the low- and middle-income people impacted by them.  The Social Security change alone would decrease payouts to recipients by 0.3% per year.  After a decade, recipients would have lost 3% of their payouts.  That’s significant, given that 40% of retirees have 90% or more of their income from the program.

Meanwhile, those who oppose any additional gun control measures have thrown nearly anything and everything out to bolster their case.  Just look at the National Rifle Association.  In the 1990s, they called federal law enforcement officers “jack-booted thugs”.  Today, they’re calling for the federal government to fund armed guards in every school in the country.  And, they call for a database of the mentally ill without calling for a database of gun owners to cross-reference it against.  Putting the Second Amendment ahead of the rest, I suppose.

Closer to home, you have state representatives who ignore facts that don’t support their frame of reference.  The notion that the potential presence of an armed individual deters such mass attacks is bogus, even if you ignore the Columbine example.  In recent years, we’ve seen shootings on an Army base and in the state with the least restrictive concealed-carry laws in the nation and on a college campus that had its own police department and SWAT team.  And, just today, inside a police station.

The challenges we face are far too large to be dragged down by reasoning that is so small.  We can have an informed and reasonable debate and talk about a wide variety of solutions without engaging in debate that is intellectually dishonest to its core.  We should expect better of all of our elected representatives.  We may not be able to solve every problem completely, but some progress is better than none.  So let’s get on with it, already.

(Image above is Francisco de Goya’s And There’s Nothing To Be Done, courtesy of The Metropolitan Museum of Art, which depicts scenes from the Spanish War of Independence.)

Economy, National, State, State Legislature, Taxes, U.S. House
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10 Charts of 2012: Killing Bin Laden

December 23, 2012 by seanolsen 0 Comments

2012 Chart 3

This chart, from Bloomberg Businessweek,  deconstructs the mission to kill Osama bin Laden in 2011.

National
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Obama Administration takes step to substantially reduce the number of abortions

October 10, 2012 by seanolsen 0 Comments

It may be surprising to many, but in a few decades we may look back and realize that President Barack Obama took the most concrete step of any President in the Roe v. Wade era towards reducing the occurrence of abortion.

That step, ironically enough, is the target of many right-wing attacks:  the mandate that women’s preventative health services –including contraception — be provided free as of August 1, 2012 as part of the Affordable Care Act.

Last week, researchers at Washington University released the results of a three-year study they did in the St. Louis area where they provided sexually-active adolescents and adults with free contraception.  What they found was striking, and potentially very important.

As the Washington Post notes:

About half of all unintended pregnancies are the result of contraceptive failure, where a condom breaks or birth control pills aren’t taken at the right time. The least expensive methods of contraceptive tend to be the least effective.

Specifically, women in the United States use long-acting reversible contraception (LARC) at a far lower rate than the rest of the developed world — less than 10% of American women choose these forms of contraception.  Forms of LARC include intrauterine devices, such as Mirena or ParaGard and subdermal implants like Nexplanon.  These forms of LARC are up to 20 times more effective than the birth control pill, but their cost often makes it impossible for many women to afford.

Researchers were surprised to find, though, that when these options were made available for free that their utilization increased dramatically.  In fact, fully 75% of the women in the study selected a form of LARC (the researchers anticipated a doubling of utilization into the low-teens).  And, as you would expect based on those numbers, unplanned pregnancies and abortions sharply declined.

Teen pregnancies among the study group occurred 80% less frequently than the national average.  And the abortion rate, when compared to the St. Louis area, declined by at least 50% and as much as 75% in the three years of the study.  And the abortion rate was more than 60% lower than the national average.

Expand those numbers nationally, and there will literally be hundreds of thousands fewer abortions per year even if the rates don’t decline as much as they did in the St. Louis area.  Enabling access to all forms of contraception empowers women and allows them to make the best decisions — from all the available options — for their lives and circumstances.  For that, the Obama Administration deserves credit.

2012 Election, National
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The anti-business, socialist President strikes again

May 8, 2012 by seanolsen 16 Comments

Republicans have attacked Barack Obama for being anti-business and socialist over and over and over again since his election in 2008.

So, how’s that been working out?

Well, business profits are up.  Way up.

The Fortune 500 generated a total of $824.5 billion in earnings last year, up 16.4% over 2010. That beats the previous record of $785 billion, set in 2006 during a roaring economy.

The stock market is up.  Way up.

The Dow Jones industrial average has soared 62 percent since President Barack Obama took the oath of office during some of the darkest days of the Great Recession. The Dow was just below 8,000 then and stands near 13,000 today.

Corporations have record amounts of cash on their balance sheets.

Apple Inc. (AAPL), the world’s most valuable business, led U.S. corporations in amassing a record $1.24 trillion of cash last year as memories of the 2008 credit crisis linger, according to Moody’s Investors Service.

Excluding Apple, with $97.6 billion of cash and no outstanding debt, the figure was relatively unchanged at $1.15 trillion, even as revenue and cash flow from operations rose to a record, Moody’s analysts led by Richard Lane said in a report yesterday.

