Now, thoughts from the other side of the cliff

I'm not overjoyed with the deal that was hurried through Congress while we were ringing in 2013, but I'll give it a lukewarm "OK." Getting capital gains and dividends slightly higher is a start, as is raising taxes on the Super-rich. I'm even OK with the payroll tax increase, as it'll shore up Social Security, and including a one-year extension of the Farm Bill keeps food prices from going nuts in a few months- both definitely help the everyday person. But I think more could have been done on the loophole side and made the tax code more progressive, and I'm definitely worried about the looming budget cuts and debt ceiling fight that'll hit in March.

I wanted to go back to the CBO's discussion of the fiscal cliff and the effects on the economy, and compare it to where we stand today after this week's votes.

If you remember, the CBO report said if all aspects of the fiscal cliff hit, and were not modified throughout the year, the deficit would be cut by about 40% to $641 billion, but the economy would fall into recession and unemployment would go up to 9.1%. It would also make it likely the U.S. would fall into the cut-recession-deficit-cut-recession-deficit cycle that is currently grinding much of the Eurozone to a halt. Fortunately, it doesn't look like we're heading that way (barring a massive cut in spending).

So let's look at where we ended up instead, and let's use the CBO's scoring for both deficit and GDP for these measures.

The CBO says this deal would add nearly $330 billion to the deficit for 2013, with the split being about $280 billion in tax cuts, and $50 billion in increased spending (mostly through $22 billion in extended unemployment benefits, $10 billion in Medicare payments to doctors, and a 2-month delay in the sequester). It probably means the deficit may get below $1 trillion for next year, but not by that much.

On the flip side, the deal works when it comes to keep the economy going. I'd mentioned before that the CBO report showed lowering taxes on the rich had the smallest bang-for-the-buck when it came to increasing GDP, and that passage also gives you an idea what effect these tax measures may have.

Extending all expiring tax provisions other than the cut in the payroll tax and indexing the AMT for inflation—except for allowing the expiration of lower tax rates on income above $250,000 for couples and $200,000 for single taxpayers—would boost real GDP by about 1¼ percent by the end of 2013. That effect is nearly as large as the effect of making all of those changes in law and extending the lower tax rates on higher incomes as well (which CBO estimates to be a little less than 1½ percent, as noted above), primarily because the budgetary impact would be nearly as large (and secondarily because the extension of lower tax rates on higher incomes would have a relatively small effect on output per dollar of budgetary cost).

So given the $400,000 single/ $450,000 married couple threshhold, we'll put that number in between at 1.35% or so. That same report also gave good marks to the extension of unemployment benefits as a stimulus policy, along with the Social Security cuts (which were not continued).

The estimated economic impact of those policies per dllar of budgetary cost is larger than that of extending other expiring tax provisions and indexing the AMT for inflation because a larger share of the additional unemployment benefits and extended payroll tax cut would be spent by the recipients in 2013. As a result, the short-run increase in aggregate demand and output would be greater.

The unemployment benefits are expected to cost $22 billion this year, and $31 billion if moved into 2014, but a rough estimate also has it increasing GDP by about 0.2% this year.

So put those two items together, and you'd have GDP increased by about 1.55%, and the lack of the sequester for 1/6 of the year and a year of "doc fix" conservatively gives you another 0.25% of GDP. So let's figure about 1.8% of increased GDP over the "totally over the cliff" scenario (which was -0.5% GDP for 2013), and the baseline results for 2013 become:

GDP +1.3%, deficit just under $1 trillion

Basically it would continue where we're at- slow but sure growth, and slow but sure cuts into the deficit. Probably not enough to really get things back into balance, but something we could live through. And the extra progressivity in the tax code could lead to more GDP and profit growth going to middle and lower-income workers, much as it did in the '90s, and much as it hasn't done since the tax cuts for the rich were put in for 2001.

So I'll take this deal for the time being, but I certainly hope it is followed by standing up to the GOPs who will be for March, when the debt ceiling and the automatic budget cuts will have to be dealt with. You know they'll have their eyes on Social Security (even though it's now firmed up with the end of the payroll tax cut) and will try to mess with the Medicare age and level of benefits to our most vulnerable. And hearing President Obama last night erroneously calling the rising cost of Medicare "our biggest contributor to our deficit" set off major red flags to me. Health care costs aren't adding to our deficit- it's the damage from the recession, underemployment, low wages, and historically low tax revenues that don't even reach 17% of GDP.

