Archive

Posts Tagged ‘Obama’

The Budget Deal: And the Winners Are?

US Capitol-WinterWithin the last two days, the U.S. House and Senate have passed the Consolidated Appropriations Act, 2014, a $1.1 trillion spending bill for the 2014 federal budget.

So who are the winners in this budget and spending deal?

Without question, Washington politicians are the biggest winners.  With caveats, the American people can also be considered winners.  The only real losers in this deal were the people who wanted significant increases or cuts to federal spending.  Let’s explore each group a little more closely.

Washington Politicians

Although no party or chamber got everything they wanted, everyone got enough to declare victory.  The political movers and shakers also got to burnish their bipartisanship credentials and willingness to compromise.  They also avoided another bruising government shutdown akin to the first 16 days of October.  Even though another shutdown might have inflicted more political damage to Republicans, Democrats were wise not to antagonize a restless electorate.  It’s an election year, and there’s always a risk voters will develop an anti-incumbent attitude and vote to “throw the bums out.”  At the same time, the bills passed by large enough margins that anyone wanting to cast a vote of displeasure could easily do so without scuttling the deal.  In the end, these votes were more symbolic than substantive.

The American People

We the people are winners to some extent.  Albeit four months into the current fiscal year, Congress passed its first real budget and spending bill in four years.  The government has essentially been operating on autopilot for the past four years via temporary and stopgap measures, rather than following the budgetary and appropriations process.  We also avoided another government shutdown, which ultimately doesn’t save any money and only makes many lives more difficult.  Congress also ended the across-the-board spending cuts known as Sequestration.  Although I agreed with the reduction in federal spending, the manner in which it was carried out was asinine.  Sequestration was a political maneuver which was never supposed to be implemented, but it was.  Therefore, it took some time for Congress and the President to figure out another political angle to extricate themselves from the mess they created.

As much as we are winners in this deal, we’re also losers.  In the deal to eliminate Sequestration, Congress increased short-term spending with the promise of larger cuts to future spending.  History has proven the promises of future cuts rarely materialize.  While spending may not have increased much in the short-term, the hard decisions of how to reduce spending and balance the budget have been postponed once again.  The enactment of a spending plan is good, but the process stunk.  Instead of Congress passing the requisite 12 appropriation bills for federal spending, they combined them all into one 1,582 page, must-pass bill, voted on hours after being released.  How well do you think your Representative or Senator read this 1,582 page bill?

The Advocates

Those who advocated for significant spending increases were disappointed. However, if you consider the federal spending increases over the past four years, they have already won in some respects and were unlikely to secure further increases.  The big losers were the budget hawks and those who want to dramatically pare federal spending and balance the budget.  They not only lost the battle to further cut spending, but some of the guaranteed Sequestration cuts were replaced with a promise of future cuts.  Although this deal is only for the 2014 budget, it has set the stage for the 2015 budget.  The motivations for Congress to reach this deal will drive the politics for the 2015 budget to be quite similar.  Therefore, the 2016 budget will probably be the first real opportunity for the budget hawks to make significant steps towards a balanced budget.

Win  and Lose

The 2014 budget and appropriations bills essentially maintain the status quo, which is a win for preventing major financial disruptions.  At the same time, we have lost another opportunity to make the tough decisions and address the issues which are perpetuating the overspending by the federal government and adding to the mounting federal debt.

Advertisements

Add Another Trillion

debt ceiling_foxIn the midst of the hullabaloo last week over the deal in Washington to end the shutdown of the U.S. government, a little fact missed the attention of most reporters and media outlets.  The public debt of the United States is now in excess of $17 trillion.

Technically, the debt ceiling was reached in May and has been stuck at the same level for months.  As a result of the continued receipt of federal taxes and other “extraordinary measures” employed by the U.S. Treasury, the nation was able to stave off default until the debt ceiling was raised again.  When the debt deal was struck, the official debt of the U.S. increased $329 billion in a day.  As a result, the official tally of the debt increased from $16.747 trillion to $17.076 trillion.

Stop and think about that for a moment.  While many politicians are touting their accomplishments of deficit reduction and fiscal restraint, the U.S. still overspent by $329 billion in less than 5 months.  While it’s an improvement over the recent annual deficits in excess of $1 trillion, the deficit is still projected to be $700-800 billion this year.