Government (federal, state, and local) is smaller.

For the first time in 40 years, the government sector of the American economy has shrunk during the first three years of a presidential administration.

Spending by the federal government, adjusted for inflation, has risen at a slow rate under President Obama. But that increase has been more than offset by a fall in spending by state and local governments, which have been squeezed by weak tax receipts.

Source: New York Times, based on Bureau of Economic Analysis data

It seems the anti-business, socialist President has actually worked out pretty well for corporate America.

2012 Election, Economy, National, Taxes, U.S. House, U.S. Senate
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Health Care Reform explained in three minutes

January 17, 2012 by seanolsen 0 Comments

MIT economist Jon Gruber, who served as an advisor to both former Massachusetts Governor Mitt Romney and President Barack Obama as they devised their respective health care reform plans, has created a video that explains the basic mechanisms of the Affordable Care Act in a little over three minutes:

An excellent and easy-to-follow explanation!

Economy, National
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romney money shot

Bain or Bane: What does Mitt Romney’s Bain Capital record really mean?

January 11, 2012 by seanolsen 9 Comments

Perhaps the primary argument that former Massachusetts Governor Mitt Romney is relying on in his run for President is that his strong private-sector leadership at Bain Capital qualifies him better than President Barack Obama or any of the other Republican challengers.

Ironically enough, however, some of Romney’s rivals for the GOP nomination and Democrats point to Romney’s background at Bain and say that it’s precisely why he shouldn’t be President.  So what should we make of Romney’s record at Bain?  Good?

Mitt Romney (center) and the Bain Capital team celebrating their success

Or bad?

Tom Hardy as the villain Bane from the upcoming movie "The Dark Knight Rises"

The truth, of course, lies somewhere in-between.  First, let’s look at the positive aspects of Romney’s record at Bain.  There is no doubt that Bain, under Romney’s leadership, was incredibly successful.  As the leader of Bain Capital, Mitt Romney was responsible for growing the wealth of those who chose to invest with them.  Mission accomplished:  Romney more than doubled their money.  How did he do this?  Well, there’s two primary sorts of investments that Bain made.  The first was venture capital — investments in start-up businesses.  Notably during Romney’s tenure at Bain, they invested in retailers Staples and The Sports Authority and helped them get off the ground.  These are the investments that Romney likes to emphasize, although they have proportionally represented a smaller and smaller portion of Bain’s portfolio over time.

The second type of investment was a private equity transaction where Bain would go in and buy a struggling company, make changes (often involving downsizing) to stabilize the firm, and then sell it for a profit.

These are the transactions that Romney’s opponents and President Obama will want you to focus on.  And it’s true that these sorts of transactions — not the venture capital investments — that made Romney and Bain’s reputation during his time there.  The Wall Street Journal reports that 70% of the wealth created at Bain during Romney’s time came from these sorts of transactions.

Let’s be perfectly frank about what happened in these private-equity transactions.  Bain’s role in these transactions was not to “create jobs”, as Romney has been saying on the campaign trail.  Bain’s role in these transactions was to create wealth for their investors.  Frankly, Romney has probably made a poor decision by choosing to play up the “job creator” angle, given that he can’t really give a good number of jobs that were created on his watch.

It is true that there is a role for firms like Bain and for private-equity transactions.  It is true that firms like Bain can make markets work more efficiently by making the companies they acquire work more efficient and freeing up capital that can be used for more productive and profitable uses.  It’s also true that these types of investments, including ones made by Bain, don’t always work as expected and even if they do, the somewhat ruthless nature of them can have very real human costs.  You’ll be hearing a lot about that between now and November.

In the end, though, I’m not sure how much you can take out of Romney’s experience at Bain and apply it to being President.  Being President isn’t at all like running an investment firm.  As CEO of Bain Capital, Romney had executive power he wouldn’t have as President of the United States.  And the model just isn’t the same, as Ezra Klein points out:

Romney’s economic plan is not to replicate his experience at Bain Capital: he will not try and turn the economy around by issuing public debt to purchase private companies and wring out their inefficiencies. Rather, he’ll propose tax cuts and nominate a new Federal Reserve chairman and try to cut the deficit.

Romney has laid out a clear vision:  cut taxes (and give a bigger cut to the wealthy), cut spending, repeal the Affordable Care Act, and fundamentally change the nature of Medicare by making it a defined-contribution program.  You want to focus on his suitability to be President?  I would suggest focusing on these ideas (and comparing his vision to that of President Obama) instead of nit-picking what happened at Company X or Company Y while Bain was invested in them.

2012 Election, National
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Crashing the Tea Party

August 17, 2011 by seanolsen 9 Comments

A unique political study done by researchers at Harvard and Notre Dame that tracks the same 3,000 people and their political opinions over time reveals some new insights into the Tea Party movement — and strips away much of the political narrative that surrounds it.  The group was first interviewed in 2006, and then again in 2011.  The results are fascinating, let’s look at the key findings:

The Tea Party was never a nonpartisan movement made up of political novices who had just gotten fed up with politics — in fact, researchers found that the single best predictor of whether or not someone would be a member of the Tea Party was past affiliation and involvement in Republican politics.  As a group, they were more likely than the average to have contacted government officials back in 2006.

