Posted by Michael A. Kamperman on November 23, 2010
Shockingly, the State of Texas is placing pulling out of Medicaid as agenda item number one in its attemtps to close a projected $25 billion two year budget shortfall. At first this seemed like just a back-bencher idea. But Governor Rick Perry has endorsed pulling out of Medicaid as a legitimate way to help close the budget gap. Medicaid will spend $24.7 billion in Texas in fiscal year 2011. The federal government will cover $16.6 billion and the state will cover the rest. Governor Perry claims they can save both the state and the federal government money and do more with much, much less funding. This is nothing short of libertarian ideology gone wild. First and foremost it is impossible to do more with that much less. Second, because Hospital Emergancy Rooms cannot refuse service based on the ability to pay a significant cost will be shifted to hospital budgets. County hospitals will require increased local tax support. Third, over one million Texans work in healthcare. The states unemployment rate will rise substantially and its tax revenues will decrease if this plan is enacted. However, the state will have to make dramatic cuts in public K-12 education if it is unable to find cuts in Medicaid. The math simply doesn’t allow Texas to balance its budget, leave Medicaid off the table, leave tax increases off the table, and leave K-12 education off the table. While libertarian ideology is making Medicaid a wedge issue in Texas, it is a budget wedge issue in almost all of the states. The states are broke and significant cuts are coming.
The simple solution is to federalise Medicaid. The federal government should absorb all of the costs of administering the program. Since the federal government doesn’t have to have a balanced budget it can continue the program even during severe economic downturns like the one we currently find ourselves in. The poor will continue to receive quality healthcare. The only growth area of the economy, healthcare, will not be thrown into an instant depression as would happen if multiple states opt out of Medicaid to balance bleeding budgets. And children in first grade will not be crammed into larger and larger classrooms where learning takes a back seat to baby sitting. Importantly, federalising Medicaid doesn’t increase overall government spending or taxation. It simply shifts the states existing burden to the federal government which mandated Medicaid.
All of this is the unintended consequence of a poorly constructed Health Care Plan rushed through on a party-line vote by the Whitehouse. The President should step forward and show leadership. The Health Care plan has to be fixed. But the political Rubics Cube of satisfying the left, the right, and the middle on this issue may be beyond the political skills of the best ploiticians, no less the current Hooveresque Whitehouse. Still the President should place this issue on the table. He should think big, not small.
Posted by Michael A. Kamperman on November 20, 2010
We are dealt a political hand where it will be very difficult to stimululate the economy with new federal spending initiatives. But it is still politically possible to stimulute the economy with tax cuts. The best possible tax cutting jobs bill would be a payroll tax holiday for both the employee and the employer on the first $50,000 of wages earned. This would give anyone making over $50,000 a year over $300 in additional take home pay thereby increasing consumer spending. Increased consumer demand will increase jobs. It would also lower annual compensation costs for employers reducing lay-offs and encouraging hiring. The cost would be about $400 billion per year, or $800 billion over a two year period. However, lower costs and increased demand for employers will lead to higher profits and ergo higher tax revenues off-setting some of the costs. By actually saving and creating jobs the costs will also be offset by higher income tax revenues from the expanded workforce. Additionally, more hiring will lead to fewer unemployment checks, fewer food stamp cards, and less social safety-net spending on both the state and federal level. State will also benefit from increased sale tax and income tax revenues. Since it is a temporary tax-cut it should be acceptable to conservatives opposed to spending and eager to reduce taxes. Since the benefits go disproportionately to the poor and middle class it should satisfy progressives. Effectively this would provide the economy with a desperately needed two year second stimulus package.
Politically it is a win-win for everyone accept true deficit hawks. However, there really aren’t that many “true” deficit hawks. There are many many people who want less regulation and a lowered tax burden. Few people would pass up a tax break in favor of returning the money to the Treasury to lower the national debt. It is a potentially bi-partisan bill that accomplishes the aims of both political parties.
President Obama should propose a substantial two year payroll tax holiday and a two year extension of extended unemployment benefits in exchange for making permanent all of the Bush era tax cuts. In reality the legislation will simply continue existing tax rates with a sunset date. There is no such thing as a perpetual and permanent anything coming from Washington. The term permanent is simply rhetoric. Congress will retain the power to raise or lower tax rates in the future. Whether the President is bold enough to put such a plan on the table remains to be seen. He has the upper hand, he just may not know it. All he has to do is agree to extend all of the tax cuts without a sunset date and he can attach a payroll tax holiday and extended unemployment benefits. The Republicans would never say no to such a proposal. Not only would their majority be gone in 2012, so might the whole Republican party. However, my confidence in President Obama playing well the hand he has been dealt is not high.
