Is That All There Is? Editorial Writers Strike Obama Budget with Sharp Quills
Mike Klein
President Barack Obama insists the White House budget wish list released Monday made hard choices. Tuesday morning editorial pages saw it differently. Writers gave the Obama budget attempt a lukewarm reception, and that’s being fairly kind. Mostly they asked, “Is that all there is?” Here are excerpts from twelve of the nation’s most respected news organizations.
Chicago Tribune Editorial: “The debate over fiscal responsibility in the months ahead will deal only with a slim portion of federal spending. Nobody in power — not Obama, not the Democrats who run the Senate, not the Republicans who run the House — wants to talk much about what it’s going to take to curb the huge projected growth in entitlement spending. Even Obama’s projections say deficits will fall only to $607 billion a year by 2015, but will start rising rapidly again.” Link
Dallas Morning News Editorial: “Even under the administration’s optimistic future scenarios, the bottom lines are staggering. A record $1.56 trillion deficit for 2011, with trillion-dollar estimates (give or take a few hundred billion) deep into the decade. An unemployment rate still about 8 percent at the end of 2012. A tripling or more of the national debt, even without considering the shocking multiplier of unfunded Medicare and Social Security obligations … This starts the conversation. We, too, admit some skepticism that a sharply divided Congress will improve on Obama’s proposals, but the nation had better hope someone finds religion before it’s too late, if it isn’t already.” Link
Denver Post Editorial: “Everyone agrees that something must be done about runaway debt and spending. Or at least that’s what we’d like to think … We are disappointed the Obama administration has decided to double down on the status quo by submitting a 2012 budget plan of $3.73 trillion in spending, or 25 percent of gross domestic product — the highest level since World War II. The budget would add $8.7 trillion of new spending — and $7.2 trillion to the federal debt — over the next 10 years … Obama called the proposal one of “tough choices and sacrifices,” yet it does not confront entitlements and continues to act as if government spending is the way to prosperity.” Link
Detroit News Editorial: “Obama’s budget, while commendable for containing any amount of spending reductions, falls well short of the recommendations from his own deficit reduction commission, which would cut the deficit by $3.5 trillion over the decade. Getting there would require a good deal of sacrifice, but that’s the only way to make a substantial dent in the deficit … The commission’s plan has never received the serious airing in Congress that it deserves. That’s because it touches the sacred cows of Social Security and Medicare, and kills some cherished tax credits. And even though Obama formed the commission, he hasn’t championed its ideas.” Link
Investor’s Business Daily Editorial: “Obama seems to be playing a political game of chicken with the Republicans — betting they won’t have the guts to make the cuts that he refuses to make. And if they do, he’ll blame them for the pain that results. No doubt that’s why he totally ignored his own “bipartisan” deficit-cutting commission, which in December recommended big spending cuts and entitlement reform to reduce future budget shortfalls. Obviously, Obama took his copy of the report and shredded it.” Link
Los Angeles Times Editorial: “President Obama’s budget for fiscal year 2012 landed with a thud Monday, laying out short- and long-term tax and spending plans that disappointed lawmakers on both sides of the aisle … The proposal was a remarkably tame response to Washington’s fiscal problems, not the bold statement about belt-tightening that the White House had suggested was coming. Yet the biggest shortcoming is that it all but ignored the most important long-term financial challenge, which is the growing cost of entitlements such as Medicare and Medicaid.” Link
Minneapolis Star-Tribune Editorial: “The flurry of deficit-reduction plans released late last year were supposed to kick off a national adult conversation about the nation’s metastasizing long-term debt problem. So when is that conversation going to begin? It certainly didn’t happen on Monday when President Obama released his $3.7 trillion budget request for 2012 … While the president’s plan included some painful cuts that should stabilize the nation’s debt level relative to its economic output, it continued the reckless fiction that the country’s books can be balanced without reforming these expensive entitlement programs: Medicare, Medicaid and Social Security.” Link
New York Times Editorial: “What Mr. Obama’s budget is most definitely not is a blueprint for dealing with the real long-term problems that feed the budget deficit: rising health care costs, an aging population and a refusal by lawmakers to face the inescapable need to raise taxes at some point. Rather, it defers those critical issues, in hopes, we assume, that both the economy and the political environment will improve in the future … For the most part, Mr. Obama has managed to cut spending while preserving important government duties. That approach is in stark contrast to Congressional Republicans, who are determined to cut spending deeply, no matter the consequences.” Link
