From the The Daily Standard last Friday:
By midnight West Coast time tonight, Arnold Schwarzenegger will have solved California's fiscal mess. Well, not solved it, exactly, but he is poised to deliver on the last of his big three recall promises. The Governator wants the legislature to sign off on a $15 billion deficit bond, which voters will have to approve next March. Schwarzenegger could get a version of that as soon as tonight, as well as a spending cap (he calls it a "never again spending limit") that gives him more control over the budget process in fiscal fights to come.
From Bloomberg Business News, today:
California, the U.S. state with the highest borrowing costs, had its credit rating on $30 billion of bonds cut one level by Moody's Investors Service after lawmakers rejected Governor Arnold Schwarzenegger's spending cap.Moody's downgraded California's general obligation bonds to Baa1, the third lowest of 10 investment grades, from A3. After the third ratings cut in 10 months, California is rated the same by Moody's as Puerto Rico and the District of Columbia, as well as Lithuania, Malaysia, Thailand and Chile.
Something about chickens, counting, hatched.
Actually, Mr. Beefcake's proposed "solution" to the state's fiscal crisis (in addition to going even deeper into debt to fund part of this year's deficit) is to lower next year's budget baseline to $72 billion, from this year's $86 billion, and then cap spending at that lower level.
The budget baseline, for those of you fortunate enough not to know anything about government accounting, is the estimated level that state spending would reach in the coming fiscal year, assuming normal growth in the demand for legislatively mandated services, the expected effect of any new mandates already approved, plus an assumed inflation rate. This "current services" estimate then becomes the benchmark for either adding or cutting the budget. Thus the term "baseline."
Using California's existing $86 billion baseline, der Governator and der legislature would need to cut spending by something like $14 billion next year to balance the books. But, plugging in Arnold's proposed $72 billion baseline would shrink the required cut to, well, zero.
Voila! Problem "solved."
Of course, lowering the baseline doesn't actually cut anything. It's an accounting device, and an accounting device -- even one solemnly ratified by the voters in a statewide referendum -- is only an accounting device. Someone still has to figure out how to make $86 billion in expected spending shrink to just $72 billion in expected spending next year. That's going to mean cutting real programs that benefit real voters.
This problem also arose during the drafting of President Reagan's first budget. To accommodate the Gipper's tax cuts -- as "enhanced" by Congress -- while staying within its budget deficit target (Republicans still claimed to care about such things back then) Reagan's OMB director, David Stockman, found he needed a couple of hundred billion dollars in additional budget cuts. He couldn't find them, since virtually everything he proposed to cut (farm subsidies, export subsidies, small business subsidies) had a GOP sacred cow standing in front of it.
Stockman's "solution" was to add a footnote -- promptly dubbed the "magic asterisk" -- to the published budget, one that identified the needed cuts as "budgetary savings to be identified later."
Much, much later -- several trillion dollars in federal debt later.
Conan, unfortunately, doesn't have the option of running unlimited budget deficits. The blank space next to his magic asterisk will have to be filled in sooner rather than later. And this will be true, no matter what kind of spending limit deal he cuts with the legislature, or with the voters.
Maybe by then those chickens will have finally hatched.
He can raise the money to pay off the debt by running a "groping booth". $5 a pinch. The sad thing is how many California women (and men) would probably get in line for that. All hail the Gropenfuhrer!
Crunch time coming soon to the golden state. Arnold will have to deal with real issues, real facts, not to mention the real world. Let's see how well the terminator handles problems outside of fantasy land. Somehow, I feel the Gropeinator is in for an incredible challenge. When the going gets tough, the tough get going. Guess we shall find out how tough the Austrian studman really is!
billmon, aren't you the same one that said bushs' tax cuts wouldn't work?
but, of course, someone has to have a knee-jerk reaction to this.
Billmon was one of only several million people who had, and have, the opinion that Bush's tax cuts wouldn't work. Have they? Worked for what? Make a very few immense stockholders richer? Pile a few thousand onto every American household's share of the national debt? Give us the largest deficit ever?
Well, then, yeah, I guess you could say they worked.
GWB. RIH.
Oh, yeah. Welcome back, Billmon. Glad to have the bar to go to again.
GWB. RIH.
..."magic asterisk"...
Love it! I'll have one. Stem no ice, please.
(Three cheers for opening the bar again)
Billmon's back!!! A round for everyone on me!!! I'll have a champagne cocktail, barkeep. BTW, tax cuts do stimulate an economy. That's not even debatable. The recent positive economic indicators may be the result of the Bush tax cuts. There are a number of different ways to cut taxes, however, and there are other perfectly acceptable ways of stimulating an economy. Across-the-board rate reductions pour some cash into the economy, but they do nothing to encourage investment, which in turn builds industries and creates jobs and prosperity. Targeted investment incentives, like investment tax credits, are far more effective in the long run than rebates for child care tax credits and other such giveaways. That's pure social welfare. Gee, I thought Republicans were against that. There is no good tax policy argument for that kind of tax cut, but it's all about politics, not policy.
