Happy News: “Annual adjustments to Nevada’s labor market show the state’s unemployment rate for 2012 dropped from a preliminary estimate of 11.6 percent to 11.1 percent and that Nevada gained 18,100 in employment over the year, up from the previous estimate of 9,300.” [DETR pdf] A graph of Nevada unemployment rates for the past five years shows:
The current rate is reported as 10.2%. The Nevada YOY employment growth rate is 1.7%. [DETR] Any improvement is acceptable, but more would obviously be better. Unemployed workers curtail spending — a drag on local retail economies, and unemployed workers who curtail spending pay less in sales taxes. The improvement in employment figures during 2012 showed up in the state sales tax information:
“Statewide taxable sales for December 2012 of $4,343,847,392 represents a 3.0% increase over December 2011 and a 5.1% increase for the fiscal year. The largest increases in statewide taxable sales were realized by Food Services and Drinking Places, up 5.4%; Specialty Trade Contractors, up 60.9%; Motor Vehicle and Parts Dealers, up 10.0%; Clothing and Clothing Accessories Stores, up 5.9%; and Telecommunications, up 38.2%.” [NDT Dec 2012]
Now we can get to the philosophical part. A state which reduces its spending not only reduces the level of service to its citizens, but it also constrains the aggregate demand in its own economy. As of 2010 Nevada ranked 32nd in the nation as categorized by state GDP ($127.5M). The budget proposed by Governor Sandoval restores some hiring, reduces furloughs, and addresses some infrastructure needs. [pdf download] We’ll be paying for this with a relatively regressive tax structure.
(Full Size Chart click here (pdf)]
Operating grants are funds from federal sources. The “other” taxes are the Modified Business Tax, insurance taxes, and property related taxation. We are “pleased” to promote ourselves as a state without personal or corporation income taxation, so we are stuck with taxing sales, property, gaming, and business operations. All dependent in one way or another on consumer spending. Be ye rich or poor you’ll spend the same amount for sales tax on a box of bolts. Further, we’re going to jeopardize our fragile recovery by adopting Austerity Economics at the federal level.
Here comes the Silli-quester part of the puzzle. Note the 8.09% drop in federal spending in Nevada since the last budget in the previous chart. Now, imagine we’re going to use a meat axe to cut this level back even further. The cuts won’t all come at once, but if the sequestration of funds continues there will be reductions in spending for Title I schools, for nutrition programs, and for other government services. States with less regressive taxation structures might be able to absorb the reductions with less pain, but Nevada doesn’t have even that minimal luxury. Its revenues are closely tied to the employment levels both domestically and nationwide.
At this point we need to deal with some conservative mythology which underpins the current demands for federal spending reductions.
#1. The first thing required to create a debt or deficit crisis (and these two things are not synonymous) is to convince the populace we have The Very Worst Debt Crisis Ever In The History Of Humanity. We don’t.
“In fact, we’ve been here before. In 2009, the federal budget deficit was a whopping 10.1% of the American economy, and back in 1943, in the midst of World War II, it was three times that — 30.3%. This fiscal year the deficit will total around 7.6%. Yes, that is big. But in the Congressional Budget Office’s grimmest projections, that figure will fall to 6.3% next year, and 5.8% in fiscal 2014. In 1983, under President Reagan, the deficit hit 6% of the economy, and by 1998, that had turned into a surplus. So, while projected deficits remain large, they’re neither historically unprecedented nor insurmountable.” [Salon]
Notice, that if we do nothing — the deficit will still decline from 7.6% of GDP to 5.8% in FY 2014. And, it’s hardly the Greatest Worst Thing That’s Ever Happened. It is, however, the only peg on which the GOP controlled House of Representatives can attempt a bit of hostage taking thanks to the provisions of Article I, Section 7 of our Constitution. “All bills for raising revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other bills.”
#2. ” Our spending, our spending I say, is Out of Control.” Not so much. Consider this often published chart from Forbes Magazine on federal spending by recent administrations:
So, when does 1.4% annualized growth in spending become “out of control” compared to the first Reagan term 8.7%? Or, to the two Bush II administrations rates of 7.3% and 8.1%?
#3. “But, but, but…we’re saddling our grandchildren with DEBT!” Before the hysteria becomes too cloying, it’s well to remember that federal debt isn’t anything like household debt. Unless, of course, your household can issue Treasury Bills and Notes which are universally recognized as safe investments. You and I have creditors. The United States of America has investors. And, better still, some of our grandchildren — the ones on whom we have bestowed gifts of Savings Bonds — are some of those investors. In fact, as of 2011 the Federal Reserve held about 16% of our public debt, state and local governments held about 6%, and domestic and private investors owned 32%. [GAO]
#4. “But, but, but…we’re literally getting owned by China!” Yes, foreign investors hold the remaining 46% of our public debt, but they have reasons for that which don’t sound like Gloom and Doom. For example, we are the world’s reserve currency. The good old U.S. dollar was used in about 80% of all financial transactions in global foreign exchange markets as of April 2011. That being the case, we can borrow on the Full Faith and Credit of the U.S. to make up for gaps in our own savings rates.
