Short on Votes, Deficit Panel Delays Decision

It looks like Washington is sticking with their usual methods of dealing with problems: just delay the vote! This method has been used so often, it’s almost a joke. Except, no one’s laughing. Between no clear call on the Bush tax cuts, estate tax changes, and now the deficit panel, all of Washington seems to be suffering from the same problem: procrastination in the face of opposition.

From Reuters.com:

A presidential panel on balancing the U.S. budget on Wednesday revised its fiscal austerity plan with deeper spending cuts and a more flexible tax code overhaul, hoping to draw broader political support.

The 18-member commission, established in February by President Barack Obama, discussed its revised plan at a public meeting on Capitol Hill. The panel is due to vote on it on Friday, two days later than originally scheduled.

The plan envisages reducing the budget deficit to 2.3 percent of gross domestic product by 2015, from 8.9 percent in the last fiscal year as the United States, along with other major powers, struggles to right its economy after the world financial crisis and deep recession.

Republican Senator Judd Gregg and Democratic Senator Kent Conrad, both veterans of Washington's budget wars, voiced support for the plan at the commission meeting.

"I am prepared to support this plan and support it strongly," said Conrad, who chairs the Senate Budget Committee.

Higher Taxes Won't Reduce the Deficit

Could all the rhetoric and arguing be a moot point? The Wall Street Journal ran a story stating that historically, more tax revenue just leads to more spending by Washington.

From the Wall Street Journal:

The draft recommendations of the president's commission on deficit reduction call for closing popular tax deductions, higher gas taxes and other revenue raisers to drive tax collections up to 21% of GDP from the historical norm of about 18.5%. Another plan, proposed last week by commission member and former Congressional Budget Office director Alice Rivlin, would impose a 6.5% national sales tax on consumers.

The claim here, echoed by endless purveyors of conventional wisdom in Washington, is that these added revenues—potentially a half-trillion dollars a year—will be used to reduce the $8 trillion to $10 trillion deficits in the coming decade. If history is any guide, however, that won't happen. Instead, Congress will simply spend the money.

In the late 1980s, one of us, Richard Vedder, and Lowell Gallaway of Ohio University co-authored a often-cited research paper for the congressional Joint Economic Committee (known as the $1.58 study) that found that every new dollar of new taxes led to more than one dollar of new spending by Congress. Subsequent revisions of the study over the next decade found similar results.

We've updated the research. Using standard statistical analyses that introduce variables to control for business-cycle fluctuations, wars and inflation, we found that over the entire post World War II era through 2009 each dollar of new tax revenue was associated with $1.17 of new spending. Politicians spend the money as fast as it comes in—and a little bit more.

Federal Budget Deficit Hits April Record

The U.S Federal budget deficit last month reached $82.7 billion, the highest amount ever recorded for the month of April. This is up drastically from last years April deficit of only $20 billion. According to the Associated Press, the number was above the $30 billion deficit private economists had been forecasting.

The government normally runs surpluses in April as millions of taxpayers file their income tax returns. However, income tax payments were down this April, reflecting the impact of a severe recession which has pushed millions of people out of work.

California’s Budget Suffers ‘Major Blow’ as Debt Sales Loom

From Bloomberg.com:

California’s revenue collections trailed its forecasts by $1.1 billion during the first three months of the fiscal year, showing new deficits are emerging in the budget Governor Arnold Schwarzenegger signed July 28.

Revenue was 5.3 percent less than was assumed in the $85 billion annual budget during the three months ended Sept. 30. Income tax receipts led the shortfall, as unemployment reached as high as 12.2 percent in August.

“Revenues more than $1 billion under estimates and recent adverse court rulings are dealing a major blow to a budget that is barely 10-weeks old,” Controller John Chiang said in a statement. “While there are encouraging signs that California’s economy is preparing for a comeback, the recession continues to drag state revenues down.”

The latest figures show that California is facing resurgent fiscal strains brought on by the U.S. recession. Since February, Schwarzenegger and lawmakers have cut $32 billion from spending, raised taxes by $12.5 billion and covered $6 billion more with accounting gimmicks and borrowing.

The budget news comes as the most populous U.S. state prepares to sell as much as $15 billion of bonds in the next nine months to refinance debt and fund public-works projects.

