Economists Predict Cutbacks, Tax Increases That ‘Aren’t Even Imaginable’
February 17, 2010
ABC News
By Devin Dwyer
American political and economic leaders have sounded the alarm for years about the red ink rising in reports on the federal government’s fiscal health.
But now the problem of mounting national debt is worse than it ever has been before with — potentially dire consequences for taxpayers, according to a report by the nonpartisan Peterson-Pew Commission on Budget Reform.
“It keeps me awake at night, looking at all that red ink,” said President Obama in Nashua, N.H., on Feb. 2. “Most of it is structural and we inherited it. The only way that we are going to fix it is if both parties come together and start making some tough decisions about our long-term priorities.”
Obama will sign an executive order tomorrow that establishes a bipartisan National Commission on Fiscal Responsibility and Reform to make recommendations on how to reduce the country’s debt.
Over the past year alone, the amount the U.S. government owes its lenders has grown to more than half the country’s entire economic output, or gross domestic product.
Even more alarming, experts say, is that those figures will climb to an unprecedented 200 percent of GDP by 2038 without a dramatic shift in course.
“Within 12 years&the largest item in the federal budget will be interest payments on the national debt,” said former U.S. Comptroller General David Walker. “[They are] payments for which we get nothing.”
Economic forecasters say future generations of Americans could have a substantially lower standard of living than their predecessors’ for the first time in the country’s history if the debt is not brought under control.
Government debt, which fuels the risk of inflation, could make everyday Americans’ savings worth less. Higher interest rates would make it harder for consumers and businesses to borrow. Wages would remain stagnant and fewer jobs would be created. The government’s ability to cut taxes or provide a safety net would also be weakened, economists say.
While much attention has been focused on the government’s deficit-spending surge during the recession, many economists agree short-term budget overruns — as ominous as they may seem — are not particularly problematic.
“What threatens the ship are large, known and growing structural deficits,” said Walker, a problem that few politicians seem eager and readily able to fix.
In a recent ABC News poll, 87 percent of Americans said they are concerned about the federal budget deficit and national debt, and most strongly disapprove of how their political leaders are handling the situation.
But public dissatisfaction has not proven enough to compel members of Congress or current and previous Administrations to set aside their partisan differences to achieve a balanced budget.
Most Republicans don’t want to raise taxes; most Democrats don’t want to cut spending. The result is a stalemate on how to put America back in the black.
Partisan Gridlock Stalling ‘Drastic Changes’ Needed
Politicians “don’t have a way to say ‘no’” to their constituents, said Doug Holtz-Eakin, a conservative economist and former director of the Congressional Budget Office, who says unrestrained government spending is the crux of the problem.
John Podesta, former Clinton White House chief of staff and president of the liberal Center for American Progress, says lawmakers need to raise more tax revenue as part of the solution to fund “investments” for the future.
Ultimately, analysts say, solving the debt problem will likely require both tax hikes and spending cuts, along with broader structural reforms of the way government operates.
“Habitually spending more money than you make is irresponsible,” said Walker. “Irresponsibly spending someone else’s money when they’re too young to vote or not born yet is immoral.”
Future generations of Americans will largely foot the bill for the present financial predicament, economists say.
The United States currently owes over $12 trillion to its debtors that’s more than fifteen $787-billion economic stimulus packages worth of cash. Divided out, each American bears a $40,000 share of the country’s tab.
“The American people today are not remotely prepared for the changes that are necessary,” said former Congressional Budget Office director Rudolph Penner.
He says Americans who have been accustomed to buying on credit and living beyond their means at home may soon face a painful reality as the government tightens its belt further.
“They aren’t hearing about the drastic changes needed, and they certainly didn’t hear about it in the President’s budget,” Penner said.
President Obama’s $3.8 trillion budget request for 2011 represents an increase in government spending by more than $100 billion over last year, yet projects slight decrease in the budget deficit over the year before to $1.267 trillion.
While deficit spending is widely regarded as a necessary evil during times of recession to revive and stimulate the economy, the President has acknowledged it’s time to rein in that practice.
Obama has touted as “steps forward” both a proposed freeze on some discretionary spending in fiscal year 2011 and the creation of a bipartisan fiscal commission to make recommendations for long-term deficit reduction.
“The president has taken a very bold act,” said White House economic adviser Christine Romer on “Good Morning America” today. “He has said we want a non-security dscretionary spending freeze that is pretty unpopular with his own party, but he thought it was important to make one of those tough choices.”