Scripps Howard News Service Editorial: “Congress must shortly confront two critical budget matters. By March 4, it must vote to extend a resolution funding continued federal operations for the year or risk a government shutdown and later this spring to increase the government’s borrowing authority or risk the U.S. defaulting on its debts … The hope is that these issues will force the two parties to come to some kind of grand bargain on tax and entitlement reform to finally solve the problem of recurring deficits. But like some of the president’s economic assumptions, that may be overly optimistic.” Link
USA Today Editorial: “President Obama likes to talk about those “Sputnik moments” when the nation rises to difficult challenges like the one posed by the Soviet space program in the 1950s. On Monday, he had a chance to turn his federal budget proposal into his own such moment. He whiffed … Obama and his aides boasted that the administration’s spending plan would shave $1.1 trillion off anticipated deficits over 10 years. For a Democratic president to propose cuts in programs with strong Democratic constituencies is a measure of how the national dialogue on spending has shifted. But, as it happens, $1.1 trillion is the projected deficit for 2012 alone. Talk about insufficient.” Link
Wall Street Journal Editorial: “This was supposed to be the moment we were all waiting for. After three years of historic deficits that have added almost $4.5 trillion to the national debt, President Obama was finally going to get serious about fiscal discipline. Instead, what landed on Congress’s doorstep on Monday was a White House budget that increases deficits above the spending baseline for the next two years. Hosni Mubarak was more in touch with reality last Thursday night.” Link
Washington Post Column by Dana Wilbanks: “Obama’s budget proposal is a remarkably weak and timid document. He proposes to cut only $1.1 trillion from federal deficits over the next decade – a pittance when you consider that the deficit this year alone is in the neighborhood of $1.5 trillion. The president makes no serious attempt at cutting entitlement programs that threaten to drive the government into insolvency … The best explanation the White House has come up with, uttered privately, is that Obama didn’t want to step out too far with politically unpopular cuts before congressional Republicans propose their own.” Link
Mike Klein is Editor at the Georgia Public Policy Foundation. The opinions are those of news organizations and writers who were quoted and they should not be attributed to the Georgia Public Policy Foundation, which has no opinion.
Georgia Unemployment Migraine: “Right Now We’re In The Trauma Room”
Mike Klein
Georgia has an unemployment migraine. Evidence of that is almost everywhere you look.
The percentage of jobless Georgians – now 10.2% — has been higher than the national average for 39 consecutive months. Georgia recently posted the nation’s worst weekly increase in initial unemployment claims. And, the state expects to owe $820 million to Washington because it has borrowed federal funds to help write unemployment checks since December 2009.
“Right now we’re in the trauma room,” said Mark Butler, the former state legislator who was elected last November to become Georgia’s first new labor commissioner in twelve years. Butler presides over a $416 million budget of mostly federal dollars and 4,000 employees.
These numbers matter most to Butler: 388,000 out-of-work Georgians received unemployment checks last year. Fifty-four percent are long-term unemployed, which means they had no work for at least 27 weeks. The U.S. Department of Labor reported last week that Georgians filed 10,335 initial unemployment insurance claims during the week that ended January 22, the most new claims in any state.
State labor officials do not have data on the number of Georgians who exhausted all state and federal unemployment benefits after 99 weeks. But labor officials estimate some 300,000 jobs were lost during the recession. That placed an enormous burden on benefit payments.
The state unemployment insurance trust fund is worse than broke. Once flush with nearly $2 billion, it was depleted because the state made decisions to reduce contribution taxes paid by employers. Then two recessions within 10 years took their toll, especially the 2008 economic collapse.
“We had a plan, an insurance level. The (2008 recession) was much worse than insurance could protect against,” said state economist Kenneth Heaghney of Georgia State University.
Unemployment compensation trust funds are a federal-state partnership created by the Social Security Act of 1935. Washington has oversight but states design their programs within federal requirements. States that exhaust trust fund reserves can borrow without limit from the Federal Unemployment Account.
Trust fund accounts are forward-funded. Employers pay taxes based on formulas that include employee total earnings and the company’s layoff history. The theory is funds that accumulate during good times will be used to write checks during bad times.
