Transcript Washington in Chaos as the November Election Approaches

Washington in Chaos as
the November Election
Approaches: What Lies
Beyond?
API’s Biennial Tanker Conference
Orlando, Florida
May 21, 2012
Kenneth J. Kies
Managing Director
Federal Policy Group
A Practice of Clark & Wamberg
View from Washington
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Overview
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Federal Fiscal Outlook
Economic Outlook
Debt Ceiling Outcome and Super Committee Results
The President’s FY 2013 Budget
Tax Increases Ahead in 2013?
Tax Legislative Agenda for 2012?
Political Outlook
Possible Game Changers
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The Outlook for 2011
Federal Fiscal Outlook
Page 4
Deficit Outlook Under Obama Budget
Annual Budget Deficit
Baseline vs. Obama Budget
$1,800
$1,600
$1,293
$1,300
$1,327
$1,200
$1,000
$901
$800
$668
$610
$649
$612
$600
$575
$626
$658
$681
$400
$200
20
21
20
20
20
19
20
18
20
17
20
16
20
15
20
14
20
13
20
12
20
11
20
10
$0
20
09
Annual Deficit ($ billion)
$1,413
$1,400
Fiscal Year
CBO Baseline
Obama Budget
Source: CBO Baseline Budget Outlook, March 2012/ President Obama’s budget for fiscal year 2013, February 2012
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Federal Debt Outlook: Treasury
Total Public Debt -- Treasury
(Annual Report on the Public Debt, June, 2011; $ Trillions)
$21.4
$20.1
$20
$18.9
Publicly Held Debt ($ Trillions)
$17.7
$16.5
$15.4
$15
$13.5
$11.9
$9.9
$10
$5
$0
2008
2009
2010
2011
2012
2013
2014
2015
2016
Fiscal Year
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Federal Debt Outlook: Treasury
Total Public Debt (As % of GDP) -- Treasury
120%
102%
105%
106%
106%
107%
108%
2012
2013
2014
2015
2016
93%
100%
84%
80%
69%
60%
40%
20%
0%
2008
2009
2010
2011
Fiscal Year
Source: Annual Report on the Public Debt, June, 2011
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Projections Actually Understate Scope of Real Problem
 Assumes No Medicare “Doc” Fix
 Assumes Bush Tax Cuts Expire for those with
income over $250,000
 Assumes no individual AMT “patch”
 Possibly unrealistic economic assumptions
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Economic Outlook
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Economic Indicators
 Consumer confidence
– At 69.2 in April, down from 69.5 in March 2012. The index would need
to be at 90 to indicate the economy is on solid footing.
(source: Conference Board)
 Residential real estate remains troubled
 5.78% of all mortgage borrowers were delinquent in the 1th quarter of
2012, down from the 1st quarter 2010 high of 10.1%, but far above the
historical average of about 2%.
 Delinquency rates for FHA loans, which typically go to low-tomoderate income borrowers, are up over the past year, to 12.1%.
 GDP growth for most of 2011 was very poor—just 0.4%, 1.3%, and 1.8% in
the first three quarters, though Q4 improved to 3.0%. GDP growth for the
first quarter of 2012 was 2.2%.
 Unemployment in April was 8.1%, down from 8.2% in March.
 522,000 job-seekers gave up looking for work in April.
 Only 115,000 net new jobs were created in April.
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Economic Indicators
 Labor force participation rates continue to drop, particularly among men
and youth, to record or near-record lows, while long-term unemployment
is at record highs
 The civilian labor force participation rate declined in April 2012 to just 63.6% of
the population 16 years and older, the lowest level since December of 1981
according to the Bureau of Labor Statistics. For March, the participation rate
was not much better: 63.8%.
 The labor force participation rate for men 20 and older in April 2012 was just
72.9%, the lowest since World War II. January to March the rate was 73.3%.
 Teen employment dropped to 25.4% in April, the lowest in post-WW II history.
In January of 2012, only 59.9% of adults aged 20-24 were employed, down from
a high of over 70%.
 Overall unemployment rates have declined largely because the millions of
people who have left the workforce are not counted as unemployed.
 The number of long-term (27 weeks or more) unemployed persons has
quadrupled since 2008. Of the 5.1 million unemployed over 27 weeks, 4 million
have been unemployed over a year. 41.3% of all unemployed persons are longterm unemployed, more than twice historical norms.
