Posts Tagged ‘budget’

Wow!

The Arizona budget battle is about to go nuclear.   Various news outlets are reporting on a strategy memo prepared by Gov. Brewer confidant Chuck Coughlin at Highground that lays out a $225K campaign to target 18 legislative districts to pressure legislators to support a yet to be released budget from Gov. Brewer.

Team,

Attached is the legislative strategy docs that were handed out and discussed briefly at the meeting. This strategy is based on the launching of a budget next week that the coalition would be able to support. We would like your input on the strategy as well as the targeted legislators who should be part of our outreach efforts. If you have any questions, please let us know.

As we near the end of the fiscal year (June 30) the pressure is ramping up to get a budget done to fix the structural deficit that has become the legacy of former Gov. Janet Napolitano. The rub is that Brewer wants a billion dollar tax hike and the legislature wants to balance the budget without raising taxes.

There are two fascinating points.  One, it’s obvious that Gov. Brewer and her team do not expect a serious primary opponent.  (The only other explanation for her to target fellow Republicans is that she is not running for election in 2010, but that is dismissed by nearly everyone in town).  This may change that dynamic.

Two, look at the folks who are a part of this pro-Brewer, anti-legislator effort.  The name that jumps out the most is Republican Party Chairman Randy Pullen.  It is stunning that Pullen is participating in a campaign that literally goes after incumbent Republican legislators when we are going into an election year that is critical to maintaining Republican majorities in the House and Senate.

How does the party, on one hand, support the effort to criticize and pressure Republican members, while on the other hand claim to be the vehicle for legislators to help them get re-elected?

It makes reason stare.

My guess is that the legislature is not going to take this laying down.  They will fight back, and the irony is that many of the legislators closest to Pullen are on the target list.

Just when you thought it couldn’t get any more strange…

Politico.com has a story that is just downright depressing.  Our nation’s debt is about to hit $11 TRILLION.  That is a staggering sum.  It was half that size in 1996.  In 13 years we have added as much debt as it took us to accumulate in the more than 200 years prior.

Back when I was a budget associate in the U.S. House, I always went straight to the appendix of the President’s budget to look at a couple figures: Government spending as a percentage of GDP and deficit as a percentage of GDP.  Obviously, if the economy continues to grow, we can absorb some increases in government spending and debt.

For example, in FY 1983 federal spending was 23.5% of GDP.  That reflected both weak economic growth and increased defense spending by Reagan. The deficit was 6% of GDP (a post-WWII high).  By FY 1988 the percentage of federal spending was 21.3% and the deficit was 3.1%.

In Clinton’s first budget, FY 1994, the percentage of federal spending was 21% and the deficit was 2.9%.  The budget following the Republican take-over of Congress dropped to 20.3% and the deficit was 1.4%.

Bush’s budgets tended to be on par with Clinton’s budgets (as a percentage, remember) with the FY 2007 budget at 20% of GDP and the deficit at 1.2%

How does Obama’s first budget stack up?   Federal spending as a percentage of GDP will be a whopping 27.2%.  And the deficit as a percentage of GDP?  Buckle up… 8.3%, which shatters the previous high of 6% in 1983.  To make matters worse, that 8.3% is BEFORE taking into account the stimulus package passed earlier in the year.

This is ugly.

With the financial crisis and the so-called solutions of the stimulus bill and the housing bill, it’s easy to forget that Obama is obligated to submit a budget to Congress. He’ll provide an outline next week, with a full budget to follow in April.  The Washington Post reports this morning that Obama’s budget will be “ambitious” and that he will seek to cut the deficit in half in the next four years.

I know what you’re thinking.  How in the world, given the massive spending that he has already signed into law, is he going to reduce the deficit?

He’s going to stick it to the “rich.”

Obama also seeks to increase tax collections, primarily by making good on his promise to eliminate the temporary tax cuts enacted in 2001 and 2003 for wealthy taxpayers, whom Obama defined during the campaign as those earning more than $250,000 a year. Those tax breaks would be permitted to expire on schedule for the 2011 tax year, when the top tax rate would rise from 35 percent to more than 39 percent.

Obama also proposes to maintain the tax on estates worth more than $3.5 million, instead of letting it expire next year. And he proposes “a fairly aggressive effort on tax enforcement” that would target tax havens and corporate loopholes, among other provisions, the official said.

Overall, tax collections under the plan would rise from about 16 percent of the economy this year to 19 percent in 2013, while federal spending would drop from about 26 percent of the economy, another post-war high, to 22 percent.

This was an especially “rich” statement from Obama advisor, David Axelrod:

“This is consistent with what the president talked about throughout the campaign,” and “restores some balance to the tax code in a way that protects the middle class,” Axelrod said. “Most Americans will come out very well here.”

Pardon me if I don’t believe the spin that most Americans will come out very well here.  The engine of our economy is the capital that “rich” people spend to hire people, grow their business and become a success.  Allowing the Bush tax cuts to expire will stifle that success and will make the recession even deeper and longer than it would otherwise be, and unemployment will continue to increase.  That doesn’t sound like most Americans coming out very well.

2010 is looking better and better for Republicans.

There is no question that the budget mess we are in here in Arizona rivals any state in the nation.  We have the largest deficit as a percentage of our budget than any other state.  The good news is that we haven’t fallen into the trap (yet) of trying to tax our way out of it.

California is trying to pass a budget, but they haven’t been able to because Republican legislators are holding firm on opposing a $14 BILLION tax increase as a part of the package. With the impending layoffs of more than 10,000 state employees in California, I would guess they will get a budget out today or tomorrow – someone is going to break to the pressure.

Unfortunately for California, that will not fix their long-term problem.  They are already losing population as a result of their fiscal policies that squeeze the middle class to the point of literally driving them out of the state.

Which means that California’s loss may be Arizona’s gain.  If Governor Brewer and the Legislature deal with the 2010 budget mess in a constructive way, Arizona could be a magnet for businesses and individuals (many from California) which could help us grow our way out of the fiscal crisis in the mid-term and long term.  No, it won’t help the short term, that is still going to be very painful, but if Arizona avoids gouging individual taxpayers and businesses, we can make significant strides to dealing with our housing crisis and budget shortfalls.

Let’s do the right thing and put out the welcome mat.