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AIG Issues $100 Million In Bonuses
February 3, 2010
NY Times
By Mary Williams Walsh and Sewell Chan
The American International Group has agreed to cut employee bonuses by $20 million and will distribute about $100 million on Wednesday, according to people with knowledge of the negotiations.
But the reductions may not be enough to appease the company’s critics, who do not accept the company’s argument that it has to honor contracts established before its government bailout.
“A.I.G. has taxpayers over a barrel,” said Senator Charles E. Grassley, an Iowa Republican, in a statement on Tuesday night. “The Obama administration has been outmaneuvered. And the closed-door negotiations just add to the skepticism that the taxpayers will ever get the upper hand.”
A.I.G. first promised the retention bonuses to keep people working at its financial products unit, which traded in the derivatives that imploded in September 2008, leading to the biggest government bailout in history.
The contracts, which were established in December 2007, were intended to keep people from leaving the company and called for the bonuses to be paid in regular installments to more than 400 employees in the unit. The final payment, which was for about $198 million, was due in mid-March, but was accelerated to Wednesday as part of the agreement to reduce its size.
Fearing a firestorm like the one last spring, A.I.G. had been working with the Treasury’s special master for compensation, Kenneth R. Feinberg, on a compromise that would allow it to keep its promise in part, without offending taxpayers.
The agreement calls for employees who still work for the financial products unit to accept 10 percent cutbacks, while employees who have left the company must take 20 percent cuts. Those employees are still entitled to their bonuses under the contract, which adheres to the scheduled payments even if people have lost their jobs. The financial products unit has shed almost 200 people as it has wound down A.I.G.’s derivatives business.
A.I.G. has told all the affected people that if they do not accept the reduced amounts, they will get no bonus at all, according to a person with knowledge of the agreement.
But some people have not agreed to the cutbacks and are insisting on the entire amounts. People with knowledge of the negotiations said that a vast majority of those still employed at A.I.G. had accepted the cuts, but only about a third of the former employees had done so.
The holdouts seem determined to make A.I.G. pay the full contractual amounts, knowing they can make a reasonably good case under law, because A.I.G.’s own lawyers have previously issued an opinion that the contracts are binding. If they succeed, A.I.G. would have to pay them more money at some point in the future, and might even have to pay penalties for breaking its employment contracts.
So, while it appeared on Tuesday that A.I.G. and the Treasury had cut the bonus payment to just half of the $198 million that was scheduled for March, the total amount remains unclear. The company acknowledged Tuesday night that it had cut the original amount by $20 million, but did not confirm that the final payment would be $100 million.
In a previous exchange regarding the bonuses, Mr. Feinberg wrote to Senator Grassley on Jan. 15 saying that the contracted amounts were “grandfathered payments.” He said they were not covered by the new rules he administers curbing executive bonuses at bailed-out companies.
“My staff and I have insisted that employees should have their overall current compensation reduced to take into account the fact of these grandfathered payments,” Mr. Feinberg said.
The last time A.I.G. paid a round of retention bonuses, worth $168 million, it caused such an uproar that some employees received death threats, according to its chief at the time, Edward Liddy.
To mollify the public, employees agreed to pay back roughly $45 million to the taxpayer-owned company.
The complaints subsided, but last October, the special inspector general for the Troubled Asset Relief Program, Neil M. Barofsky, audited the program and reported that only $19 million of the total due back had been received.
People involved in the recent negotiations said that in the broad deal that has been negotiated, people will still have to pay back their bonuses, as previously pledged. However, the amounts they forgo in the final payout will be considered a way of making good on their pledges.
The government has extended roughly $182 billion in total to A.I.G., although the assistance has taken many forms and the company has not used that whole amount. It is selling some of its units to help repay the debt.
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IRS Commissioner Doesn’t File Own Taxes: Too Complex
January 12, 2010 by JP
Filed under Government
January 12,2009
The Hill
By Bob Cusack
IRS Commissioner Douglas Shulman does not file his own taxes in part because he believes the tax code is complex.
During an interview on C-SPAN’s “Newsmakers” program that aired on Sunday, Shulman said he uses a tax preparer for his own returns.
“I’ve used one for years. I find it convenient. I find the tax code complex so I use a preparer,” Shulman said.
Pressed on how he would make the tax code simpler, Shulman responded, “I don’t write the tax laws. Congress writes the tax laws so that’s a whole different discussion.”
The IRS this month announced it will be scrutinizing the tax preparer industry. Shulman said the IRS is looking to set “a minimal level of competence in the preparer community.”
Later in the C-SPAN interview, Shulman downplayed his use of a tax preparer, saying he has used one for 10 years. He noted that he and President Barack Obama are proponents of simplifying the tax code.