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States and Cities in Fiscal Crisis
 States face over $3 trillion pension funding shortfall
– A 2011 University of Chicago and Northwestern’s Kellogg
School of Management study found that all 50 states
collectively face a $5.17 trillion pension obligation, but only
have $1.94 trillion set aside in state pension funds, a difference
of $3.23 trillion.
– Stanford University study shows possible pension funding
liability of $500 billion for California alone.
– Pension funds for state and local workers are understated by
$1.5 trillion or more, meaning that the benefits are much costlier
than many governments and taxpayers thought. Economists:
State, local pension funds understate shortfall by $1.5 trillion or
more – Washington Post, March 3, 2011
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States and Cities in Fiscal Crisis
 States face over $3 trillion pension funding shortfall (continued)
– Pension costs force major layoffs. Citing pension costs, Costa Mesa,
Calif., plans to lay off nearly half its employees – Washington Post, March
19, 2011
– Rhode Island has barely one million residents and a pension shortfall of at
least $6.8 billion for city employees. Washington Post, September 6, 2011
– Across New York, state and local governments are borrowing $750 million
this year “from the very same $140 billion pension fund to which they owe
money…to finance their contributions to the state pension system.” New
York Times, February 27, 2012
 Some cities face bankruptcy
– “Los Angeles could go bankrupt if it doesn't overhaul its finances with
new taxes, possible layoffs and the privatization of some city services, the
city's top budget official says.” San Francisco Chronicle, April 7, 2012
– Stockton, California's City Council will be asked next week to begin the
process of becoming the largest U.S. city to file for bankruptcy.”
Bloomberg, March 1, 2012
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The Debt Ceiling Deal
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Agreement to Increase the Debt Limit
 $900 Billion Initial Increase in the Debt Limit
– Increased in two tranches: $400 billion and $500
billion
– $500 billion occurs if Congress doesn’t block it
 $917 Billion in Spending Cuts tied to Initial Increase
 Bill created a “Congressional Joint Select Committee
on Deficit Reduction” (a.k.a. “Super Committee”) to
locate up to $1.5 trillion in additional deficit reduction
 If Committee fails to locate at least $1.2 trillion in
savings, across-the-board cuts kick in but not until
January 2, 2013.
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Some Perspective on the Debt Limit Deal
 The Debt Agreement Must Reduce the Deficit by at
least $2.1 trillion over the next ten years
 The Federal Government is Slated to Spend more than
$46 trillion over the next ten years
 Bottom Line: The Debt Agreement cuts 4% from
Federal Spending over the next ten years
 Put Another Way: Cuts in Debt Agreement do not cover
half of Federal Interest payments of $5.4 trillion over
the next ten years
Source: The Congressional Budget Office: “Budget and Economic Outlook: Fiscal Years 2011 to 2021”, “CBO Analysis of August 1 Budget Control Act”
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Putting the Debt in Perspective for Fiscal Year 2011
 U.S. Tax Revenue: $2,314,000,000,000
 Federal Budget:
$3,597,000,000,000
 New Debt:
$1,283,000,000,000
 National Debt:
$14,698,625,550,307.37 (and counting)
 Budget Cuts:
$38,500,000,000
Source: The Congressional Budget Office, Treasury Department’s Bureau of Public Debt
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Drop 8 Digits, the Debt becomes a Family Budget
 Annual Family Income: $23,140
 Money Family Spent:
$35,970
 New Credit Card Debt: $12,830
 Credit Card Balance:
$146,986.37 (and counting)
 Budget Cuts:
$385
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The Real Kicker
“A federal budget compromise that was hailed as
historic for proposing to cut about $38 billion would
reduce federal spending by only $352 million this fiscal
year, less than one percent of the bill’s advertised
amount, according to the Congressional Budget
Office.”
- The Washington Post, April 14, 2011
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Translation:
The Family Budget was cut by $3.85, not $385
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President Obama’s Deficit-Reduction Plan Uncovered
The Promise:
“It’s a plan to reduce our debt by more than $4 trillion.”
