Your SlideShare is downloading. ×
Lunch keynote   ken kies
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×

Introducing the official SlideShare app

Stunning, full-screen experience for iPhone and Android

Text the download link to your phone

Standard text messaging rates apply

Lunch keynote ken kies

62
views

Published on

Published in: Business, Economy & Finance

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
62
On Slideshare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
0
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. Tax and Budget Policy in the Washington Swamp as We Approach Another Election Year Bank and Capital Markets Tax Institute San Francisco, CA October 17, 2013 Kenneth J. Kies Managing Director Federal Policy Group
  • 2. View from Washington Page 2
  • 3. Overview       Federal Fiscal Outlook Economic Outlook How Popular is Congress? Looming Deadlines On to the 2014 Election Outlook for Tax Reform in 2013 – Is More Redistribution Needed?  Tax Reform Predictions Page 3
  • 4. The Outlook for 2013 Federal Fiscal Outlook Page 4
  • 5. Deficit Outlook Under CBO $1,800 $1,600 Annual Deficit ($ billion) $1,400 $1,200 $1,413 $1,294 $1,300 $1,087 $1,000 $800 $600 $400 $642 $648 $560 $378 $432 $482 $733 $782 $542 $200 $0 Fiscal Year CBO Baseline Source: CBO Baseline Budget Outlook, May, 2013 Page 5
  • 6. Federal Debt Outlook: White House Total Federal Debt $23.4 $22.6 $21.8 $20.9 $20.0 $20 $19.1 $18.1 $17.0 Publicly Held Debt ($ Trillions) $16.1 $15 $10 $5 $0 2012 2013 2014 2015 2016 2017 2018 2019 2020 Fiscal Year Source: White House Updated Budget for Fiscal Year 2014, July 2013 Page 6
  • 7. Federal Debt Outlook: White House Total Federal Debt (As % of GDP) 120% 106% 107% 107% 2013 2014 2015 107% 106% 105% 104% 104% 103% 2018 2019 2020 2021 100% 80% 60% 40% 20% 0% 2016 2017 Fiscal Year Source: White House Updated Budget for Fiscal Year 2014, July 2013 Page 7
  • 8. Debt to GDP Ratio is Likely Worse White House Projections on GDP Growth are More Optimistic than other Government Projections Projected GDP Growth 2013 2014 2015 2016 2017 2018 2019 2020 2021 White House 3.3% 4.5% 5.2% 5.2% 5.2% 4.9% 4.3% 4.2% 4.1% Federal Reserve (range) 1.8 2.4% 2.2 – 3.3% 2.2 – 3.7% 2.2 – 3.5% 2.1 – 2.5% 2.1 – 2.5% 2.1 – 2.5% 2.1 – 2.5% 2.1 – 2.5% CBO 2.2% 2.2% 2.2% 2.2% 2.2% 2.2% 2.3% 2.3% 2.3% Page 8
  • 9. Now Even Worse News Page 9
  • 10. Entitlements Drive the Debt Higher Page 10
  • 11. Federal Revenues Were Depressed As Well  Revenues as a percent of GDP have averaged 17.8 percent since 1950  Revenues as a percent of GDP have been at their lowest level since 1950 FY- 2009 - 15.1% FY- 2010 - 15.1% FY- 2011 - 15.4% FY- 2012 – 15.7% Page 11
  • 12. But Revenues Have Recovered Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 % of GDP 16.9 18.0 19.1 19.1 18.9 18.8 18.7 18.7 18.9 19.0 19.1 Source: CBO Baseline Budget Outlook, May, 2013 Page 12
  • 13. The Interest Rate Time Bomb Federal Net Interest Expense Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Billions $223 $237 $264 $313 $398 $497 $573 $644 $703 $764 $823 % of GDP 1.4 1.4 1.5 1.7 2.0 2.4 2.6 2.8 2.9 3.1 3.2 Total Fed Spending (Billions) $3,455 $3,602 $3,777 $4,038 $4,261 $4,485 $4,752 $5,012 $5,275 $5,620 $5,885 % of Total Spending 6.4% 6.5% 6.9% 7.8% 9.3% 11.1% 12.1% 12.8% 13.3% 13.6% 14% 10-year Treas Notes 2.1 2.7 3.5 4.3 5.0 5.2 5.2 5.2 5.2 5.2 5.2 Source: CBO Baseline Budget Outlook, May, 2013 Page 13
  • 14. Rate Increase + Increase in Debt = Trouble “The Federal debt remains on an unsustainable path. Despite some shortterm improvements, the debt is still projected to be at roughly 73 percent of GDP for the decade – almost twice the historical average – and then grow to above 90 percent of GDP by 2035 and over 130 percent by 2050.” Committee for a Responsible Federal Budget, September 16, 2013 Page 14
  • 15. Putting the Debt in Perspective for Fiscal Year 2011  U.S. Tax Revenue: $2,314,000,000,000  Federal Budget: $3,597,000,000,000  New Debt: $1,283,000,000,000  National Debt: $14,698,625,550,307.37 (and counting)  Budget Cuts: $38,500,000,000 Source: The Congressional Budget Office, Treasury Department’s Bureau of Public Debt Page 15
  • 16. Drop 8 Digits, the Debt becomes a Family Budget  Annual Family Income: $23,140  Money Family Spent: $35,970  New Credit Card Debt: $12,830  Credit Card Balance: $146,986.37 (and counting)  Budget Cuts: $385 Page 16
