Nutter's Washington

CBO Report: It Is Worse Than You Think and the Sidewalks Can Wait

The Congressional Budget Office issued a report yesterday, which sounds the alarm on so many fronts. It stated for fiscal year 2012 the federal budget deficit will total $1.1 trillion, making the fourth year in a row a deficit of more than $1 trillion. It is not the one trillion dollars, a staggering sum, but it is that is the fourth year in a row.  What a record. It is a record Mr. Obama never seems to mention nor does he mention his early term promises to cut the deficit. However, in spite of his failures, the problems are even more serious than the deficit. 

As politicians go to their respective national convention playgrounds to denounce each other, the budget deficit increases at a mere $4 billion a day. The budget deficit, federal debt, and the economy are all in precarious positions because substantial changes to tax and spending policies are scheduled to take effect in January 2013. This is the so-called “fiscal cliff.” A brief summary is in order:

• Extended unemployment insurance, and provisions that extended reductions in tax rates and expansions of tax credits and deductions originally enacted in 2001, 2003,  and 2009 will all expire. The AMT year fix has already expired, but the consequences will not be felt until 2013 when taxes are due.
• Sharp reductions in Medicare’s payment rates for physicians’ services are scheduled to take effect.  (I never worry about the doctor’s getting paid)
• The Budget Control Act of 201 initiating some minor discretionary and mandatory-spending limits over the next 10 years will go into effect. This is what is known as the “sequester.” (Which would be a great title for a Sy-Fi channel movie)
• The employee reduction of 2 percentage points in the payroll tax for Social Security is scheduled to expire.

Presidental campaign: Separating the Irrelevant from the Important

The Presidential campaigns are doing a great disservice to the voters of this country. The quest for the Presidency has deteriorated into a sideshow, lacking real substance, sidestepping the things that are important, things that make a difference. A difference not only in helping those undecided or less committed voters but also a disservice in having a real debate on how the country will address the issues that will dramatically affect us all.

 I understand President Obama not wanting to defend his record. It is dismal on most counts. Mr. Romney in a similar vein does not want to be specific on certain matters and to compare past actions to his present position. Fine but let’s talk about something that matters. But, first take a look at issues that are not important:

Rules for Attending National Political Conventions:

The national political conventions will soon convene. Republicans go first and will hold their event in Tampa and the Democrats will follow in Charlotte. Both are fine venues, although the beaches hold more attraction to me.

 Conventions have become made for televisions event. Unlike past years when mainline networks had gavel-to-gavel coverage, viewing today means a few prime time hours in carefully staged events. Actions on the podium are choreographed like a fine ballet, scripted and sterile.

The gathering of the faithful serves multiple purposes. A convention energizes the flock. Attendees can listen to speakers denigrate the opposition and preach to the converted. It allows a look at the up-and-coming party and elected officials. A convention allows grown men and women a chance to wear funny hats, clothes and badges. They can whoop and holler without embarrassment. The outcome is known; there will be no surprises and no drama. It is expensive and the number and degree of hangovers is mythical.

Election Matrix: The Possibilities and the Outcome

About everything can be distilled into a  spreadsheet, a chart, a list or as I like a matrix. The election is about 80 days away or so. National conventions are coming. Lots of ads on television, radio, newspapers, and the internet. The Presidential election is a battle royale. In one corner the incumbent-combative, defiant, single-purpose, and down right mean. In the other, the challenger-slick, elusive, awkward and tricky. 

However, there are other elections coming in November in case you missed high school civics and they are also very important. After all, it is the Congress who authorizes programs (when the Obama government is not making their own up) and appropriates the money. In a real sense, Congress is responsible for the deficits, the over regulation and growth of government. Congress confirms judges, approves treaties and oversees government operations. Our elected representatives complain, point fingers and moan but collectively Congress makes most of the rules. 

I am not diminishing the Executive. The point being, control of a well functioning Congress is as huge as who is President. It is also quite important for any President to be able to work with Congress and if not then little of the agenda and ideas of that particular President will go forward. (unless like this Administration governance is by dubious executive orders and selective enforcement of laws).

I do not know who will be elected the next President. Today, I would give a tiny edge to Mr. Obama due to incumbancy, demographics, his ability to never take responsibility, never explain the pathetic state of the economy  and a few other factors. However, I think it is also possible Mr. Romney can win and if he does win it could be by a significant margin. Obama fatigue, economic doldrums, Biden drag and an enthusiasm gap could lead to a Romney victory.

The important part is what happens after the election, after the name calling is over. How will the current and then elected leaders address the issues? 