Shulman said about 60 percent of Americans use tax preparers and another 20 percent use software to file their returns.
He added, “So you’re over 80 percent of people who aren’t just sitting down and filling out the forms themselves.”
Click here to read full report
All Expenses Paid for 20 Congressmen in Copenhagen
January 12, 2010 by JP
Filed under Government
January 12,2009
CBS NEWS
By Sharyl Attkisson
(CBS) Few would argue with the U.S. having a presence at the Copenhagen Climate Summit. But wait until you hear what we found about how many in Congress got all-expense paid trips to Denmark on your dime.
CBS investigative correspondent Sharyl Attkisson reports that cameras spotted House Speaker Nancy Pelosi at the summit. She called the shots on who got to go. House Majority Leader Steny Hoyer, and embattled Chairman of the Tax Committee Charles Rangel were also there.
They were joined by 17 colleagues: Democrats: Waxman, Miller, Markey, Gordon, Levin, Blumenauer, DeGette, Inslee, Ryan, Butterfield, Cleaver, Giffords, and Republicans: Barton, Upton, Moore Capito, Sullivan, Blackburn and Sensenbrenner.
That’s not the half of it. But finding out more was a bit like trying to get the keys to Ft. Knox. Many referred us to Speaker Pelosi who wouldn’t agree to an interview. Her office said it “will comply with disclosure requirements” but wouldn’t give us cost estimates or even tell us where they all stayed.
Senator Inhofe (R-OK) is one of the few who provided us any detail. He attended the summit on his own for just a few hours, to give an “opposing view.”
“They’re going because it’s the biggest party of the year,” Sen. Inhofe said. “The worst thing that happened there is they ran out of caviar.”
Our investigation found that the congressional delegation was so large, it needed three military jets: two 737’s and a Gulfstream Five — up to 64 passengers — traveling in luxurious comfort.
Add senators and staff, most of whom flew commercial, and we counted at least 101 Congress-related attendees. All for a summit that failed to deliver a global climate deal.
As a perk, some took spouses, since they could snag an open seat on a military jet or share a room at no extra cost to taxpayers. Rep. Gabrielle Giffords (D-AZ) was there with her husband. Rep. Shelley Moore Capito (R-WV) was also there with her husband. Rep. Ed Markey (D-MA) took his wife, as did Rep. Jim Sensenbrenner (R-WI). Congressman Barton — a climate change skeptic — even brought along his daughter.
Until required filings are made in the coming weeks, we can only figure bits and pieces of the cost to you.
# Three military jets at $9,900 per hour – $168,000 just in flight time.
# Dozens flew commercial at up to $2,000 each.
(CBS)
# 321 hotel nights booked – the bulk at Copenhagen’s five-star Marriott.
# Meals add tens of thousands more.
Steve Ellis of Taxpayers for Common Sense, wasn’t against a U.S. presence. But he said, “Every penny counts. Congress should be shaking the couch cushions looking for change, rather than spending cash for everybody to go to Copenhagen.”
Nobody we asked would defend the super-sized Congressional presence on camera. One Democrat said it showed the world the U.S. is serious about climate change.
And all those attendees who went to the summit rather than hooking up by teleconference? They produced enough climate-stunting carbon dioxide to fill 10,000 Olympic swimming pools.
Which means even if Congress didn’t get a global agreement
Click here to read the full report
Geithner Told AIG To Withhold Details About Bailout
January 8, 2010 by joel
Filed under Government
January 08, 2010
Bloomberg
By Hugh Son
The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.
AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.
The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout” of financial firms.
“It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information,” said Issa, a California Republican. Taxpayers “deserve full and complete disclosure under our nation’s securities laws, not the withholding of politically inconvenient information.”
Geithner Had ‘No Role’
“Secretary Geithner played no role in these decisions,” Meg Reilly, a Treasury spokeswoman, said in an e-mail. “He was recused from working on issues involving specific companies, including AIG,” after his nomination for Treasury secretary on Nov. 24, 2008. Geithner “began to insulate himself weeks earlier in anticipation of his nomination,” she said in a separate statement.
Geithner, who was tapped by President Barack Obama, took the Treasury job in January, 2009. Mark Herr, a spokesman for New York-based AIG, declined to comment.
Issa requested the e-mails from AIG Chief Executive Officer Robert Benmosche in October after Bloomberg News reported that the New York Fed ordered the crippled insurer not to negotiate for discounts in settling the swaps. The decision to pay the banks in full may have cost AIG, and thus taxpayers, at least $13 billion, based on the discount the insurer was seeking.