Georgia employer contributions have not kept pace with benefit claims. The state received $620 million in employer taxes last year but checks totaled $1.165 billion. Still, that was better than the 2009 calendar year when checks reached $1.725 billion. Trust fund reserves were used to bridge the gap until they ran out 14 months ago.
How big a deal is this nationally? The U.S. Department of Labor’s new update last Friday said 30 states and the Virgin Islands have outstanding loan balances that total $42.3 billion. Georgia borrowed $588 million through January 21. That became $620 million through last week, then $634 million through Monday. Butler predicted the level could reach $820 million this spring.
How did we get here? In part, the answer is purely mathematics – Too many people have been out of work too long and there is not enough money going into the fund – but policy decisions made in Georgia dating back to the early 1990’s also played a significant role in the fund going broke.
Forty years ago – before a stunning population explosion – Georgia’s unemployment trust fund had less than $500 million. It grew rapidly over 20 years in step with population and business community growth. By the early 1990’s the fund was at $1 billion and buoyed by the robust economy, there was political sentiment to cut unemployment taxes paid by businesses.
The state made a $45 million cut in 1994. Massive reductions happened during the Governor Roy Barnes administration: $92.2 million in 1999, another $30.6 million in 2000 and a decision by Barnes to reduce corporate trust fund taxes by $1 billion more over four years.
Contributions went onto a state tax holiday at almost the precise moment that the first of two recessions arrived. The fund held $1.93 billion in December 1999 but four years later just $701,900 remained. The tax holiday ended at the start of 2004, but that same year the state announced another $50 million cut.
An economic analysis by the Georgia State University Fiscal Research Center in March 2006 said Georgia’s fund had never approached insolvency during 35 previous years, but FRC also concluded the fund would have “a tough time financing future payouts especially if the state suffered a fairly quick downturn in 2006 or 2007.”
The Fiscal Research Center cast its scrutiny elsewhere in this warning, “Experts draw a close comparison with New York, Texas, Illinois and other states whose UI Trust Funds are now insolvent following UI tax cuts during the celebrated economic times of the 1990’s.”
Georgia would soon learn that painful lesson. The $1.28 billion trust fund balance in December 2007 was completely gone less than two years later. Federal Unemployment Account loan funds are drawn down as needed and Georgia borrowing that began in December 2009 averaged $42 million per month through January of this year.
Where would the fund be today without that $1 billion tax holiday? “We would probably be in better shape than any state in America,” Butler said. “Everyone would be saying, we wish we were Georgia. We would have a little more than $500 million sitting in the trust fund right now.”
Here is what the next few months look like. Georgia expects to collect more than last year’s $620 million in employer contribution taxes. Most receipts will be posted after the first quarter because the tax is levied on the first $8,500 of a worker’s income. Butler said that should enable the state to stop borrowing money from Washington.
Then there is the $18 million question, which is the estimated size of Georgia’s first interest payment owed to the federal government before the end of September. Federal law prohibits the state from using employer contribution funds to cover the interest. Translation: The state must find $18 million inside the general fund or other monies at the Department of Labor.
“The best I can tell, there wasn’t a whole lot of emphasis on planning to take care of this,” Butler said. “I hate to be critical, but I think there were some assumptions made that the state would come up with the money.” Butler is looking first at department accounts to find some dollars.
The Wall Street Journal reported Wednesday that the White House will propose waiving those interest payments for two years. The Journal also said the federal government would propose to more than double the amount of employee wages that are subject to unemployment taxes.
Then there is the $634-to-$820 million question. Washington has not established a repayment deadline but the federal loan rate increases each year principal goes unpaid. Butler has asked for a legal opinion about whether the state can issue bonds to retire the debt. The state pays about 4% on federal loans and Butler said state bonds could be sold for perhaps half that rate.
“We would save millions of dollars in interest,” Butler said. “We have to be very careful about paying this back. If we’re irresponsible, if we don’t make the payments as soon as possible, our businesses are on the hook for this money and the rates will increase dramatically on the federal side.” Butler said benefit reductions are not an option; “That’s off the table.”
Georgia must also decide how much reserve to maintain when the trust fund is solvent. Today’s economy is more volatile than forty or twenty years ago. The choices will include whether to raise rates paid by employers so the fund can withstand any downturn or choose solvency for most needs with a choice to borrow federal funds again during an economic collapse.