While I don’t necessarily agree with their tactics or timing, I do commend those who attempted to draw attention to the continuous deficit spending and rising national debt.  Shutting down the government was a drastic step, and in the end, it probably did little to change the current policies or debate.  However, it seems painfully obvious that something drastic needs to happen for our national leaders to get in touch with the reality that it’s impossible to borrow trillions of dollars forever.

It wasn’t very many years ago when adding another $1 trillion to the national debt would have been headline news.  Sadly, we keep breaking the next trillion-dollar mark so quickly, it barely garners anyone’s attention.  Of the $17 trillion we owe, nearly 40% of it has been borrowed within the past five years.

If you share the belief of many politicians, pundits and economists that the continual rise of the debt is not an immediate concern, then you probably won’t pay much attention as the debt continues to increase another $1 trillion in a few months.

If you think the perpetual rise of our debt poses a threat to our long-term security and prosperity, you’re probably frustrated that we reached another trillion-dollar milestone and will probably break the $20 trillion mark in the next couple of years.  It can be disconcerting to see the lack of concern over this issue, but don’t give up.  Now more than ever, you need to speak up and press for change.  It may not happen quickly or easily, but if you don’t speak out, who will?

Breaking the $17 trillion mark may have gotten lost in the noise of the deal to end the shutdown and avoiding possible default by the U.S. government.  Whether the lack of coverage was accidental or intentional, this is equally important.  The shutdown and debt ceiling were an immediate crisis, but the continuous overspending and borrowing by our government is slowing creating a future calamity, which will make the last predicament seem like a nonevent.

Targeted by the IRS

irsIf you have ever been audited by the Internal Revenue Service (IRS), it’s natural to feel like you have been singled out. It’s like getting pulled over for speeding. Regardless of your actions, you often feel like the authorities should be spending their time pursuing more important criminals. Despite your feelings, rarely are you being targeted by the IRS.

Shockingly, the IRS admitted last week that they had unfairly and inappropriately targeted certain nonprofit organizations because of their beliefs and affiliations. For over two years, IRS employees signaled out conservative groups with names or verbiage including “Tea Party,” “Patriot” and “Obamacare” for additional scrutiny. The IRS admitted this in advance of the pending release of a report by the Treasury Inspector General for Tax Administration (TIGTA) criticizing their behavior.

The IRS claimed the targets were nonpolitical and initiated by low-level employees in the Cincinnati, OH Service Center. The additional scrutiny may not have been ordered by a political appointee, but it seems obvious the additional attention and inquiries were politically motivated. Over the past few years “Tea Party” has as much a political connotation as Democrat or Republican. Additionally, it doesn’t appear any liberal-leaning groups received the same scrutiny. As a result, it seems hard to believe the IRS actions were not politically motivated.

It also appears the knowledge of this behavior went much higher than a few low-level staffers churning through documents in Cincinnati. Lois Lerner, the head of the IRS Exempt Organizations Division, found out about it in June 2011, and despite her instructions to change the review guidelines, the additional inquiries continued throughout 2012. In May 2012, Douglas Shulman, the IRS Commissioner at the time, and Steven T. Miller, his deputy and the current acting Commissioner, also learned of these targeted reviews. Both of these men failed to notify Congress, despite questions from several Senators and Representatives regarding the IRS scrutiny of these conservative groups.

No matter your political affiliation or beliefs, this acknowledgement by the IRS should be of grave concern for all Americans. It’s an extremely precarious position when government officials at any level, abuse their authority for political purposes. Those actions are characteristic of dictators and oppressive regimes; not what’s expected in a free, democratic republic.

You may not have much regard for the ideas and people affiliated with the Tea Party movement, but that should not matter. If the IRS has the ability to target them, they can also come after you.

The IRS claims no exemption was ultimately withheld from any applicant. This reassurance is also subtle claim of exoneration for their actions. The IRS is essentially trying to assert “No harm, no foul.” Even though no exemption was denied, it doesn’t mean these organizations didn’t suffer injury. Given the complexity of the rules, taxpayers often hire professional advisors. These organizations may have incurred substantial fees complying with the additional IRS inquiries, not to mention the delay in being able to pursue their stated mission.