Taxpayers Help Goldman Sachs Move Into New Skyscraper
December 28, 2009 by Andrew
Filed under Government
December 28, 2009
Bloomberg
“Taxpayers Help Goldman Reach Height of Profit in New Skyscraper” leads a selection of the week’s best stories from Bloomberg News. The most-read story of the week on Bloomberg.com was on the U.S. Air Force’s delivery of new spy planes to Afghanistan.
Click on the VIDEO tab above for the video pick of the week, an interview with U.S. Senator Chuck Schumer on health- care legislation. Read the accompanying story here. For a special report on health-care reform, click here.
For BusinessWeek’s 2010 investment outlook, click here.
Following is a selection of stories from the past week, chosen by senior editors at Bloomberg News.
Taxpayers Help Goldman Reach Height of Profit in New Skyscraper
Dec. 21 (Bloomberg) — In the first six months of 2010, about 6,000 employees of Goldman Sachs Group Inc. will take a break from their spreadsheets and move across the southern tip of Manhattan to a new 43-story, steel-and-glass skyscraper.
Taxpayer Burden Eases to $8.2 Trillion as Obama Supplants Fed
Dec. 23 (Bloomberg) — Congress and the Obama administration are taking a bigger role in the rescue of the economy from the Federal Reserve, shifting the strategy to stimulus spending from central bank lending.
Marijuana-Reeking Tour Bus, Red Ferrari Are FDIC’s Crisis Booty
Dec. 22 (Bloomberg) — The financial crisis that popped the real estate bubble and pushed U.S. bank failures to a 17-year high landed the Federal Deposit Insurance Corp. a rapper’s tour bus that reeked of marijuana.
London Exodus to Geneva Runs Into Housing, School Shortages
Dec. 21 (Bloomberg) — Geneva, touted as a haven for London bankers facing heavier U.K. taxes, may lure fewer than predicted thanks to a housing shortage, crowded schools and a 44 percent income-tax rate.
Swiss-Libya Collision Provokes Angst on Foreigners in Minarets
Dec. 21 (Bloomberg) — It hasn’t been a good year for the traditional Swiss way of doing things.
Flaherty Says Russia, China May Buy Canada Dollars
Dec. 23 (Bloomberg) — Canada’s Finance Minister Jim Flaherty said China, with the world’s largest currency reserves of $2.3 trillion, may be poised to buy Canadian dollars as it seeks to shield its reserves against the U.S. dollar’s decline.
Iceland Lawmakers Threaten to Reject Icesave Bill a Second Time
Dec. 21 (Bloomberg) — Iceland’s parliament may reject a foreign depositor bill for a second time in a move that would sour relations with the U.K. and Netherlands and that Fitch Ratings has signaled will weaken the sovereign’s credit grade.
New Jersey Leads Municipal Bond Downgrades as Aid Shrinks
Dec. 22 (Bloomberg) — Bond ratings of New Jersey towns and cities are being reduced faster than in any other state as property values slide 11 percent and Governor Jon Corzine lowers municipal aid to cope with a $1 billion budget deficit.
Click here for the full report
US Treasury to Net $936 Mil. from JPMorgan Warrants
December 11, 2009
Reuters
By Andrea Ricci
The U.S. Treasury Department said on Friday it priced warrants in JPMorgan Chase & Co at $10.75 per warrant in a deal that will bring U.S. taxpayers net proceeds of $936.06 million.
The 88.4 million warrants to purchase common stock in JPMorgan were priced in a modified Dutch auction. The sale marks the disposal of the government’s remaining investment in the banking giant, which the Treasury received last year in exchange for $25 billion in bailout money.
The sale is the latest in a series of Treasury auctions of warrants received from banks that accessed the $700 billion Troubled Asset Relief Program.
Last week, Treasury priced warrants in Capital One Financial Corp (COF.N) at $11.75 each, bringing in net proceeds of $146.5 million.
Click here for the full report
Government Wants Tax To Help Cover Cost for Bribing Taliban
November 20, 2009 by joel
Filed under Government
November 20, 2009
Prison Planet.com
By Paul Joseph Watson
Not content with savaging American taxpayers with two huge new financial burdens during an economic recession, in the form of health care reform and cap and trade, close allies of Barack Obama have proposed a new war surtax that will force Americans to foot the bill for the cost of protecting opium fields in Afghanistan, paying off drug lords, and bribing the Taliban.
Warning that the cost of occupying Afghanistan is a threat to the Democrats’ plan to overhaul health care, lawmakers have announced their plan to make Americans pay an additional war tax that will be taken directly from their income, never mind the fact that around 36 per cent of federal taxes already go to paying for national defense.