The structural economic problems facing the U.S. like the trade deficit and the federal deficit make the huge Bush tax cuts a laughably imprudent move to "strengthen" the economy. They were pure politics, gifts to rich campaign dodnors, pandering to the irrational tax hatred that is rampant in this country. I often wonder if those tax haters will get cold comfort from this Bush tax cuts, a rob-'em-blind fiasco, when they grow old and sick and there's no Social Security, no Medicare, no Medicaid, no nothing for them, just begging from grown children and asking for charity. Will they still love Rush? Will they still adore Sean Hannity? Cat food really doesn't taste that good. But maybe the joy of low taxation will fill their bellies, warm their cold bodies, and ease their pain. Maybe the love of Rush is stronger than physical pain and hunger. I don't know. Apparently Rush still felt pain, and he spews that garbage. The world has gone mad.
billmon, aren't you the same one that said bushs' tax cuts wouldn't work?
I'll agree this much -- the economy got more of a short-term pop out of the tax cuts than I thought it would, although the great home equity refinancing bubble also contributed quite a bit of oomph.
The price will be paid down the road -- as it was at the end of the 1980s. Except this time it almost certainly will be worse.
What you Peronist conservatives want to ignore -- because it suits your short-term political objectives -- is the fact that your bastardized supply side policies are like a drug: you have to keep applying progressively larger doses to get the same effect.
So instead of $300 billion deficits, we're going to have $500 billion, then $600 billion, and probably $700-800 billion before the end of the decade. And instead of a 3% current account deficit, we've got 5%, heading for 6% or 7% -- and a dollar crisis.
Meanwhile, the fed has floored it -- the fed funds rate is down to 1%, and no doubt will go to almost zero in the next recession.
There's not much of a future in this kind of debt-driven insanity. But it will probably be enough get you guys through the next election, which is all you care about anyway.
In any case -- what do Bush's tax cuts have to do with Arnie's search for a magical way to make California's $14 billion budget deficit disappear? Remember: Bush is the one with the pet central bank. Arnie's got a credit rating just barely above junk. How is he supposed to borrow his way out of this one?
I think I remember reading somewhere that the boosting effects of tax-cuts are nothing compared to the stimulus caused by a new batch of government spending.
Observer, government spending is much more efiicacious because it is efficient -- it pours money exactly where it is needed. Tax cuts are inefficient because they levae the ultimate disposal of the cash up to the taxpayer. People may spend the money on durable goods or investments, or they may just use it to pay down credit card debt, or just sit on it. Large tax cuts are similar to flooding the economy with paper money. People have money to spend, but the central bank has no control over how it's spent. It's more of a crap shoot, but far, far more appealing to the right wing than evil gummit spendin'.
Billmon, you are right that the tax cut discussion is slightly OT. Arnie doesn't have the luxury of a central bank, like His Holiness does. The similarity is that, because of the insane political world in which we live, Arnie must bind himself to the Procrustean bed of "No new taxes" and yet save CA's economy. Sorry, big guy. No. Can. Do.
I have absolutely no clue how Arnie will get out of this hellhole. Maybe he'll contribute a large percentage of his personal wealth. That would help! But I won't hold my breath until that happens. Arnie has limited options, and he has exhausted pretty much them. He naively believed that his personal "charisma" would get him out of this jam. Yeah. Right. Cyborg-Boy.
Here's an old DailyKos topic with some fine work by RonK and others in the comments on the subject of Gov't capital spending.
'got it covered in detail at my place.
The net cut would be 16%, except that k-14 is protected by Prop 98. If education were to survive - and Arnie just said he's after 98 - everything else would be cut by 20%.
You must know, the mean bastard has already proposed closing the doors to services for new mentally disabled kids (hello, Eunice?) and has proposed ending in-home programs that keep old folks out of homes. His initial cut to MediCal (Medicaid for y'all) would add 20% to the 10% mapped in by Davis - BEFORE the new spending cap cuts.
You will all shortly notice that this guy has set a new standard for GOP heartlessness and incompetence.
And so began the eugenics program to rid the population of the undesirable.
Protests are scheduled today in Sacramento by friends of the disabled. In case you haven't heard, Arnold has taken his first swing of the budget axe against the disabled and is trying to repeal the Lanterman Act which provides help and services to disabled people and their families. I don't remember that discussion during the campaign, but given what we did learn about Arnold, I'm not surprised.
Hasta la Visa baby.
Actually, to make matters worse, the CA worker's comp account just ran out of money too, so Arnold has asked the Feds (you know, the people with all that extra money) for a $1.5B, um, loan to keep it afloat. And word's seeping out that he might want to do some cutting out of the education fat.
"Well, we are working with the education community to see how we can work together, in order for them to help us with this budget crisis," he told CNN's Judy Woodruff. "If we have a suspension, or some relief there, then we can pull out of the next two years and then pay them back, maybe."
Don't you love that last maybe?
What's the solution? Especially if the campaign's rallying cry was I will not raise your taxes.
How about waffling?
"We don't know what the situation, the deal is a year or two from now," he told reporters. "It could very well be that you do a survey and you do a poll and all of a sudden the 80 percent of people that say no taxes change to, you know, 40 percent and there's 60 percent (who) say raise taxes. Then you can look at it."
OK y'all. Stop cackling. It's not becoming.
We don't know what the situation, the deal is a year or two from now," he told reporters. "It could very well be that you do a survey and you do a poll and all of a sudden the 80 percent of people that say no taxes change to, you know, 40 percent and there's 60 percent (who) say raise taxes. Then you can look at it."
Somebody must have read his lips.
I'm glad you're back. I was politically lost without you.