The Tea Party movement is overwhelmingly white and members have low opinions of immigrants and blacks.  True in 2006, and still true today, according to the study.  In fact, these opinions are more consistently held among Tea Partiers than the belief in shrinking government.

Religion is the driving force for many Tea Partiers.  The second biggest predictor of Tea Party membership (after being a Republican) is agreement with the notion that religion should play a prominent role in politics.  The Tea Partiers in this survey put increasing the role of religion in government ahead of fiscal issues like reducing taxes or cutting the deficit.

Tea Party ideology is increasingly out of step with the rest of America.  Out of 23 groups polled about in the study, the Tea Party receives the lowest approval ratings, lower than atheists and Muslims.  That is despite the fact that the entire survey group has moved to the right on economic issues.  In fact, the difference seems to lie in their strident beliefs on religion in politics and government — and area where the survey group (even non-Tea Party Republicans) has moved away from.

A Tea Party candidate for President, such as Michele Bachmann or Rick Perry, may be able to win the Republican primary but they are going to have a very difficult time winning the general election over a center-left President like Barack Obama.

 

2012 Election, National
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car-flying-off-cliff

Republicans driving the car over a cliff

July 25, 2011 by seanolsen 1 Comment

When he was White House Chief of Staff, Rahm Emanuel famously said “Never allow a crisis to go to waste.”  Republicans in Washington D.C. have certainly learned that rule, and learned it well.  So much so that they are in the process of manufacturing a crisis in order to create the opportunity to get reforms they feel are necessary.

Let’s leave aside for the purposes of this post the sheer absurdity of the notion that after having passed a budget that increases the amount of the national debt over the debt ceiling that Congress then has to re-approve spending to that level.  What Congressional Republicans are doing right now is even more reckless than how Minnesota Republicans handled budget negotiations over the last few months.

President Obama has offered significant spending cuts and pared back his tax increases to the bare minimum.  In fact, what President Obama has offered as part of these negotiations is well to the right of Alan Simpson-Erskine Bowles Bipartisan Deficit Commission, the Senate  ”Gang of Six”,  and the Alice Rivlin-Pete Domenici Deficit Commission.

President Obama has offered a plan that is almost 4:1 spending cuts to revenue increases.  The revenue increases consist of eliminating loopholes, subsidies, and deductions — many of which Republicans have supported in the past.  The tax code should not be used to pick winners and losers, but rather to ensure a level playing field and to provide the necessary resources for government to perform its functions.  They would be accompanied by a lowering of rates overall to make the changes generate far less revenue than they otherwise would.  This used to be a core Republican value.

Normal people would jump at such a deal — a chance for real entitlement reform ($650 billion in savings over the next 10 years), real cuts in discretionary spending ($1 trillion over the next 10 years, taking such spending back to pre-WWII levels), and rational tax reform that generates about 20% of the overall solution.

But today’s Republicans aren’t normal.  They are devoted to “no new tax” ideology at any cost.  They are willing to drive the car off the cliff as opposed to forcing their wealthy and corporate patrons — who have benefitted the most over the past decade while the labor market and median incomes for the rest of us have stagnated — to chip in just a little bit more.

If Congressional Republicans can’t come to an agreement on the debt ceiling and the country goes into default, they will effectively raise the taxes of every American through increased interest rates.  Our stock market will feel the impact of lost confidence of investors.  There could even be a run on the banks.  This is not a risk we should even be considering, but Republicans are still — even at this late date — still holding out for complete capitulation from the President.

We shouldn’t also fail to point the rank hypocrisy of many of the Congressional Republicans at the heart of this crisis today.  During the Bush Administration, these same leaders voted seven times to raise the debt ceiling — from $5.95 trillion to $11.315 trillion.  They also voted for policies that destroyed our financial future.  As the New York Times pointed out over the weekend, if you take out the impacts of the recession and only look at policy changes, what happened in the Bush Administration caused far more damage than anything that has happened under President Obama (even extending out the impacts of the Obama policy changes to 2017).  Note that the cost of the Bush tax cuts alone is more than all of the policy changes under President Obama combined.

It’s time to stop the false equivalency.  There is a very real difference between Democrats and Republicans — both in Washington D.C. and in St. Paul.  Democrats aren’t willing to put their partisan goals ahead of the well-being of the American people.  Republicans are seemingly content to “take hostages” — including the American economy — to fulfill their ideological goals.

Compromise isn’t a dirty word.  Compromise isn’t weakness.  Compromise is necessary in a divided government, and it’s time Republicans started getting back to doing the serious work of the people instead of being led around by their special interest groups.

Economy, National, Taxes, U.S. House, U.S. Senate
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