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insurance, and provisions that extended reductions in tax rates and expansions of tax credits and deductions originally enacted in 2001, 2003,  and 2009 will all expire.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.

According to CBO, all of this will shrink the deficit to $641 billion in Fiscal Year 2013 or by about $500 billion less than the 2012 shortfall.

Seems like good news, but wait there is more---It is predicted the fiscal tightening will probably cause a recession next year with the unemployment rate rising to about 9 percent in the second half of 2013.

I believe the budget sequester is a bogus issue and have written it should go into effect. However, the tax increases are another matter and I think if current rates are allowed to increase the blow to the economy will be even worse than what CBO estimates.

The two percent employee tax deduction will most likely not be extended. It means a direct reduction in net take home pay for everyone. Making $48,000 a year, then expect a $960 tax increase next year or about $80 a month. That is about the price of a 4 person lobbyist lunch is Washington but real money to those who struggle from paycheck to paycheck.

If the tax rates return to 2001 levels, it not only means less take home pay but the physiological impact will be tremendous. Consumers-all of us- will quit spending. This will cascade quickly.

The economic recovery, if one can call it that, has been weak. I see no reason for it to improve if Mr. Obama is re-elected given his intransigence and the thrust of his economic and regulatory programs. I cannot make a judgment on the alternative without seeing the result of the election but more troubled days lie ahead.

However, this gets me back to the deficit and the Catch-22. Tax rates should not be increased for 2013 but deficits have to be controlled also. How do you do both? It leads me to the conclusion at least for next year; it is all about the government spending, stupid. Government is spending too much, doing too much and we all are getting little in return.

 My local newspaper carried a story of a recent federal grant of $800,000 to put in some sidewalks. A pittance, but symbolic of the problem. This is a rural, weathly community. Why is the federal goverment paying for this? Why are we all paying for this? Sidewalks can wait and if the good people want them, then pay for them.