Washington in Chaos as the November Election Approaches: What Lies Beyond? API’s Biennial Tanker...
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Transcript of Washington in Chaos as the November Election Approaches: What Lies Beyond? API’s Biennial Tanker...
Washington in Chaos as the November
Election Approaches: What Lies Beyond?
API’s Biennial Tanker ConferenceOrlando, Florida
May 21, 2012
Kenneth J. Kies Managing Director
Federal Policy GroupA Practice of Clark & Wamberg
Page 2
View from Washington
Page 3
Overview
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
Page 4
The Outlook for 2011
Federal Fiscal Outlook
Page 5
Deficit Outlook Under Obama Budget
Annual Budget DeficitBaseline vs. Obama Budget
$1,413
$1,293 $1,300 $1,327
$901
$668$610 $649 $612 $575
$626 $658 $681
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
Fiscal Year
An
nu
al D
efi
cit
($
bill
ion
)
CBO Baseline Obama Budget
Source: CBO Baseline Budget Outlook, March 2012/ President Obama’s budget for fiscal year 2013, Source: CBO Baseline Budget Outlook, March 2012/ President Obama’s budget for fiscal year 2013, February 2012February 2012
Page 6
Federal Debt Outlook: Treasury
Total Public Debt -- Treasury (Annual Report on the Public Debt, June, 2011; $ Trillions)
$20.1
$21.4
$18.9
$17.7
$16.5
$9.9
$11.9
$13.5
$15.4
$0
$5
$10
$15
$20
2008 2009 2010 2011 2012 2013 2014 2015 2016
Fiscal Year
Pu
bli
cly
Hel
d D
ebt
($ T
rill
ion
s)
Page 7
Federal Debt Outlook: Treasury
Total Public Debt (As % of GDP) -- Treasury
69%
84%
93%
102%105% 106% 106% 107% 108%
0%
20%
40%
60%
80%
100%
120%
2008 2009 2010 2011 2012 2013 2014 2015 2016Fiscal Year
Source: Annual Report on the Public Debt, June, Source: Annual Report on the Public Debt, June, 2011 2011
Page 8
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
Page 9
Economic Outlook
Page 10
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-to-moderate 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.
Page 11
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 long-term unemployed, more than twice historical norms.
Page 12
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
Page 13
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
Page 14
The Debt Ceiling Deal
Page 15
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.
Page 16
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”
Page 17
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
Page 18
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
Page 19
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
Page 20
Translation:
The Family Budget was cut by $3.85, not $385
Page 21
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
Page 22
President Obama’s Deficit-Reduction Plan Uncovered
The Reality:
The plan INCREASES the deficit by
$3.049 TRILLION
Page 23
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
Page 24
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)
Page 25
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
Page 26
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
Page 27
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
Earned Income 37.9% 43.4%
Unearned Income (except Qualified Dividends
and Long Term Capital Gains)
35% 43.4%
Qualified Dividends 15% 43.4%
Long Term Capital Gains 15% 23.8%
Page 28
Pending Federal Tax Increases (continued)
Page 29
“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
Page 30
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
Page 31
Political Outlook for 2012
Page 32
Congressional Outlook
Senate Outlook
2010 Results in 53 Democrats and 47 Republicans Democrats have 22 seats to defend in 2012
House Outlook
Current Make upRepublicans 240Democrats 193Vacancies 2
Factors that could affect 2012 Outcome Economy/Jobs
Page 33
Presidential Race
Obama Vulnerabilities 2008 compared to 2012
– 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
Page 34
President Obama’s Unemployment Problem
Average Monthly Unemployment Average Monthly Unemployment RateRate
• Obama: Obama: 9.2%9.2%• Ford: Ford: 7.8%7.8%• Reagan: Reagan: 7.5%7.5%• Carter: Carter: 6.5%6.5%• Bush 41: Bush 41: 6.3%6.3%• Kennedy:Kennedy: 6.0%6.0%• Bush 43: Bush 43: 5.3%5.3%• Clinton: Clinton: 5.2%5.2%• Nixon: Nixon: 4.2%4.2%• Eisenhower: Eisenhower: 4.9%4.9%• Truman: Truman: 4.2%4.2%• Johnson: Johnson: 4.2%4.2%
Page 35
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/Source: U.S. Energy Information Administration, weekly average for midgrade conventional gas prices/ AAAAAA
Page 36
Does Obama Have a Money Problem?
The Obama campaign is lagging behind its fund-raisingpace of four years ago. Shortfalls in contributions frommajor industries have made the campaign more reliant
on small donors and joint fund-raising with theDemocratic National Committee.
The New York Times, April 20, 2012
Page 37
Obama Contributions: Then and Now
Source: Center for Responsive Politics; Federal Election Commission
$ Raised $ Spent $ On Hand
Obama Campaign2007 – 2008 (1st Quarter) $262 Million $192 Million $70 Million
Obama Campaign2011 – 2012 (1st Quarter) $196 Million $ 94 Million $102 Million
Page 38
Contributions: Obama 2008 vs. Obama 2012
Source: Center for Responsive Politics; Federal Election Commission
Industry 2008 2012 % Change
Investment $ 8.2 Million $ 2.4 Million - 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
Retired 11.8 12.6 + 7
Women’s Issues 1.5 1.9 + 26
Page 39
Poll Numbers Bad for All
Page 40
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%
Page 41
How is Congress Doing?
The Bottom of the BarrelThe Bottom of the Barrel Degree of ConfidenceDegree of Confidence
The Military: The Military: 78% 78%
Small BusinessSmall Business 64% 64%
The PoliceThe Police 56% 56%
The ChurchThe Church 48% 48%
HospitalsHospitals 39% 39%
Supreme CourtSupreme Court 37% 37%
The PresidencyThe Presidency 35% 35%
Justice SystemJustice System 28% 28%
NewspapersNewspapers 28% 28%
TV NewsTV News 27% 27%
BanksBanks 23% 23%
Labor Labor 21% 21%
Big BusinessBig Business 19% 19%
HMOs HMOs 19% 19%
CONGRESSCONGRESS 14% 14% Gallup, June 23, Gallup, June 23,
20112011
Page 42
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,
Page 43
a Gaggle of geese,
However less widely known is:
a Pride of Lions,
a Murder of crows,
Page 44
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?
(as well as their cousins the rooks and ravens),
an Exaltation of doves,
and, presumably because they look so wise:
a Parliament of owls.
Page 45
You just can't make this stuff up.
Go green –
Recycle Congress in 2012 !!!
A CONGRESS OF BABOONS! I guess that pretty much explains the things
that come out of Washington !
Believe it or not ……. a Congress!
Page 46
Possible Game Changers
Page 47
Possible Game Changers for 2012
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
Page 48
Fast and Furious
Solyndra Bankruptcy
General Services Administration – “It didn’t stay in Vegas”
Cartagena - Gate
Page 49