I'm glad that we took a step toward solving that low-revenue problem by taxing the rich and their capital gains more, and the continued growth should also add to those revenue figures. But there are many other places we can cut or modify that doesn't screw over millions of people who have worked hard,paid into the system and rely on that aid to survive. We can take our small victory for January, but also we should gird for the bigger fight that's coming.

See you on the other side of the cliff

Well, this'll wrap it up for 2012 here at the Funhouse. Yes, I'm aware there's some work to be done over in D.C, but from what I can tell, we won't see any real action on this before the new Congress comes in on Thursday. This is fine with me, as a lot of the members of the lame-ass current Congress are either gone or will have new constituencies due to redistricting, so why have these people make decisions when they won't have to face the voters for the consequences of their actions? Plus, any moves made in January can be made retroactive to January 1, and if played right, could be given out as a tax rebate check that people can see and will spend.

I really haven't changed my mind on the way I think this should be resolved. I'll forward to you the CBO report that was released going over the various parts of the fiscal changes, which not only shows the effects on the deficit, but (more importantly to me) shows the changes in GDP that would happen as a result of all these measures. And those figures estimated the drop in 2013's GDP that would result from keeping the tax cuts on the rich vs. getting rid of them to be all of 0.1%. Add to the fact that the lowering of tax rates for the rich has led to stangnant wages for most Americans, larger amounts of inequality, and profit-hoarding, and letting these taxes go up is a no-brainer to me.

I'm even a bit perturbed at the possibility that the Dems and Obama may allow the tax cuts to stay for the $250K-$450K wage group, although if they raise cap gains and dividends and don't touch Social Security and Medicare benefits, I'd live with that compromise. It'd be even better if they kept the 4.2% Social Security tax rate, but extended it to every dollar instead of capping it at $113,000 or so, (the current system is really a back-door tax cut for the upper incomes that most of us don't get, and getting rid of it would make Social Security be fully funded). But failing that, I'd live with going back to 6.2% if it keeps Social Security on the level for the next generation (which it would).

Otherwise, I basically said what I needed to say in detail last month, and I'm sticking with it. Keeping the economy growing still needs to be our priority, and doing so will reduce the deficit every bit as much as cutting spending on needed domestic programs and keeping our safety nets and economic security in place. And it would prevent us from falling into a constant austerity cycle that continues to plague Europe, resulting in the Eurozone falling back into recession with record un-employment. This recession was brought on by deficit-based budget cuts, which led to slower growth, which led to more deficits and cuts, and basically everyone gets screwed except the lucky few who have the right connections to the people in power.

Because I don't see us falling into the austerity-cycle trap, I'm not fearing the fiscal issues in early 2013- and I'm fairly certain something will get passed before the damage gets too great (though it'll be fun to see CNBC and co. freak in the next few weeks as their gravy train ends). And if the Dems play tough and expose the GOP as the clueless fiscal fools they reall are, it could set the stage for "Wipeout 2014," which could make 2006's wave look small.

See you on the other side of the cliff in 2013. I'm off to prepare for the festivities to kiss this year good-bye.

Hoosiers show Wisconsin the way...down

As a former resident of the state of Indiana, I still keep tabs on how that place is doing. It was part of the reason I didn't want to miss yesterday's amazing tribute to Colts coach Chuck Pagano as he returned to the sidelines after being treated for cancer, and the Colts then hammering the Texans and knocking J.J. Watt and company out of home-field advantage for the playoffs.

But it also gives me a bit of insight on the policies of one of Scott Walker's political idols- Mitch Daniels (you can read the J-S's 2011 profile of Mitch and his influence on Walker here). Mitch is leaving the governorship of Indiana this week after serving two terms, and this story in the Indianapolis Star is a good indication of what'll happen if we allow the age of Fitzwalkerstan to continue.

It doesn't take long for you to see who benefitted from Mitch's 8 years in office- and it wasn't most Hoosiers.

During his 2004 campaign for governor, Mitch Daniels repeatedly slammed Democratic incumbent Joe Kernan for Indiana's economic decline, citing one statistic in particular in stump speeches, debates and essays.