- President Obama, September 19, 2011
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President Obama’s Deficit-Reduction Plan Uncovered
The Reality:
The plan INCREASES the deficit by
$3.049 TRILLION
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President Obama’s Deficit-Reduction Plan Uncovered
The Math:
$4.850 trillion: Deficit-reduction purported in the
President’s plan
Minus: $5.109 trillion: Tax cuts and spending increases the
President seeks that are not in current law
Minus: $1.084 trillion: Troop withdrawal savings in the plan already
anticipated
Minus: $1.349 trillion: Deficit-reductions included in the President’s
plan that already have been enacted into law
Minus: $ .357 trillion: Additional Interest Expense on the Debt
____________
Equals:$ 3.049 trillion DEFICIT INCREASE
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Federal Revenues Are Depressed As Well
 Revenues as a percent of GDP have averaged 17.8
percent since 1950
 Revenues as a percent of GDP have been at their
lowest level since 1950
FY- 2009 - 15.1%
FY- 2010 - 15.1%
FY- 2011 - 15.4%
FY- 2012 - 16.3% (projected)
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Outcome of the Super Committee
 Super Fail
– USAToday, November 22, 2011
 Deficit Panel Folds Its Tent
– The Wall Street Journal, November 22, 2011
 Super committee rests in pieces
– The Christian Science Monitor, November 22, 2011
 Deficit supercommittee announces failure
– The Washington Times, November 21, 2011
 Supercommittee Failure PosesThreat to U.S.
– Bloomberg, November 22, 2011
 Short Term Consequences
 NOT MUCH
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Snooze Alert: President Obama’s FY 2013 Budget
“If there was ever a year to ignore the President’s
annual budget proposal, this is it.”
National Journal Daily, February 13, 2012
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Pending Federal Tax Increases (continued)
 Current Law Tax Increases to Take Effect in 2013
(includes effect of (1) higher top marginal ordinary income tax rate, (2) expiration of
qualified dividend tax rate, (3) expiration of reduced long term capital gains tax rate,
(4) imposition of higher Medicare tax)
Type of Income
Top Rate in
2011
Top Rate in
2013
37.9%
43.4%
35%
43.4%
Qualified Dividends
15%
43.4%
Long Term Capital Gains
15%
23.8%
Earned Income
Unearned Income
(except Qualified Dividends
and Long Term Capital Gains)
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Pending Federal Tax Increases (continued)
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“Congress risks taking the economy over a ‘massive fiscal cliff,’
Federal Reserve Chairman Ben Bernanke warned lawmakers on
Wednesday.
In remarks that hit Wall Street stock prices, the central bank
boss suggested the economy could hit a serious roadblock if
Congress allows the Bush tax rates and payroll tax cut to expire
and $1.2 trillion in spending cuts to be implemented
simultaneously in January.”
- The Hill, March 1, 2012
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What Is On the Legislative Agenda for 2012?
White House spokesman Josh Earnest said extending the payroll tax
break through next year, a fight that will consume Congress after
lawmakers return to Washington in January, is “the last must-do
item of business on the president’s congressional agenda.”
- The Wall Street Journal, January 1, 2012
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Political Outlook for 2012
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Congressional Outlook
Senate Outlook
 2010 Results in 53 Democrats and 47 Republicans
 Democrats have 22 seats to defend in 2012
House Outlook
 Current Make up
Republicans 240
Democrats 193
Vacancies
2
 Factors that could affect 2012 Outcome
 Economy/Jobs
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Presidential Race
 Obama Vulnerabilities 2008 compared to 2012
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Support for Gay Marriage
Economy/Jobs
Women
Young Voters
Independent Voters
Unions
Jewish Voters
African American Voters
Hispanic Voters
No George Bush
 Republican Vulnerabilities
-
The primaries
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President Obama’s Unemployment Problem
Average Monthly Unemployment Rate
• Obama:
• Ford:
• Reagan:
• Carter:
• Bush 41:
• Kennedy:
• Bush 43:
• Clinton:
• Nixon:
• Eisenhower:
• Truman:
• Johnson:
9.2%
7.8%
7.5%
6.5%
6.3%
6.0%
5.3%
5.2%
4.2%
4.9%
4.2%
4.2%
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Can Gas Prices Prediction the Election?
