Posts Tagged ‘budget cuts’

The Budget Deal: And the Winners Are?


So who are the winners in this budget and spending deal?


Washington Politicians


The American People



The Advocates


Win  and Lose


Add Another Trillion









Where Did The Money Come From?








Avoiding the Cliff but what about the Abyss?













The highlights of Gov. Romney’s plan:

  • Have preferential rates for interest, dividends and capital gains
  • Eliminate loopholes and limit certain deductions for higher income taxpayers


The main point of President Obama’s plan:

  • Increase the tax rates for people making over $250,000








Ignore the WARNing

The Worker Adjustment Retraining and Notification Act (WARN) is a federal law requiring an employer with more than 100 employees to provide at least 60 advance notice of any mass layoffs or plant closings.  The law is intended to alert employees and communities of upcoming layoffs, and a company can be penalized for up to 60 days of employees’ wages for failing to comply with the WARN notification.

The WARN requirements have created a serious political problem.  According to the Congressional budget deal worked out last year, defense spending will be reduced by $55 billion starting on January 2, 2013.  If the spending cuts occur many defense contractors are concerned about a significant reduction in their contracts, which could lead to massive layoffs on January 2, 2013.  In order to avoid penalties and meet the 60-day WARN notification, employers need to notify their employees before November 2, 2012, which just happens to be 4 days before Election Day… ala the political conundrum.

On Monday, the Department of Labor (DOL) mailed a letter to state agencies stating it would be “inappropriate” for employers to send out WARN layoff notifications in anticipation of the defense spending cuts.  This immediately raised many eyebrows as to whether or not the DOL’s letter was politically motivated.   Suspicions were heightened, because the Department of Labor previously issued guidance to employers saying it could not give WARN advice regarding specific situations.

Three primary concerns come to mind regarding this matter.

Undue Political Influence

It’s hard to get away from politics in an election year.  Every decision is interpreted through a political prism, and it’s hard to divorce politics from the process.   Decisions like this one are made by high-ranking political appointees, and their jobs and influence are dependent upon whether or not their boss retains his job.  Thus, it can be near impossible to think politics won’t influence the decision makers.  However, it seems like elected and appointed officials are predisposed to make most of their decisions based on what’s best for their career and pocketbook, instead of what’s best for the country.  We can’t honestly know the motivation of the DOL personnel involved in this decision, but choosing to provide guidance on an issue they previously refused, certainly raises questions.

Meaningless Laws

The primary rationale for the DOL’s conclusion for employers to refrain from sending out WARN notices was the uncertainty of whether or not the cuts would remain in effect. The DOL essentially acknowledged this law was a sham in the first place and was passed for political expediency.  Irrespective of whether Congress ever intended for the cuts take effect, are the spending cuts the law or not??  According to the legislation on the books, the cuts will occur unless a new law is passed to restore the spending.  As a citizen, you’re penalized for disobeying a law or regulation, so why do politicians and government bureaucrats get to decide which laws they enforce or follow?

Ineffective Government

As a nation we are probably more divided than any time in history since the Civil War, yet the problems we face are immense.  The sluggish economy and $16 trillion debt are enormous problems.  Rather than having serious discussions and working towards creative solutions, our leaders are more focused on partisan brinkmanship and political machinations.  If history repeats itself, the defense spending cuts will probably never happen.  Rather than face a disgruntled electorate and risk losing an election, our leaders will forge some “compromise” which maintains the status quo and allows both sides to declare victory.  Meanwhile, nothing is resolved and the country plunges further into debt each day, and our leaders are able to pass laws that are never intended to go into effect to maintain the charade of getting something accomplished.

The DOL’s guidance for employers to ignore the WARN notices should set off a much larger warning.  Aside from the political ramifications, it’s a dangerous place for politicians and bureaucrats to selectively choose which laws to follow and enforce.  We’re either a nation of laws or not.  If not… then God help us.  Lawless nations and those which allow its leaders to use the laws to reward their friends and punish their enemies are always destructive to the people at large.

A New Record

On Wednesday, the United States of America established a new record, although it may not be one we want to boast about.  As of the close of business on Wednesday, the U.S. total debt exceeded $15 trillion.

This bad news gets worse… don’t expect the debt increase to stop or slow down anytime soon.  We’re already two months into the current budget year without an approved budget (that’s a different matter).   However, the 2012 Budget proposals put forth so far expect to add at least another $1 trillion to the debt, which is approximately $3 billion per day.

Interestingly enough, there was very little media coverage regarding this matter.  There was more coverage about Occupy Wall Street, the Supercommittee and the Penn State scandal than our debt breaking the $15 trillion barrier.  After all the acrimony earlier this year about raising the debt ceiling, it might not be considered important news.

Here are a few details about our national debt which might interest you.

  • The U.S. population is approximately 310 million people, which means there is approximately $48,000 of debt for every man, woman and child.
  • The debt is divided into two broad categories; intragovernmental debt and debt held by the public.  The intragovernmental debt is $4.7 trillion and the debt held by the public is $10.3 trillion.
  • The intragovernmental debt is essentially money owed to the Social Security system. When politicians refer to the Social Security Trust Fund, this is what they mean.  Its debt the government owes itself.
  • Even though it may be considered an independent government agency, the U.S. Federal Reserve is now the largest stakeholder of the debt held by the public.  The Fed currently holds $1.665 trillion of U.S. Treasury Securities.
  • China is the second largest holder of debt, with $1.148 trillion.
  • As a result of the Federal Reserve’s quantitative easing, its stake in U.S. debt obligations increased by over $850 billion over the past year.

I may be a bit cynical, but unfortunately I don’t think there is much hope Congress will act to stem the flow of red ink in the near term.  They battled a few months ago and agreed the debt will rise to over $16 trillion by the end of 2012, so I don’t expect much to happen on the political front.  The lack of media coverage is an indication of the lack of interest by Congress in this dubious milestone.

On the bright side, one thing that’s preventing us from being crushed by our own debt is that nearly one-third of the $15 trillion of Treasuries is effectively being held by the federal government (i.e., Social Security and the Federal Reserve).  Thus, our real debt to investors is effectively $10 trillion.  Not a good situation, but better than $15 trillion.

At the same time, it’s not a healthy position for the government to hold so much of its own debt.  Congress may have played fast and loose with the Social Security funds, but the day has arrived when the Social Security payments exceed the taxes collected.  It’s going to put more strain on the budget, and the real cash flow of the federal government, as Social Security starts cashing out its intragovernmental loans.

It’s also not great for the Federal Reserve to continually increase its Treasury holdings.  As I and others have previously written, the Federal Reserve essentially printed money to buy up a huge chunk of government debt issued over the past 12 months.  Quantitative easing may have some economic benefits, but there are tremendous long-term risks from this strategy.

Americans like to break records, and we just broke another one.  Unfortunately, it’s an honor we could have done without.  The real question is what are we going to do to stop the hemorrhaging and get our fiscal house in order?  We just set a new record, and it’s only a matter of months before we break the $16 trillion mark.