“Regardless of whether one favors the war or not, if it is to be fought, it ought to be paid for,” the lawmakers, all prominent Democratic allies of Obama, said in a joint statement on the “Share The Sacrifice Act of 2010 ( PDF),” reports AFP.
The move is being led by the appropriately named House Appropriations Committee Chairman Dave Obey, Representative John Murtha, who chairs that panel’s defense subcommittee; and House Financial Services Committee Chairman Barney Frank.
The tax would apply to anyone earning as little as $22,600 per year in 2011.
The proposal is described as “heavily symbolic” with little chance of passing, but it once again illustrates the hypocrisy of an administration that swept to power on the promise of “change” to the Neo-Con imperial agenda and a resolve to reduce U.S. military involvement overseas. In reality, there are more troops in Iraq and Afghanistan now under Obama that at any time during the Bush administration.
At the height of the Bush administration’s 2007 “surge” in Iraq, there were 26,000 US troops in Afghanistan and 160,000 in Iraq, a total of 186,000.
Health Care Bill Will Be Available Online for 72 Hours Before Vote
November 6, 2009 by JP
Filed under Government
November 06, 2009
Weekly Standard
By John McCormack
Speaker Nancy Pelosi’s office tells THE WEEKLY STANDARD that the speaker will not allow the final language of the health care to be posted online for 72 hours before bringing the bill to a vote on the House floor, despite her September 24 statement that she was “absolutely” committed to doing so.
House members are still negotiating important issues in the bill–whether it will provide taxpayer-funding for abortions, for example. Pelosi is pushing for a Saturday House vote, and a number of big changes will be introduced, likely less than 24 hours before the vote takes place (if in fact it does). The Rules Committee hasn’t yet released its resolution, or rule, that must be passed before the bill can move from committee to the floor. The rule will set the terms of debate and determine what amendments are in order.
It seems likely that the rule will allow very few, if any, up-or-down votes on amendments on the House floor. Rather, the rule will include a series of amendments that will all be adopted at once if the rule passes.
On September 24, Speaker Nancy Pelosi told THE WEEKLY STANDARD that she was “absolutely” committed to putting the text of the final House bill online for 72 hours before the House votes:
Bailout Recipients Spent $71 Million on Lobbying Since Bailout
November 06, 2009
Huffington Post
By Julian Hattem
Twenty-five top recipients of government bailout funds spent more than $71 million on lobbying in the year since they were rescued, an extensive review of federal lobbying records by the Huffington Post reveals.
A year after taxpayers forked over $700 billion to help rescue the biggest names in banking, insurance and the automotive industry, those same institutions are using portions of the cash to influence legislation with a direct impact on taxpayers.
In all, during the last quarter of 2008 and the first three quarters of 2009, those 25 institutions spent $71,199,000 on lobbying. The list includes General Motors ($11.95 million), Citigroup ($8.915 million), Bank of America ($6.427 million), J.P. Morgan Chase ($7.735 million), Goldman Sachs ($4.38 million) and AIG ($3.47 million). Some of these companies have paid federal money back. Not all of the top bailout recipients, meanwhile, spent money on lobbying.
The amount that was spent, however, is nearly identical to the lobbying expenditures these same companies made during the year preceding the federal bailout. According to the Center for Responsive Politics, bailout recipients paid approximately $76.7 million for the services of lobbyists in 2008. All of which has sparked angry pushback from good government groups and lawmakers on the Hill, who ask whether the expenditures are appropriate after these institutions took the nation’s economy to the brink of collapse.
“It creates a bizarre feedback loop where taxpayer money is being used by beneficiaries of the bailout to, in some cases, thwart taxpayer protections and even to score more taxpayer money, things that taxpayers themselves will likely find quite distasteful,” said Sheila Krumholz, executive director of the Center for Responsive Politics. “The question is where does it end?”
Much of the lobbying money spent by bailout recipients has been devoted to influencing legislation that has direct impact on taxpayers. Among the eight recipients who spent more than $3 million lobbying since the bailout, the most common specific items of interests included the Credit Card Holders’ Bill of Rights Act, the Credit Card Fair Fee Act of 2009, Credit CARD Act of 2009, the Helping Families Save Their Homes Act, and the Mortgage Reform and Anti-Predatory Lending Act.
Specifically, bailed-out institution have fought efforts to give bankruptcy judges the power to renegotiate mortgages. They have worked against legislation that would lower the fees merchants are charged when their customers use credit cards. They have also worked against legislation that would put more restrictions on how they spend taxpayer funds.