Let's assume the election of either candidate, what would the Congress look like and the possibility of that situation.  Here is the matrix for the election:

President	House Outcome	Senate Outcome	Possibility
Romney wins	Republican House	Democrat Senate	Possible
Romney wins	Republican House	Republican Senate	Likely
Romeny wins	Democrat House	Republican Senate	Not likley
Romeny wins	Democrat House	Democrat Senate	High unlikely
Obama wins	Republican House	Democrat Senate	Possible
Obama wins	Republican House	Republican Senate	Possible
Obama wins	Democrat House	Republican Senate	Not likely
Obama wins	Democrat House	Democrat Senate	Highly unlikely

In other words, I expect the Republicans to keep the House. If Romney wins, it is more likely the Senate will go Republican. However, even if Obama wins, the Senate switching is still a possibility. I give little chance for the Democrats to regain control of the House. So, it could be a united Republican government or a divided one. Little chance Democrats enjoy the power of the last Congress. 

After the election, it is widely believed many of the issues now pending such as expiring tax cuts will be addressed by the "lame ducks". How will they shape up on a few of the important ones: 

Post election	Bush tax cuts	Payroll tax reduction	Extenders
Romney wins	Extended	Expires	Some extended
Obama wins	Expire for all	Expires	Few extended

The New Congress will be seated right after the first of the year. What will it do assuming a split government?

New Congress	Taxes	Healthcare	Spending
(Split)
Romney wins	Major tax reform	Repeal and Restart	Modestly reduced
Obama wins	Drawn out process	As is	Status Quo

There many other issues that need to be resolved, such at the ATM, medicare funding, and the budget sequester. The first two will be handled in the lame duck with the fate of the sequester up in the air. 

The Presidential campaign has become predictable, tedious and entertaining all at the same time. However, the outcome of the Congressional elections will in a big way determine how unresolved issues get addressed and when.

TSA and Airport Security: Outrageous and No Common Sense

 

Congress is gone, President Obama is still campaigning as opposed to leading, lobbyist and lawyers have fled, school is out, traffic is light-- so Washington is normal for August.

Last week I took a break for a few days. I flew from the Baltimore airport to a small airport in New England. The plane was about three times the size of my car. Of course, I had to endure the indignities of “airport security”. This meant waiting in line, taking off my shoes, emptying my pockets and removing my belt. I also had to show my photo ID (which I must do to board an airplane but do not have to produce to vote) and have someone root through my carryon bag.

I have to say, these procedures are annoying. They are demeaning and intrusive. As a society we have relinquished our privacy and freedom because madmen changed all the rules. So-be-it.

Tax the Olympic Medal Money: Should be No Difference

The House Ways and Means Chairman Dave Camp (R-MI) issued a statement today that Olympic athletes who wins prize money as a result of winning a medal should not be taxed money received. A gold medal is worth$25,000 in cash, $15,000 for a silver and $5,000 for  a bronze. Mr. Camp believes that this is another way of honoring this incredible sport men and women. Senator Marco Rubio (R-FL) made a similar proposal yesterday.

What a bad idea and bad tax policy. The are a few reasons that come to mind

1. What makes this income so special? What about money from a game show, the lottery, a bonus for a job well done, reward money for catching a criminal? It is long settled that prize money is income under section 61 of the IRC. 

2. The Olympics is a money making proposition and a definite for profit enterprise. The IOC is a rich organization Its heads live like kings, getting paid handsomely and in the past got  kickbacks and bribes from about everyone. They sell the media right for billions and billions. The point being, everyone involved is in it for the money, the glory left the station long time ago. 

3. The athletes make tons of money too. Michael Phelps is way above the 1% mark. I read somewhere that he earns over $7 million a year just in endorsements. Of course, some of the minor medal winners in minor sports are not so taken care of but where is the line to be drawn? What about his marginal tax rate? 

4. Why just Olympics? How about the Nobel prize money? Teacher of the year prize? Why is this so special?

5. The money is not a  gift. This is their job, to train, to compete. If they do it well, like the rest of us, they may get a bit  extra. 

I say, you get the dough, you pay the tax. Mr. Camp is right to be proud of these sport representative of our country but after all, it is just sport, not some heroic, life saving , or positive world changing endeavor. 

Some people I know are always amazed that prizes are taxed. Like on those games shows where you win the car but can not pay the taxes. It is no different that your salary or any other income you earn. 

 So, bad tax policy but a good headline. Hard to say because I am a huge Olympic fan, attending two past games. 

 

Tax News: Tax Rates, Tax Extenders and Kicking the Can

The past two weeks have seen some action and attention by Congress on tax legislation. Congress is about to recess for the “district work” period; many major issues are in play but in suspended animation.

The first piece of news is not directly related to taxes but does impact the federal fisc and the federal deficit. Congressional leadership in the Senate and the House has decided to consider a Continuing Resolution (CR) in September to fund the government until March 2013. This is a good news and bad news. It means Congress will avoid the rancor of funding the government but it also means Congress has abdicated and walked away from it responsibility of passing appropriation bills. Many of the details of the CR still have to be worked out, although the overall spending level has been agreed. The next Congress will have to deal with spending issues. Considered it can kicked down the road.