"The average Hoosier now earns 88 cents for every dollar the average American earns," he often said.

To attack that problem, Daniels flung open the doors for business in Indiana. He reduced regulations, privatized some government services, balanced the state budget, reduced corporate taxes, improved infrastructure and supported "right-to-work" legislation -- all in the name of spurring economic development. (Sound familiar, folks?)

Those efforts have helped Indiana earn a reputation as one of the most business-friendly states in the country. The high mark: Honda's decision to build an auto manufacturing plant in Greensburg, where it now employs about 2,300 workers.

"He was tremendous in attracting business to the state. Everyone wanted to come," said U.S. Chamber of Commerce President Thomas Donohue. "Why do you think a lot of people wanted him to be president?" (Note: Tom Donohue does not live in Indiana)

This year alone, the governor said at a recent event, 251 companies have said they plan to invest $6.57 billion in Indiana and create 27,858 jobs, setting a record. (Buuuuuut...) Still, the total number of private-sector jobs in Indiana has declined by 1.3 percent during Daniels' eight years in office as the U.S. total rose.

And that's just the beginning. The article goes on to note-

While the state has boosted its job-creation efforts, average per-capita personal income for Hoosiers has not budged when compared with other states -- and actually declined slightly during the Daniels era.

The average Hoosier now earns 86 cents for every dollar the average American makes, according to statistics from the U.S. Bureau of Economic Analysis. ....

Since Daniels was elected, Indiana has lost 50,000 private-sector jobs while the nation has added such jobs; gross domestic product and income growth have lagged the nation; unemployment is higher than the U.S. average; and the state's poverty rate has risen....

Private-sector jobs in Indiana have grown 6.2 percent since the low point of the recession in July 2009 -- faster than all other states except North Dakota, Texas and Utah. And state government is in strong fiscal health, unlike some of Indiana's neighbors.

Green eyeshade "making your numbers" mentality over service, results and better standards of living. Sound familiar? Here's some other Mitch statements from his first winning campaign in 2004 that should sound familiar to us that have observed Scott Walker in Wisconsin- heck, Walker probably plagiarized from it for his run in 2010.

"We will rebuild state government around the objective of income growth and new hope for Hoosiers," [Daniels] wrote in a guest column published in The Indianapolis Star. "We will measure, set aggressive targets for improvement, and drive relentlessly for results."

Daniels won the election by an eight-point margin.

But since he took office, Indiana's median household income growth has been slower than that of 37 other states.

Daniels downplayed such statistics during a recent interview, arguing that they don't take into account Indiana's low cost of living.

"The measure ought to be adjusted for the cost of living," he said. "The question is: How well are Hoosiers living? And what can Hoosiers' money buy?" (If that statement doesn't define the "race to the bottom" mentality, what does?)

By that measure, Indiana has lost even more ground, according to data compiled by the Indiana Office of Management & Budget. In 2004 -- the year Daniels was elected -- the average Hoosier earned 99 cents for every dollar the average American earned, based on after-tax income adjusted for cost of living. In 2011, that measure had dropped to 95 cents.

The state's poverty rate also has grown to nearly 16 percent from nearly 13 percent since Daniels took office. In 2005, Indiana was the 18th-poorest state in the nation. In 2011, it was 16th.

Yep, sounds like the direction Wisconsin is going, lower incomes, and poor economic performance compared to your peers.

And oh yeah, Scott Walker designed the money-wasting and corrupt WEDC on Daniels' IEDC. Well before we knew just how screwed-up WEDC was and still is, I was pointing out the problems and corruption at IEDC. This included inflated jobs numbers, numerous failed ventures, the unaccountable handing out of tax credits to bankrupt companies, and bullying local governments who were skeptical of these companies following through on their promises.

And 7 years after creating IEDC, Mitch Daniels' pet project still wasn't working, as even his own party was demanding more controls over it. Check out this article from last week.

Two Indiana Senate Republicans are joining the growing, bipartisan chorus of state officials seeking more transparency at the Indiana Economic Development Corp. amid lingering questions about how many jobs the semi-private agency actually creates and its endorsement of ventures that have not panned out.