California, already the largest borrower in the municipal market, may offer as much as $4 billion of debt during the week of Oct. 26 to refinance the bonds used by Schwarzenegger to cover previous budget deficits. The budget enacted in July would allow the sale of as much as $11 billion more of general obligation bonds through the June 30 end of the fiscal year if financial markets allow, state Treasurer Bill Lockyer said. The exact sale amount hasn’t been decided.

Sacramento County Facing Budget Deficit of $38 million

The State of California has been dealing with enough of their own budget problems, and now the state’s capitol – and my hometown – is beginning to have their own problems. New reports suggest that the Sacramento County is facing a budget deficit of nearly $38 million, and it could get worse soon. An article from the Sacramento Bee explains how this new revelation could affect all Californians.

Less than a month into the fiscal year and Sacramento County officials are already saying there's a near $38 million budget shortfall that could get even worse.

In addition to the $9.8 million in projected welfare costs the county chose not to fund in June, sales tax, property tax and other revenue projections made just months ago are already proving to be overly optimistic. Then there's the matter of the $10 million the supervisors have said they want to restore to the Sheriff's Department.

All of that means the county -- which laid off 243 employees and eliminated numerous contracts earlier this month in order to pass a "balanced" $2 billion general fund spending plan -- could be making more big cuts in a couple months.

The board will discuss the worsening budget situation at its meeting this afternoon. Originally the supervisors were going to talk about where they would cut $10 million from the budget in order to restore some funding to the Sheriff's Department and save 70 deputy jobs.

County Executive Terry Schutten's office, however, is recommending that "instead of a piecemeal approach...all these issues be dealt (with) at final budget hearings."

The Sheriff's Department has enough money in its budget to cover the cost of those 70 deputies until the fall when the board amends the spending plan it passed last month, according to Schutten's office.

The board will begin discussing the so-called "final budget" at a hearing Sept. 10.

Calif. Mayors Urge Schwarzenegger To Spare Cities

According to BusinessWeek.com, California mayors are urging Governor Arnold Schwarzenegger to consider local governments when making plans to close the budget deficit. Check out a portion of their article below.

The mayors of some of California's largest cities on Tuesday asked Gov. Arnold Schwarzenegger to avoid undermining local governments as he and lawmakers seek to close the state's $24.3 billion budget deficit.

Los Angeles Mayor Antonio Villaraigosa led a group of mayors from San Diego, Sacramento and Fresno who came to the Capitol to meet with the governor. They said the state should repay cities if it takes any of their tax revenue.

Schwarzenegger later said nobody is pleased with the state's fiscal condition but that tough decisions have to be made.

In another development Tuesday, the state Senate leader said Democrats were beginning to form their own plan to address the deficit, including fewer cuts than Schwarzenegger has proposed and closing some corporate tax loopholes.

Part of the governor's proposal to eliminate the shortfall calls for the state to borrow $1.9 billion from property tax collections and reduce the local share of the gas tax by $744 million.

The mayors said taking gas-tax money would be worse than borrowing from property taxes because the state would not be obligated to repay it. The state must repay local governments within three years, with interest, if it borrows local property taxes.

"One of our core principles is that any plan that pulls tax revenues from cities must be accompanied by a plan to get that money back into the coffers of local governments," Villaraigosa said during a news conference.

In addition to taking the gas tax from local governments, the Legislature's budget analyst has recommended siphoning even more local money from gasoline sales. It is unclear whether that proposal will be adopted by lawmakers.

San Diego Mayor Jerry Sanders said his city already has cut 18 percent from its $1 billion general fund. The state is threatening to take revenue worth another 7.5 percent.

He said the loss of the gas tax alone would mean 120 fewer police officers and 120 fewer firefighters for San Diego.

"We're here to call on the legislators and to call on the governor to balance the budget without balancing it on the backs of cites, counties and school districts," Sanders said.

Schwarzenegger disputed the claim that public safety would have to be cut if the state reduced gas tax revenue to cities and counties because that money is dedicated for transportation projects.

"One has nothing to do with the other," the governor said.

Michael Cohen, an analyst in the Legislative Analyst's Office, said cities that can defer road maintenance might not be hurt by the state's actions. Others may have to take money away from police or fire services to pay for emergency transportation projects, he said.

Cohen noted that cities still will receive federal money.

Senate Democratic Leader Darrell Steinberg said Tuesday that lawmakers were working on a budget plan that would not require local borrowing.

He said Democrats are working on their own budget plan that closely follows the proposed budget Schwarzenegger introduced earlier this month.