  • 17. The Real Kicker “A federal budget compromise that was hailed as historic for proposing to cut about $38 billion would reduce federal spending by only $352 million this fiscal year, less than one percent of the bill’s advertised amount, according to the Congressional Budget Office.” - The Washington Post, April 14, 2011 Page 17
  • 18. Translation: The Family Budget was cut by $3.85, not $385 Page 18
  • 19. Economic Outlook Page 19
  • 20. States and Cities in Fiscal Crisis – Skyrocketing unfunded state pension liabilities, up to $4 trillion according to some estimates, are driving already financially troubled states down the path to insolvency, and there appears to be no political will to address the problem. States in the most dire fiscal situations are high-tax, left-leaning and Democratic-controlled, and according to University of Chicago economics professor Brian Barry pose a “long-term threat to the permanent national majority that many Democrats believe they see emerging from the past two presidential elections.” Reuters, “GOP and the blue state budget time bomb,” January 16, 2013 – New rules [will] require state and local governments to report those obligations more honestly, advocates say. The latest rules come on line from the bond-rating firm Moody’s at the end of this month. They are projected to triple the gap between what states and municipalities report they have in their funds and what they have promised to pay out to retirees. The Washington Post, August 16, 2012 Page 20
  • 21. States and Cities in Fiscal Crisis  States face trillions in pension funding shortfall (continued) – The state pension situation is improving, but most plan funding is still low… On average, state pension plans are roughly 73 percent funded, according to Morningstar, an investor research company that puts together the annual report. The Washington Post, September 17, 2013  10 states where the public pension fight is fierce (Unfunded Liability): California ($100 billion), Illinois ($85 billion), Kansas ($9.2 billion), Kentucky ($30 billion), Louisiana ($18 billion), New Hampshire ($4.26 billion), New Jersey ($41.7 billion), New York ($9 billion), Oklahoma ($10.6 billion), Rhode Island ($4 billion) The Wall Street Journal, October 7, 2012  Some cities face bankruptcy – “Atwater, California files for bankruptcy.” Reuters, October 4, 2012 – “Illinois Weighs Plan to Climb Out of Pension Hole.” The Wall Street Journal, January 8, 2013 – “Harrisburg [PA] is in default on its debt and has been effectively shut out of the municipal-debt market, which cities and states use to finance everything from building schools to paving roads.Harrisburg's misery is familiar to many U.S. cities trying to climb out of debt used to finance convention centers, hotels and employee pensions. Some governments are cut off now from funding for necessities such as repairing infrastructure.” The Wall Street Journal, February 1, 2013 Page 21
  • 22. Detroit: The Mother of all Pension Problems Page 22
  • 23. Is New York City Next? Mayor Michael Bloomberg: NYC may be the next Detroit New York City is headed toward the same bankrupt fate as Detroit, unless the incoming mayor tends to municipal union issues and curbs soaring pension costs right away, Mayor Michael Bloomberg warned on Tuesday. “Avoiding the hard choices is how Detroit went bankrupt,” he said, in a speech before a Brooklyn crowd… he’s advising his followers to take heed from a city that’s been there, done that, in terms of financial disaster. Chicago, he reminded, just sent pink slips to 2,100 teachers and school workers to help defray the costs of pensions. Washington Times, August 8, 2013 Page 23
  • 24. Economic Indicators  Consumer confidence – Gallup: Economic confidence posts fastest drop since 2008 crisis. “Gallup’s economic confidence index fell 12 points… The 2008 drop was 15 points…in the week after Lehman Brothers filed for bankruptcy.” - The Wall Street Journal, October 8, 2013 – The Index of Leading Economic Indicators was up .7% in August, to 96.6, from July’s 96.0%. An Index of 100 would suggest strong growth. (source: Conference Board)  Unemployment – Unemployment Rate in August was 7.3%, down from July’s 7.4%. – 169,000 net new jobs created in August, down from the revised 104,000 net jobs created in July, which originally was 162,000 – Roughly 200,000 jobs must be created every month to maintain current unemployment rate. Page 24
  • 25.  Underemployment – BLS shows 13.7% of American workers in August were either unemployed or working part-time, but wanting full time work. – 37.9% of unemployed in August had been out of work for at least 27 weeks. – The long-term unemployment rate has hovered around 40 percent every month since March of 2010. Page 25