The abuse seems limited to a certain group of employees handling a specific group of taxpayers and is not widespread throughout the IRS. If you receive an IRS notice, it’s probably not politically motivated. However, these actions, albeit limited, set a very dangerous precedent and deserve exceptional scrutiny by our leaders and the public at large.

No one likes to be examined or questioned by the IRS, but it’s part of dealing with a voluntary tax system. However, no one should ever be targeted for political purposes. Dealing with the IRS can be annoying, but being targeted for your political beliefs or affiliations is absolutely wrong, and should be criminal.

Sequestration: The Destruction of a Nation?

Budget CutUnless there is a last-minute deal in Washington, which no one expects to happen, the reductions in federal government spending known as sequestration will start tomorrow.   Some politicians, economists and leaders have shrugged off the cuts as having a negligible effect on the economy and government services, while others are predicting a near cataclysmic effect.

The following are just some of the claims made by President Obama and others opposed to the cuts.

  • Police, fire and other first responders will be laid off.
  • Classroom sizes will swell as teachers lose their jobs.
  • Air travel will become more dangerous when traffic controllers are let go.
  • Security lines at airports could be 4 hours long when the TSA is forced to trim its ranks.
  • Food will be dangerous to eat because the FDA will need to reduce the number of inspectors.
  • Criminals will go free because there aren’t enough federal prosecutors.
  • And my favorite…  Maryland Rep. Donna Edwards says battered women will be forced to remain with their abusers because hotlines for battered women will go unanswered.

We expect a certain amount of posturing and hyperbole in political discourse, but some of the recent statements sound like fear mongering.

In reality, no one knows for sure what the sequestration cuts will do to the economy or government services.  There is certain to be some effect, but if the impact is anything close to what has been predicted in the past weeks, then we are in serious trouble as a nation.

Consider these facts about the sequestration cuts.

  • Total federal spending will be reduced by $85 billion this fiscal year.
  • Half of the cuts are borne by the defense department and the remaining half over the other agencies.
  • Total federal spending in Fiscal 2013 will be approximately $3.8 trillion.
  • The Fiscal 2013 budget deficit is projected to be $894 billion.
  • The sequestration cuts amount to 2.2% of all spending and would reduce the deficit by less than 10%.
  • US GDP is estimated to be over $13 trillion.
  • The sequestration cuts would account for 0.65% of annual GDP.

If 2.2% of federal spending and 0.65% of GDP sends our nation and economy spiraling out of control, the future is much worse than the grim predictions of the sequestration cuts.  Federal spending would have to decrease by 25% to balance the budget.  If a 2.2% reduction caused this kind of havoc on our society, imagine what it would be like if we had to cut spending to balance the budget.

Without question, sequestration will be painful for people directly or indirectly affected, and the across-the-board nature of the cuts probably isn’t the most effective or efficient manner to reduce government spending.  However, if the current sequestration cuts can destroy our nation, we’re already destroyed; we just don’t know it yet.

Avoiding the Cliff but what about the Abyss?

US Capitol-WinterCongress and President Obama finally reached an agreement to solve the “fiscal cliff.”  The compromise, the American Taxpayer Relief Act of 2012, was reached in the early morning hours of January 1, 2013.

Many of our illustrious leaders in Washington tried to sound reasonable by saying no one got what they wanted but it was the best deal they could reach.   Essentially, they were saying you may not be happy, but be satisfied.

It’s a sad day if this was the best they could do.  I have two primary contentions with the deal they reached.  First… the timing and process of the solution, and secondly, the absence of any meaningful changes in federal spending.

The process was extremely political, and the American electorate should expect more… no demand more… of our leaders.  The fiscal cliff was primarily created by two pieces of legislation.  In December 2010, Congress temporarily extended the “Bush tax cuts” until December 31, 2012.  Thus, they have known for two years tax rates would increase unless they passed legislation to extend or change the rates.  The other part of the equation was the spending cut provisions agreed to in August 2011 to settle an impasse on increasing the debt limit.  Thus, Congress and President Obama have known for 18-24 months the fiscal cliff was coming but didn’t resolve it until after the deadline passed.