President
Average Price per Gallon
on First Inauguration Day
Average Price per Gallon
on Day Re-Elected
Bill Clinton
$1.06 (Jan. 20, 1993)
$1.31 (Nov. 5, 1996)
George W. Bush
$1.54 (Jan. 20, 2001)
$2.07 (Nov. 2, 2004)
President
Average Price per Gallon
on Inauguration Day
Average Price per Gallon
on May 14, 2012
Barack Obama
$1.93 (Jan. 20, 2009)
$3.75
Source: U.S. Energy Information Administration, weekly average for midgrade conventional gas prices/ AAA
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Does Obama Have a Money Problem?
The Obama campaign is lagging behind its fund-raising
pace of four years ago. Shortfalls in contributions from
major industries have made the campaign more reliant
on small donors and joint fund-raising with the
Democratic National Committee.
The New York Times, April 20, 2012
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Obama Contributions: Then and Now
$ Raised
$ Spent
$ On Hand
Obama Campaign
2007 – 2008 (1st Quarter) $262 Million $192 Million $70 Million
Obama Campaign
2011 – 2012 (1st Quarter) $196 Million $ 94 Million
$102 Million
Source: Center for Responsive Politics; Federal Election Commission
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Contributions: Obama 2008 vs. Obama 2012
Industry
Investment
2008
$ 8.2 Million
2012
$ 2.4 Million
% Change
- 68
Real Estate
4.7
1.9
- 60
Finance
2.9
1.3
- 53
TV, Music, Movie
3.9
2.0
- 49
Lawyers/Firms
15.4
8.1
- 47
Business Service
4.5
2.4
- 46
Health
3.7
2.1
- 43
Education
5.7
3.8
- 33
Public Servants
2.1
1.6
- 26
Computer/Web
2.7
2.2
- 20
Business/Self-Emp
2.3
2.4
+4
11.8
12.6
+7
1.5
1.9
+ 26
Retired
Women’s Issues
Source: Center for Responsive Politics; Federal Election Commission
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Poll Numbers Bad for All
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Elected Officials Take a Hit
 McClatchy-Marist: 49% “definitely plan” to vote against President
Obama, September 13–14
 CBS News/ NY Times poll May 11-13: Romney leading Obama 46%
to 43%.
 USA Today/Gallup poll May 8-14: Obama leading Romney 46% to
45%.
 Real Clear Politics average April 9-May 7: Only 14% approve of
how Congress is handling its job.
 Real Clear Politics average for April 28 – May 14 for President
Obama: 48% approve and 48.5% disapprove
 In December of their third year in office here’s where past
President’s were:
– Eisenhower (1955) 75% - Nixon (1971) 50%
- Carter (1979) 53%
– Reagan (1983) 54%
- HW Bush (1991) 51% - Clinton (1995) 51%
– W Bush (2003) 58%
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How is Congress Doing?
The Bottom of the Barrel
Degree of Confidence
The Military:
78%
Small Business 64%
The Police
56%
The Church
48%
Hospitals
39%
Supreme Court 37%
The Presidency 35%
Justice System 28%
Newspapers
28%
TV News
27%
Banks
23%
Labor
21%
Big Business
19%
HMOs
19%
CONGRESS
14%
Gallup, June 23, 2011
Page 41
The English Language has some wonderfully anthropomorphic
collective nouns for the various groups of animals.
We are familiar with
a Herd of cows,
a Flock of chickens,
a School of fish,
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a Gaggle of geese,
However less widely known is:
a Pride of Lions,
a Murder of crows,
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(as well as their cousins the rooks and ravens),
an Exaltation of doves,
and, presumably because they look so wise:
a Parliament of owls.
Now consider a group of Baboons. They are the loudest, most
dangerous, most obnoxious, most viciously aggressive
and least intelligent of all primates.
And what is the proper collective noun for a group of baboons?
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Believe it or not ……. a Congress!
A CONGRESS OF BABOONS!
I guess that pretty much explains the things
that come out of Washington !
You just can't make this stuff up.
Go green –
Recycle Congress in 2012 !!!
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Possible Game Changers
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Possible Game Changers for 2012
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President Obama’s Support of Gay Marriage
U.S. Supreme Court decision on Obamacare
Euro Zone Meltdown
Iran Nuclear Activity
North Korea
China Economy
Middle East Unrest
Natural Disasters
Terrorist Attack
Debt Ceiling Pierced before November 2012 Election
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 Fast and Furious
 Solyndra Bankruptcy
 General Services Administration – “It didn’t stay in
Vegas”
 Cartagena - Gate
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