Sen. Mike Delph, R-Carmel, has introduced a bill that would require companies that receive tax incentives to provide an annual tally of how many jobs they have created. The bill also would require the IEDC to make that information public under open-records laws.

State law currently exempts the IEDC from disclosing much of that information on the grounds that doing so could harm negotiations with prospective employers....

[Delph] cited several news investigations that raised his concerns, including stories in The Indianapolis Star on tax incentives offered to projects around the state that never materialized, and an investigation by WTHR-13 that raised questions about whether the agency created as many jobs as it claims.

Again, this should be familiar to us in Wisconsin, especially with the revelation from last week that WEDC hadn't shown full financial statements to the WEDC Board, and that its audit committee had only met twice in 18 months.

The bottom line here is this. If you think Mitch Daniels' Confederate-style legacy of corporate cronyism, lower incomes, higher poverty and lower service levels is what Wisconsin should shoot for, then by all means, let's continue in the direction that we've been going under Scott Walker, because this is clearly what Scotty (and those who pull his strings) wants.

Me, I prefer a place with better wages, better living standards, more transparency in government, and a higher quality of life, and I'd highly recommend a change from the Hoosier-influenced leadership we've had here in America's Dairyland. There's a reason I wanted to move back to Wisconsin after 5 years in Indiana in 2005, and given that more than half of people getting bachelor's degrees in Indiana leave the state within 5 years, it looks like I'm hardly alone. Having a corporatist with backward-ass policies like Mitch Daniels will lead to that type of brain drain.

Two graphs continue the economic #Walkerfail

A couple of reports over the last few days give some good benchmarks for where the state of Wisconsin stands compared to its neighbors as 2012 ends. And the news continues to be bad.

The first look was the state-by-state job reports from the BLS. And given that Wisconsin benefitted from seasonal adjustments and reported strong job gains in November, you'd think this would make the state look good compared to its Midwestern neighbors. But as a chart of the Midwest Fitzwalkerstani era shows, Wisconsin is the only state that has lost jobs in the BLS reports, and is far behind any other state in the area, as well as the country as a whole.

Job index, Jan 2011- Nov 2012
(Jan. 2011 jobs amount = 100)

In fact, this chart shows that Wisconsin would have had to have gained 49,000 MORE JOBS JUST TO GET OUT OF LAST PLACE. That's a massive job hole to get out of, and it's not hard to pinpoint how we got there.

And the recently-released Philly Fed coincident index of states tells the same story. If you take this index and draw it back to Scott Walker's inaguration in January 2011, it tells a similarly ugly story.

Even if Wisconsin's coincident index's had grown FIVE TIMES FASTER since the start of 2011, they'd still be bringing up the rear in the Midwest, and the U.S. as a whole has grown at a rate 6 times faster than the state of Wisconsin.

But let's give Gov. Walker the benefit of the doubt, and maybe all the upheaval since he dropped the bomb with Act 10 was holding businesses and consumers back. So let's look at how Wisconsin has done since the end of May, when Walker predicted the floodgates would open with job growth once the recall "uncertainty" was over.

Job change, May 2012-Nov. 2012
Ohio +40,000 (+0.78%)
Ill. +33,400 (+0.59%)
Minn +26,900 (+0.94%)
Ind. +14,700 (+0.51%)
Iowa +500 (+0.03%)
Mich -1,100 (-0.03%)
Wis. -4,400 (-0.16%)

So much for that. In fact, if you follow Walker's belief that businesses were "waiting and seeing" due to the recalls, I guess they decided they didn't want to be a part of a state that had Scott Walker and the WisGOPs running it.

(also note how Ohio has jumped ahead and stayed ahead of everyone in the Midwest. Guess restoring collective bargaining rights in the public sector didn't destroy their economy, did it?)

So we're still stuck in neutral in Wisconsin as the U.S. and the rest of the Midwest continues to advance. The sample size is large enough that you can't call it a fluke either. So as go intom 2013, let's see if our media catches on to the huge failure that has resulted from Scott Walker's regressive policies. And I'll make damn sure I'll do my part to keep it in front of your attention.