Posted by Michael A. Kamperman on November 11, 2010
Well, it’s looking like 60% of the American population is wrong. Those that believe cuts in government spending will lead to more private sector jobs have to take a good look at Cisco. The giant networking company warned that sales will miss forecasts because of a dramtic drop in orders from austerity crazed European governments and U.S. states forced to balance revenue starved budgets. Simply put, when governments order technology products they are creating private sector jobs. When governments build roads, bridges, and buildings they are creating private sector jobs. When they increase healthcare spending they are creating private sector jobs. We have yet to see the real impact of the cuts in private sector jobs in the U.S. because we still have enhanced federal spending from the stimulus bill. The rubber will meet the road when that stops in 2011. In my own state of Texas the two year budget looks to be $25 billion short of revenue. Since Governor Perry dreams of a Presidential run tax increases are off the table. Yesterday, local school districts were told to brace for multi-million dollar cuts per district in state spending for K-12 education starting with the 2011-2012 school year. There are over 1,100 school districts in Texas. Everything is going to get cut. These cuts will fall hardest on capital expenditures like technology and construction projects.
Thankfully the Federal Reserve has the foresight to realize we are up the creek without a fiscal paddle and they plan to print money to help shore-up the gap. They need to print 10 times more than the $600 billion they started with. My thinking is this is just the ante and the Fed will push all in before this is over. The unknown question is will liquidity trump falling demand in regards to asset prices. While the initial reaction was to bump assets prices up, the Cisco news clearly thumped it back.
Meanwhile, the inept Obama economic team continues to push mumbo jumbo proposals to restore the economy. The President’s new head of the Council of Economic Advisors Dr. Goolsbee believes the U.S. can grow exports from $1.5 billion to $3 billion by 2014. By 2014, is he out of his mind! Does he not see European austerity mania and Asian protectionism as insurmountable obstacles? Did he not see the Dream Liner fire from the Whitehouse cocoon plaguing our largest exporter Boeing? The President is in Asia telling everyone they cannot count on U.S. consumers borrowing money to spend. This means he believes in the same liquidationsist Austerian School of economics practiced by Herbert Hoover and others that led to abject failure in the past. Those that fail to learn from history are doomed to repeat the same mistakes. Sadly, a confused American populace believes the same thing because the case for Keynsean spending is being defended by an inept Whitehouse that doesn’t even believe it themselves. Somewhere in America a champion needs to rise up and preach a different economic gospel than the one the Whitehouse is force-feeding us.
Posted by Michael A. Kamperman on November 4, 2010
Honeymoon’s are meant to be fun, so enjoy this one. It won’t last and reality will bite in a few months. The Fed made the right call to print $600 billion more between now and next summer. Importantly, they left the door wide open to keep right on printing if circumstances warrant. Additionally, the President and the Republicans are playing nice in the same sand box for the time being with talk of extending the Bush tax cuts for all. But euphoria will soon give way to reality. Despite all the talk about giving everyone a tax cut, the truth is everyone’s tax rates will stay the same as they have been since 2003. And, the Making Work Pay payroll tax cuts under the stimulus plan will end in 2010 unless extended. There is an extension in the President’s proposed 2011 budget, but the House of Representatives failed to pass a budget and we are currently working under a continuing resolution. If the budget doesn’t clear the Lame Duck session, then the President will be negotiating the 2011 budget with the Republicans despite having huge majorities in both houses of Congress prior to the election. The Republicans want to roll non-defense discretionary spending back to 2008 levels. The true extent of the state and municipal budget holes will be on full display in early 2011, no longer masked by the stimulus aid to the states. The reality of austerity is about to bite hard.
Take Texas for example. The state is now projected to have a $21 billion two year budget deficit when the legislature meets in January. By law they must pass a balanced budget. Governor Rick Perry has Presidential aspirations and ran for re-election vowing not to raise taxes, so savage spending cuts are about to hit the state. Not exactly good for job creation. And you can forget about the mess in Illinois, California, Nevada, Arizona, Florida, etc., etc., etc.
Looking forward the key will be how the debate unfolds as the economy turns down. The unemployment report is already reflecting the heavy job losses in state and local governments. New homes sales set a multi-decade quarterly low in the third quarter and there is no reason to expect sales to turn-around soon with the foreclosure/mortgage mess. Will cutting spending be seen as a solution a year from now, or a tragic mistake? Here perception is what’s important, not reality. Because if reality were important the country wouldn’t be flirting with austerity in the first place. Hoover saw Republicans routed in mid-term elections in the early 1930′s taking severe heat for the depression. But by 1938 FDR saw Democrats routed taking blame for attemtpting to balance the budget too soon thereby sending the economy into another tail-spin. Most of the country is not with the Republicans, nor the Democrats, nor the Tea Party, nor Progressives. The election was about the most recent perceptions. What the country is with is turning around the economy and restoring jobs. They want to restore opportunities for the young and dignity for the retired. But most people simply don’t know how to get from here to there and don’t know whom to believe. Becasue the Democrats failed to deliver the populace assumes the Republican message of less spending must be right. Polls show over 60% believe cutting government spending increases private sector jobs. The economy will turn lower despite quantitative easing, because the boost Bernanke is providing is not large enough to offset the drag coming from austerity. How this is spun will go a long way in determining whether or not the country can get fiscal policy right to end the depression in 2012, or whether we will have to wait at least until 2016. The President has shown he is not up to the task of defending Keynesean stimulus, so others will have to step forward before the 2012 die is cast.
Posted by Michael A. Kamperman on November 2, 2010
http://www.xtranormal.com/watch/7543705/