I have many smart and successful clients.  It has been exceptionally frustrating and difficult for them to make business and financial decisions without knowing what the future tax rates and rules will be.  Even on December 31st, no one knew what the rules would be the next day.  In my opinion, it was an absolute lack of leadership and prudence on behalf of both branches of government, both houses of Congress and both political parties.

Although the process was frustrating, the most upsetting part of the compromise was the complete absence of spending cuts.  The tax increases are projected to raise over $600 billion of additional revenue over the next 10 years, and all spending cuts are postponed, at least for another two months.

Fiscal Cliff statementPresident Obama campaigned on a balanced approach to deficit reduction.  How can you consider $620 billion of additional revenue and no spending cuts a balanced approach?  Our political leaders have promised the spending cuts will come soon, but that’s what they promised when they passed the law in August 2011.  It was easy to promise future cuts, but when it came time to actually implement a spending reduction, they postponed them once again.

Don’t be deceived into thinking the new tax revenues will make any significant dent in our debt or deficit.  $620 billion is a lot of money, but it’s over the next 10 years.  The U.S. Government is currently overspending by $1.3 trillion each year.  The additional revenues will help, but we’ll still rack up an additional $10+ trillion in debt over the next decade, based on current spending.  The exclusion of spending cuts in this deal was another missed opportunity.  Spending cuts are never easy or popular, but I’ll offer two guarantees; 1) spending cuts will come and 2) the longer we wait, the more painful they will be.

There may have been some political winners from the whole fiscal cliff debacle, but I believe we, the American public, were the real losers.  The deal cut may have averted the fiscal cliff, but the absence of any real spending cuts pushes us closer to a financial abyss.

Arithmetic

A few weeks ago, former President Clinton scored political points while criticizing the economic plan of Gov. Mitt Romney.  He touted the Federal budget surpluses during the final years of his presidency.  He went on to say he was able to balance the budget by simple arithmetic.  He also invoked the simple arithmetic principle to argue that Gov. Romney’s plan didn’t add up and would result in a large tax increase on middle class Americans.

The truth is that neither Gov. Romney nor President Obama’s plans pass the arithmetic test.  A detailed analysis of their plans is far beyond the scope if this article, so I’ll briefly summarize.

The highlights of Gov. Romney’s plan:

  • Cut tax rates by 20% for individuals and lower the corporate rate to 25%
  • Have preferential rates for interest, dividends and capital gains
  • Eliminate loopholes and limit certain deductions for higher income taxpayers

The criticism of Romney’s arithmetic is there aren’t enough loopholes to close which will offset the reduced revenue from the lower tax rates.  Deductions would also have to be limited for lower income taxpayers to make the numbers work.

The main point of President Obama’s plan:

  • Increase the tax rates for people making over $250,000
  • Eliminate the preferential rate for dividends and increase the capital gains rate

These changes are estimated to raise an additional $70 billion in annual tax revenues.

The arithmetic doesn’t work for either of these plans to balance the budget.  For the 2012 budget year, the federal government overspent by $1.1 trillion, and the total national debt has exceeded $16 trillion.  Since the government spends approximately $3.5 trillion each year, it’s a monumental task to close a $1.1 trillion deficit.

The U.S. Treasury collects approximately $2.2 trillion in income tax revenue each year.  To balance the budget under the Romney plan, all current deductions would need to be cut in half to raise another $1 trillion.  Deductions would have to be limited even more if the tax rates are reduced.  The Obama plan is no better.  Even if his tax changes were implemented, he’s about $1 trillion short to balance the budget.  By simple arithmetic, the numbers don’t add up… for Romney or Obama.

We can’t tax our way out of the hole we are in.  We must cut spending in order to balance the budget.  This is not Washington semantics for cuts by reducing the rate of growth or cutting the amount you hoped to spend.  It means actually spending less than the $3.5 trillion we spent last year.

On this front, I give the edge to Gov. Romney.  You or I may not agree with his proposals or priorities, but at least he’s willing to talk about cutting federal expenditures.   He was criticized and ridiculed after the first Presidential debate for trying to kill Big Bird, because he advocated ending the federal subsidy to the Public Broadcasting Service.  He has also been willing to tackle the “third rail” of politics – Medicare and Social Security.