Maybe that critical mass will happen when Dem-run Minnesota passes Wisconsin some time next year for total jobs- there's only a 7,100-job difference between the 2 states right now. While Wisconsin football teams may pound Minnesota ones on the field (I anticipate that continuing this afternoon - little would make me happier than seeing the Pack break the Vikes' hearts and end their season), the Mud Ducks are beating our asses in the job front. Keep an eye on it as we go forward.

Privatization failures keep piling up

   Here are a couple more reasons why farming out government services might not always work out for you.

  The first is the latest article on the WEDC debacle in today's Journal-Sentinel. It includes some beautiful quotes from a professor who deals with corporate and financial oversight.

If they were in my class, they'd get a big 'F,' " said Paul Lapides, a business school professor who directs the Corporate Governance Center at Kennesaw State University in Georgia.

"Every single adult citizen in the state should be saying, 'Wait, you have people on this board of directors who aren't reading financial statements and don't have a clue about how internal controls work?' " Lapides added.

He said the board could be viewed as having a "reckless disregard for their duties." Like public company directors, members of boards such as the WEDC have a duty to act in the best interest of the company and are subject to the same liability, Lapides said.

As Wisconsin's flagship jobs agency, the WEDC must prepare numerous re ports for state officials on its job creation programs and its tens of millions of dollars in taxpayer subsidies to businesses. But unlike nearly every other quasi-public authority at the state level, the corporation is not required by law to report yearly on its finances.

Before Dec. 14, WEDC's audit committee of one businessman and two lawmakers had met just twice, and neither they nor the entire volunteer WEDC board had seen full financial statements.

In other words, the Walker Administration and GOP Legislature didn't think of the most basic oversight and accounting measures when they created WEDC in 2011. Now whether the Fitzwalkerstanis are at "unfit-for-office" levels of incompetence, or desired that part of WEDC's structure, I'll leave up to you to decide.

Another story that came out in the last week included the revelation that the state DOA was firing a cleaning firm that damaged the Capitol's marble floor through negligence. This comes a year after Walker and DOA chose to use prison labor to put up the state's Christmas tree in the Capitol Rotunda. Naturally, the Walker DOA is not deciding to take the cleaning and Capitol maintenance duties in-house, but instead will hand out another contract to another private company to help clean up the damage from the first company.

And lastly, we'll take you to the hallmark of bad crony government service contracting- Chicago - where the city's privatized parking meters are now slated to become the most expensive in the country.

On New Year's Day, meters in the city's downtown Loop area will begin charging $6.50 an hour — up from $5.75.

A report from the San Francisco Municipal Transportation Agency says the rate change will make Chicago the city with the most expensive metered parking.

The company that operates the meters plans to have all machines set to the new rates by the end of February.

Former Mayor Richard Daley got the City Council to approve the company's 75-year contract in 2008. In return, the city got a $1.1 billion payment — much of which has already been spent.

Current Mayor Rahm Emanuel has ordered an independent audit of the deal, which is now largely viewed as a financial disaster.

As someone who worked for the City of Milwaukee as Chicago made this deal in 2008, we took a look at it as a possible direction to take to handle the City's revenue issues, and our analysis showed that it was a bad idea for Milwaukee. So we chose to keep Milwaukee's parking in-house, and it continues to be checked by city-accountable Milwaukee parking officers. The Milwaukee parking operation's "profits" will reduce the City's property tax levy by over $60 million between 2011 and 2013, and without the loss of future revenues that Chicago is facing because of it being sold off to Wall Street financiers.

I'm not saying that all privatization is bad or doesn't work- some of it does. But when you see Republicans and corporate Dems trying to say that selling off services is a magic pill that saves taxpayers money and delivers better services, that's absolutely not true. And in all cases, privatization schemes should be closely monitored with the same level of tight oversight of taxpayer dollars that exists with the services done in-house by government workers.

This has consistently not been the case in Fitzwalkerstan, and you see the disasters that result.

DOR says Walker will fall short...and they're being nice

In addition to the Wisconsin jobs numbers, the Wisconsin Department of Revenue released the Wisconsin Economic Outlook yesterday. And yet again we saw that Scott Walker's promise of bringing 250,000 jobs ain't going to come close to happening.

The DOR predicts about 118,000 private jobs will be added in Wisconsin from 2010-2014, less than half of 250,000. And even then, that number is charitable, because if you go inside the numbers and go to Page 9, it gives a rosy scenario of short-term Wisconsin job numbers that aren't holding up.

