I.Budget Construction
II. Reporting
III. Impact on Middle Class
IV. Debt Supercycle
V. Social Security & Medicare

Budget Construction
1. Revenue is not the problem anywhere. However, the combination of unprecedented fiscal deficits and governmental dysfunction in both the State Assembly, with a Democrat Supermajority, and in Congress, with failure of leadership,  has left the taxpayer with an uncertain future.

2. The last Federal budget was passed was FY’08. Congress gets around this with interim appropriations.
The President, by the first Monday in February, submits to Congress a detailed budget request for the coming federal fiscal year, which begins on October 1, outlining spending priorities, recommended taxation, and acceptable defict levels. Congress' budget resolution is supposed to be passed by April 15, but it often takes longer. Occasionally, Congress does not pass a budget resolution. If that happens, the previous year's resolution, which is a multi-year plan, stays in effect.

3. Likewise, CT spending caps are consistently ignored. Put in place in 1992, it is a strict constitutional spending  cap, with two components: a balanced budget requirement and restricted growth in spending. The Assembly gets around it by declaring a state of emergency.Gov. Malloy promised to never borrow for operational costs, yet this was done in Spring 2012. 

Budget Reporting & Tricks

1. Accounting methods can either shed light or conceal true numbers of receipts and outlays. 'Modified Accrual Accounting' is the usual accounting method used by government agencies. It combines accrual-basis accounting with cash-basis accounting, recognizing revenues when they become available and measurable, and expenditures when liabilities are incurred. Gov. Malloy promised to reform this but instituting Generally Accepted Accounting Methods has been delayed.  On May 8, 2012, the CT Assembly approved the same $20.5 billion budget for FY2013 that closes with a projected $200 million deficit.

2. Deficts and Total Debt: How Does the Deficit Affect the Debt? Each year, the deficit is added to the debt.
The Treasury must sell Treasury bonds to raise the money to cover the deficit. This is known as the public
debt, since these bonds are sold to the public.

3. In addition to the public debt, there is the money that the government loans to itself each year. This
money is in the form of Government Account Securities, and it comes from the S.S. Trust Fund.
These loans are not counted as part of the deficit, since they are all within the government.

4. Keeping items off the books: Accrual methods can keep certain accounts off the books, like underfunded
pension funds., and Semi-private entities like Fannie Mae, Freddie Mac, and the Federal Reserve Bank.  Certain funds like Social Security, and Medicare operate off the federal books without Congressional oversight.

6. Other budgeting tricks include intra-governmental loans, and leaving securities (basically a government
IOU) in place of funds from another account. The Federal government routinely does this with the
Social Security Trust Fund. The Trust Fund will be totally depleted by 2016.

Impact of State and Federal Governmental Debt on Middle Class

1. There has been a net loss of 40% net worth for the average middle class family from 2007 to 2011.

2. The August 2010 monetization of the Federal debt (accrued due to the Stimulus and Omnibus bills) by
the Federal Reserve Bank pumped a lot of cash into the banks, which devalued our dollar leading to a
decrease of buying power by our dollar.
3. The above also has led to an increase in the Consumer Price Index, meaning that all commodities
including utilities are measuring higher in prices.
4. A large State and Federal Debt consumes significant amounts of tax dollars just to keep the government
afloat and pay off the interest on the debt. This leaves fewer dollars for the private sector to invest in job
creation
.

Debt Supercycle

1. As debt increases and the economy slows down, the point is reached where the economy cannot possibly
grow enough to cover the increase in the interest payments.

2. There is a point where the Federal debt will exceed the GDP, the total (measured in dollars) of national goods and services. This occurred in August of 2011, when the debt equaled 100% of GDP.
3. The interest on the federal debt is calculated via compound interest, which is when interest is added to
the principal, so that, from that moment on, the interest that has been added also earns interest. This
results in an exponential growth of the debt.

Social Security and Medicare Issues

1. The number of baby boomers entering retirement is growing, and also the number of years that a person
lives is longer, yet there are 
a lower percentage of workers supporting the people entering retirement than in the past.These 2 facts indicate that the workforce will be supporting our elderly population for longer amounts of time. With the already plundered Social Security Trust Fund, Congressional Budget Office projects that SS will be depleted by 2016.

TALKING POINTS BOTTOM LINE: SPENDING CUTS MUST OCCUR TO MAINTAIN GOVERNMENTAL SOLVENCY, AND WITH THE ECONOMIC SLOW DOWN, WE MAY NEED TO RAISE TAXES FOR A TIME TO COVER OPERATING COSTS


 


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