Butler said he would like to convene “a fairly large tent from the private sector” to think about a system that “needs some basic tweaks.” He added, “This is not something that we want to tackle right now but it is something we do want to take a look at (to create) the most fair, most sound system with the least amount of burden on Georgia businesses.”
Georgia Data:
Georgia Unemployment Rate: 10.2%
National Unemployment Rate: 9.0%
December 2009 Long-Term Unemployed: 168,200
December 2010 Long-Term Unemployed: 252,200
November 2010 Statewide Payroll Jobs: 3,849,000
December 2010 Statewide Payroll Jobs: 3,827,000
December 2009 Initial Claims: 100,896
December 2010 Initial Claims: 75,635
Source: Georgia Department of Labor
Mike Klein is Editor at the Georgia Public Policy Foundation.
Obama Proposal Would Temporarily Forgive Federal Interest Payments
Mike Klein
The Wall Street Journal reported Wednesday that President Barack Obama will propose to waive interest and penalty payments for two years on billions of dollars in federal loans that states have needed to write unemployment compensation benefit checks.
The Journal said Obama’s fiscal 2012 budget that will be released next week would also propose to more than double the amount of employee wages that are subject to unemployment taxes in an effort to help states rebuild their depleted unemployment insurance accounts.
These two ideas floated by the White House acknowledge states are having a terrible time paying unemployment benefits. Thirty states and the Virgin Islands have $42.3 billion in outstanding Federal Unemployment Account loans. Georgia had $634 million in outstanding loans through Monday.
The Journal said Capitol Hill Republicans reacted with “hostility” to the increased taxes proposal.
Last week federal officials reported the national unemployment rate declined by four-tenths to 9.0% in January. But another number received less attention: 9.3 million receive unemployment benefits. The number of Americans on benefits equals almost the entire population of Georgia.
“No one knew or prepared for this type of recession,” said Diana Noel, committee director for labor and economic development at the National Conference of State Legislatures (NCSL).
California, with 12.3% unemployment and its population of 37 million, has borrowed the most, $9.9 billion since January 2009. Michigan has borrowed the longest, $3.7 billion since September 2006. New York and Pennsylvania borrowed more than $3.2 billion. Five states – Florida, Illinois, Indiana, North Carolina and Ohio – borrowed between $2.0-and-$2.6 billion.
Under current regulations — meaning before the new White House proposal — states will be required to repay these federal loans, plus 4% interest. Texas sold $2.1 billion in bonds last year to repay its loan and replenish the state trust fund. Georgia is considering that same option, said new labor commissioner Mark Butler. So is Michigan. Tennessee repaid $20.7 million last June to join Texas as the only other southern state without a loan balance.
Georgia borrowing will accelerate through the first quarter and Butler predicted it could reach $820 million in April. Georgia has the 16th highest loan balance nationally and the fifth highest among southern states behind North Carolina, Florida, South Carolina and Kentucky.
Georgia Public Policy Foundation analysis matched population census data with federal outstanding loan balances to create a per capita borrowing picture. In that scenario Georgia ranks 23rd nationally and third lowest among southern states at $60 per resident.
Here is additional data from the U.S. Department of Labor and the GPPF analysis:
Largest Loan Balances & Rank
California $9.91 Billion 1
Michigan $3.73 Billion 2
Pennsylvania $3.29 Billion 3
New York $3.24 Billion 4
Illinois $2.62 Billion 5
North Carolina $2.56 Billion 6
Ohio $2.36 Billion 7
Florida $2.07 Billion 8
Indiana $2.03 Billion 9
New Jersey $1.58 Billion 10
Wisconsin $1.45 Billion 11
Source: U.S. Department of Labor
Southern State Loan Balances:
North Carolina $2.56 Billion 6
Florida $2.07 Billion 8
South Carolina $933 Million 12
Kentucky $858 Million 13
Georgia $634 Million 16
Virginia $398 Million 19
Arkansas $330 Million 20
Alabama $230 Million 22
Tennesee $0
Texas $0
Source: U.S. Department of Labor
Largest per Capita Borrowing & Rank
Michigan $378 1
Indiana $310 2
North Carolina $269 3
California $264 4
Wisconsin $258 5
Pennsylvania $251 6
Nevada $243 7
Rhode Island $214 8
Ohio $201 9
New Jersey $199 10
Source: Georgia Public Policy Foundation
Southern States per Capita Borrowing & Rank
North Carolina $269 3
South Carolina $197 12
Kentucky $192 13
Arkansas $119 19
Florida $109 20
Georgia $60 23
Virginia $48 24
Alabama $47 25
Tennessee $0
Texas $0
Source: Georgia Public Policy Foundation
Mike Klein is Editor at the Georgia Public Policy Foundation.