“…an economy open to international trade and investment, such as the United States, essentially can borrow the surplus of savings of other countries to finance more investment than U.S. national saving would permit. The flow of capital into the United States has gone into a variety of assets, including Treasury securities, corporate securities, and direct investment. [GAO]
Further, true to the don’t put all the eggs in one basket rule for investors, our foreign counterparts aren’t pouring all their investment into our public debt, as the following fancy graph from the GAO report demonstrates:
#5. “We have to reform entitlement programs or we’ll never get out of this No Good Horrible Debt.” Not. So. Fast. Now, we’re getting down to the core part of the conservative strategy. “Reform” in that context means Privatize. Let’s dispense with the Social Security part of the issue first.
“…today the Social Security trust funds hold $2.8 trillion in government bonds. These reserves have been built up with the contributions that workers and employers have paid into the system for the dedicated purpose of paying Social Security benefits. These funds are held in legally established trusts and cannot be used for any purpose other than paying benefits. According to the latest Trustees’ report, Social Security can pay full benefits through 2033, and roughly 75 percent of benefits beyond that time.” [AARP]
Those bonds are non-commercial, highest priority Treasuries not available to Wall Street Bettors and Traders. Social Security adds not one thin dime to our national debt, and therefore, as President Ronald Reagan once stated, should NOT be part of any “deficit reform” package. [PoliticusUSA] If we’d like to make the system even more secure there’s always the option of raising the cap on earnings subject to Social Security. [EPI]
“But, but, but… there’s nothing but IOU’s in the Social Security Trust Funds.” I’d like to get some of those IOUs… but as a private investor I can’t. They are privileged funding sources for the Social Security Administration and I can’t play with them in the equities markets. The SSA phrases this more elegantly.
“There can be no question that the Federal old-age and survivors insurance and disability insurance trust funds and the Board of Trustees of those funds were created by and are subject to laws enacted by the Congress of the United States. To that extent, they are a part of the United States Government. These funds, however, are entities separate from and independent of the rest of the Federal Government. The income and disbursements of the funds are not included in the administrative budget of the Government. Instead, the President reports their operations separately in his Budget Message to Congress and the Board of Trustees is required to submit to Congress annually a report on the operations and status of the funds. The debt obligations held by the trust funds are shown in Treasury reports as part of the Federal debt, and interest payments on these obligations are regularly made by the Treasury to the trust funds. They are redeemed in cash by the Treasury whenever necessary for disbursements by these funds. (emphasis added) [SSA]
#6. “But, but, but, Medicare is going broke!” Medicare does have problems, the worst of which are rising costs of health care in the United States. To wit, the conservatives offer the following canard — Obamacare endangers Medicare. No, actually it doesn’t. If by “endangerment” one means that the Affordable Care Act provisions have saved the popular program about $6 billion in drug costs — then let’s have more endangerment, please. [HuffPo]
And if by endangerment, one means that the provisions of the Affordable Care Act are beginning to bend the curve on rising health care costs, then let’s have more:
“Douglas Elmendorf, Director of the CBO, noted that while much of the savings are the result of a loss of wealth due to the recession. But, for the first time, Elmendorf was willing to say that a ‘significant part’ of the savings are the result of structural change in how healthcare is now being delivered.” [Forbes]
We might also want to consider allowing the Department of Health and Human Services negotiate for Medicare supported prescription drugs? Or, we could pause a moment from the current hysteria, and allow some of the provisions of the ACA to kick in, and support the efforts of the Administration to curb Medicare fraud and abuse.
“According to the Congressional Budget Office, this health-reform legislation will reduce budget deficits by $119 billion between now and 2019. And only around 1% of American households will end up paying a penalty for lacking health insurance.
While the Affordable Care Act is hardly a panacea for the many problems in U.S. health care, it does at least start to address the pressing issue of rising costs — and it incorporates some of the best wisdom on how to do so. Health-policy experts have explored phasing out the fee-for-service payment system — in which doctors are paid for each test and procedure they perform — in favor of something akin to pay-for-performance. This transition would reward medical professionals for delivering more effective, coordinated, and efficient care — and save a lot of money by reducing waste.” [Salon]
A reduction in the deficit of $119 billion by 2019 sounds like we’re headed in the right direction — without privatization or voucherization or whatever the popular conservative term of the day might be.
In the dark world of conservative TeaParty GOP thinking, Nevada and 49 other states will have to absorb a reduction in federal spending — thus crimping their already strained budgets — because of a debt crisis that really isn’t critical, deficits which are NOT out of control but are actually declining, and social safety net programs which are (a) not adding anything to the Hideous Heinous Debt, or (b) being reformed without resorting to radical prescriptions like privatization or voucherization.
The current caterwauling by the GOP about the deficit or the debt is part and parcel of the only way they can obstruct the Obama Administration — using the appropriation powers granted unto them in the House of Representatives. They will hold the national economy hostage in their own moonlit nightmare of irrelevance, clutching the only cudgel at hand.