Wisc. Economic Outlook- jobs forecast vs. reality
Q3 2012 forecast- 2,771,600 total, 2,364,200 private
Sept. 2012 jobs- 2,728,200 total, 2,317,500 private

Q4 2012 forecast- 2,779,100 total, 2,371,900 private
Nov. 2012 jobs- 2,731,700 total, 2,323,100 private

So that's a gap of 48,000 jobs at the end of November between the Economic Outlook's forecast and the reality, and it also means more growth is needed to catch up. So if you use the Economic Outlook's projections of 2% private sector job growth in 2013 and 1.4% in 2014, and put it to the November 2012 job figures, the state ends up with just over 2,400,000 private sector jobs at the end of 2014, which ends the total job growth in the 4 years of Fitzwalkerstan at...less than 80,000. Not exactly 250K, is it?

This looks especially bad when you look at the private sector Walker jobs gap. If Wisconsin had merely created jobs at the same pace as the rest of the country, we'd already be at 89,000 private sector jobs, and might have a shot at the 250,000 level by the end of 2014.

And the Wisconsin Economic Outlook tells a similar story of Wisconsin lagging when it comes to personal income. As mentioned previously, Wisconsin was outperforming its Midwestern rivals when it came to income growth when Walker took over, and now we have fallen behind both the Midwest, and the nation as a whole.

The first decline of personal income in 50 years was revised down to 3.0% in 2009. This compares to larger declines in the Great Lakes region (-4.9%) and nationwide (-4.8%) during 2009. BEA revisions show personal income grew 3.5% in 2010 and 4.5% in 2011. Wisconsin personal income recovery in 2010 was stronger than the Great Lakes region but weaker than the average nationwide growth. In 2011, the state posted slightly lower personal income growth (4.5%) than the Great Lakes region (5.0%) or the U.S. (5.1%)....

The outlook calls for Wisconsin personal income to grow 3.2% in 2012 and 3.7% in 2013, slightly below the growth of national personal income.
 

And again, the DOR gives optimistic figures for Wisconsin to get to that point. This week's state-by-state personal income stats show that Wisconsin would need to get an increase of 1.0% for the 4th quarter of 2012 just to reach the DOR's levels. And the state has only exceeded 1.0% for any quarter once since Act 10 took effect in March 2011- in 1st Quarter 2012, when income tax refunds and annual raises inflate the numbers. So if they fall short there, they'll be more likely to fall short in 2013 as well.

 This is an important point to bring up, because when the LFB does their revenue estimates in the next month, they use the Wisconsin Economic Outlook and national economic trends to figure the appropriate levels of revenue growth (or decline) that is then used as a baseline for the budget. If Wisconsin is falling short in employment and incomes, even with the overly-positive forecasts from the DOR, it's going to be likely that the revenue figures also end up low, and Walker's already fraudulent claim of a balanced budget will come apart.

Keep your eyes on this one, and prepare to laugh when the news comes down later this winter.

Hilarity ensues in D.C.

GOP self-destruction is a fun thing to watch. They can't even get enough votes together to pass something that was DOA in both the Senate and the White House. This video of world-class D-bag Eric Cantor is telling.



Doesn't he seem almost happy about this? It speaks volumes that Cantor's probably happier about stabbing John Boehner in the back than he is about the complete joke that the GOP has become, and the fact that there's still work to be done.

I've felt for quite a while that we should go over the fiscal curb and get the new Congress in for January 3, and then work out the limited tax cuts and get rid of some of the non-military budget cuts. In fact, if you play the cards right, you could get the middle-class tax cuts in place by Feb. 1, do them retroactively, and have a nice rebate check go out around St. Patty's Day.

And if the Dems play it smart, don't allow cuts Social Security and Medicare, and raise taxes for the rich in both income taxes and capital gains taxes (which history shows should raise wages and employment, since the incentive to hoard profits and riches goes away), our economy will be in great shape coming out the other side.

And if the Dems follow this strategy, they will be poised to DOMINATE the 2014 elections. Seems like an easy solution to me.

P.S. Has anyone found Paul Ryan since November 6? You'd think Wonderboy would be all over this thing.