WSJ Economics Writer: U.S. Cannot Borrow Its Way to Prosperity
Stephen Moore remembers asking his son, who’s the best basketball player in the world? They agreed, it’s LeBron James, who earns about $40 million per year in salaries and endorsements. Moore posed a question to his son: how long would it take LeBron James to earn $1 trillion? The answer is a staggering 25,000 seasons. Not even Michael Jordan played that long!
Moore delivered the economic keynote address at this past weekend’s conference hosted by the Georgia Public Policy Foundation and the Conservative Leadership Policy Institute. Moore is the Wall Street Journal’s senior economics writer, a member of its editorial board, the author of six books and a former senior economist on the Congressional Joint Economic Committee.
Here’s the point Moore made with his LeBron James example: We hardly know what $1 trillion means even as we watch the federal government routinely run debt into the several trillions.
“We have spent too much money, we have borrowed too much money, we have printed too much money and we have taken too much power from the states,” Moore said. “Milton Friedman taught us this 30 or 40 years ago. There’s no free lunch. If Washington or the state of Georgia spends a dollar, that dollar has to come from somewhere.”
Last week the National Commission on Fiscal Responsibility and Reform floated a draft report with ideas to reduce the national debt by $4 trillion over 10 years. Dozens of proposals would significantly change Social Security, other federal entitlements and discretionary spending.
Moore’s remarks in Atlanta on Saturday are timely because of that report, and also because Congress went back to work Monday, ready to argue about what to do with your money.
Tuesday’s agenda will include the Senate debate on funding earmarks. Thursday’s action will move to the White House where President Barack Obama, Democratic and Republican leaders seem ready to dig in their heels about extension of Bush-era federal income tax cuts. Congress also needs to fix the alternative minimum tax for 2010 taxpayers before the holiday break.
Stephen Moore
“We had better make sure we extend all the Bush tax rates come next January,” Moore told 250 conference attendees. “If you want to balance the budget in Washington, if you want to balance the budget here in Atlanta, you want more rich people.”
Here’s why: Rich people invest; investment triggers growth; growth triggers more employment; employed people purchases products and services and employed people pay taxes, exactly the opposite of unemployed people who require government services paid for by employed people.
Moore believes the nation has arrived at a critical historical point: “The number one issue is this, what country is going to be the global number one super power? For our lives, the United States has been a force for good. We’ve led the world.
“But now for the first time in our lives we have an honest to god rival. And who is that; China, now becoming one of the most prosperous countries in the world. China predicts in 18-to-20 years that it will catch the United States,” Moore said.
“China is focused right now like a laser beam on competitors. They have their eye on the ball. That’s what we need to do as a nation and that’s what we need to do in Georgia. Everything you do, make sure you keep in mind, is this going to make Georgia more competitive?
“Step one and I’m deadly serious about this: Abolish the state income tax. This is not a radical idea. There are nine states in this country that have no state income tax,” Moore said. “Texas, Florida, Tennessee; these states are able to pay their bills without having an income tax. It’s so obvious; the states without an income tax are the ones that have driven growth.”
Georgia’s Special Council on Tax Reform is expected to propose some revisions to the state’s 6% individual income tax when it reports to the General Assembly in January. Sources say it might propose reduced individual income tax rates in a new model that would move taxation away from earned income and toward taxation of services and products purchased.
Moore predicted the Republican majority U.S. House will pass a bill to repeal Obamacare, the Senate will not and health care will become “death by a thousand cuts.” He predicted the individual mandate will be eliminated. “What we need to do with health care is, we need to allow states to begin to experiment. Let people buy insurance from anywhere they want to.”
Moore started his address with this idea: “The election we just saw was not a victory for the Republican Party. It was a victory for the conservative movement and free market principles.” He finished with this idea: “Both parties are still fighting with each other. It’s like none of them learned the lesson.”
Mike Klein is Editor at the Georgia Public Policy Foundation.
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