In contrast, I can’t think of one significant cut in federal spending proposed by President Obama.  Counting money which would have been spent for the war in Iraq but isn’t going to be spent doesn’t count in my book.  It’s like saying you cut your spending by $5,000 for the vacation you didn’t take.  Furthermore, the budget deficit for 2013 will still be over $1 trillion without any spending for Iraq.  Instead of talking about spending cuts, the President is pushing for more “investments” (aka spending) for teachers and infrastructure.  These may be good things, but it doesn’t address how to balance the budget, and taxing the rich more isn’t going to close the gap.

Politicians are very good at using sound bites and obscuring the truth.  President Clinton was right… balancing the budget is simply a matter of arithmetic.  In this case, both candidates (and most members of Congress) probably need a remedial math class.

Ignore the WARNing

The Worker Adjustment Retraining and Notification Act (WARN) is a federal law requiring an employer with more than 100 employees to provide at least 60 advance notice of any mass layoffs or plant closings.  The law is intended to alert employees and communities of upcoming layoffs, and a company can be penalized for up to 60 days of employees’ wages for failing to comply with the WARN notification.

The WARN requirements have created a serious political problem.  According to the Congressional budget deal worked out last year, defense spending will be reduced by $55 billion starting on January 2, 2013.  If the spending cuts occur many defense contractors are concerned about a significant reduction in their contracts, which could lead to massive layoffs on January 2, 2013.  In order to avoid penalties and meet the 60-day WARN notification, employers need to notify their employees before November 2, 2012, which just happens to be 4 days before Election Day… ala the political conundrum.

On Monday, the Department of Labor (DOL) mailed a letter to state agencies stating it would be “inappropriate” for employers to send out WARN layoff notifications in anticipation of the defense spending cuts.  This immediately raised many eyebrows as to whether or not the DOL’s letter was politically motivated.   Suspicions were heightened, because the Department of Labor previously issued guidance to employers saying it could not give WARN advice regarding specific situations.

Three primary concerns come to mind regarding this matter.

Undue Political Influence

It’s hard to get away from politics in an election year.  Every decision is interpreted through a political prism, and it’s hard to divorce politics from the process.   Decisions like this one are made by high-ranking political appointees, and their jobs and influence are dependent upon whether or not their boss retains his job.  Thus, it can be near impossible to think politics won’t influence the decision makers.  However, it seems like elected and appointed officials are predisposed to make most of their decisions based on what’s best for their career and pocketbook, instead of what’s best for the country.  We can’t honestly know the motivation of the DOL personnel involved in this decision, but choosing to provide guidance on an issue they previously refused, certainly raises questions.

Meaningless Laws

The primary rationale for the DOL’s conclusion for employers to refrain from sending out WARN notices was the uncertainty of whether or not the cuts would remain in effect. The DOL essentially acknowledged this law was a sham in the first place and was passed for political expediency.  Irrespective of whether Congress ever intended for the cuts take effect, are the spending cuts the law or not??  According to the legislation on the books, the cuts will occur unless a new law is passed to restore the spending.  As a citizen, you’re penalized for disobeying a law or regulation, so why do politicians and government bureaucrats get to decide which laws they enforce or follow?

Ineffective Government

As a nation we are probably more divided than any time in history since the Civil War, yet the problems we face are immense.  The sluggish economy and $16 trillion debt are enormous problems.  Rather than having serious discussions and working towards creative solutions, our leaders are more focused on partisan brinkmanship and political machinations.  If history repeats itself, the defense spending cuts will probably never happen.  Rather than face a disgruntled electorate and risk losing an election, our leaders will forge some “compromise” which maintains the status quo and allows both sides to declare victory.  Meanwhile, nothing is resolved and the country plunges further into debt each day, and our leaders are able to pass laws that are never intended to go into effect to maintain the charade of getting something accomplished.

The DOL’s guidance for employers to ignore the WARN notices should set off a much larger warning.  Aside from the political ramifications, it’s a dangerous place for politicians and bureaucrats to selectively choose which laws to follow and enforce.  We’re either a nation of laws or not.  If not… then God help us.  Lawless nations and those which allow its leaders to use the laws to reward their friends and punish their enemies are always destructive to the people at large.