  • 26. What Economic Recovery? President Obama took Office on January, 20, 2009. What has Changed Since: Part-Time Hires Outweigh Full-Time Hires Employment Jan., 2009 July, 2013 Change Part-Time* 26.4 Million 28.2 Million 1.8 Million Full-Time* 115.8 Million 116.1 Million 300,000 More Have Received Food Stamps than Paychecks Jan., 2009 July, 2013 Change Non-Farm Payroll* 133.6 Million 136 Million +2.4 Million Government Payroll* 22.6 Million 21.9 Million -700,000 Food Stamps 33.5 Million 47.5 Million +14 Million (monthly average) Source: Bureau of Labor Statistics (BLS) database, Supplemental Nutrition Assistance Program (SNAP) database * Totals differ because they are taken from two separate BLS surveys Page 26
  • 27. Economic Indicators  Record Number of Youth Unemployed – Nearly One-Quarter of workers between the ages of 16 and 19 were unemployed in August, 2013, 22.7%, down from July, 2013, of 23.7%. – “Employers added 169,000 jobs in August, the Labor Department said Friday, a bit more than in July, and the unemployment rate fell to 7.3%, the best mark of the recovery… The unemployment rate, meanwhile, fell not because people found jobs but because they gave up looking. The number of people reporting they had jobs—a measure based on a separate survey from the one used to calculate payroll gains—fell by 115,000 in August. As a share of the population, fewer Americans are working or looking for work than at any time in the past 35 years.” - The Wall Street Journal, September 6, 2013 Page 27
  • 28. A Crisis Among Our Young People Page 28
  • 29. “Less than one-third of eight-graders can identify the historical purpose of the Declaration of Independence, and it’s right there in the name.” Former Supreme Court Justice Sandra Day O’Connor September 9. 2013 Page 29
  • 30. “In a survey conducted by the National Constitution Center, an independent nonprofit group, more teens could name the Three Stooges than the three branches of government.” GreatSchools.org Page 30
  • 31. Don’t Know Much About Civics  Only 24% of fourth-grade students scored at the proficient level in civics.  Only 27% of High School Seniors scored at the proficient level.  Even in the last presidential election, when there was a surge in new voter registration, less than half of the eligible 18- to 24-yearolds voted. 2012 National Assessment of Education Progress Civics Report Card to the Nation Page 31
  • 32. Fewer Civics Classes  Fewer public schools offer school-based service/civics-learning opportunities now than a decade ago.  Only 24% of schools offered formal service/civics learning in 2008, compared to 32% in 1999. Corporation for National and Community Service (CNCS, 2008) Page 32
  • 33. How Popular is Congress? Page 33
  • 34. Gallup: “Americans' confidence in Congress as an institution is down to 10%, ranking the legislative body last on a list of 16 societal institutions for the fourth straight year. This is the lowest level of confidence Gallup has found, not only for Congress, but for any institution on record. Americans remain most confident in the military, at 76%.” - June 13, 2013 Page 34
  • 35. The Gallup Poll: June 13, 2013 Page 35
  • 36. Compared to Congress, the poll found Respondents prefer:           Head lice, 67% to 19% Brussel sprouts, 69% to 23% NFL replacement refs, 56% to 29% Colonoscopies, 58% to 31% Root canals, 56% to 32% Traffic jams, 56% to 34% FRANCE, 46% to 37% Carnies, 39% to 31% Genghis Khan, 41% to 37% Cockroaches, 45% to 43%. Source: Public Policy Polling, January 8, 2013 Page 36
  • 37. They Like Me! They Really Like Me!! “A new poll has news for Congress that isn’t good. CNN reports the approval rating is 10%, the lowest ever recorded” Politico, October 1, 2013 Page 37
  • 38. Looming Deadlines Page 38
  • 39. Looming Deadlines  September 30: Current Continuing Resolution ends  October 1: Fiscal Year 2014 Begins  October to November: Treasury exhausts “Extraordinary Measures” to avoid piercing debt ceiling  December 31: End of the Current “Doc Fix.” Page 39
  • 40. Chaos Ahead Page 40
  • 41. Chaos Ahead  Continuing Resolution  Implementation of Obamacare  Debt Ceiling  Syria  Tax Reform in an Election Year Page 41
  • 42. How is Obamacare doing? Page 42
  • 43. On to the 2014 Election Page 43
  • 44. 2014 Election: Rothenberg Report Category Senators Pure Toss Up Mary Landrieu (D-La) Mark Prior (D-Ark) Max Baucus (D-Mont) (open) Tilt Republican No one Tilt Democrat Mark Begich (Alaska) Kay Hagen (NC) Lean Republican Tim Johnson (R-S.D.) (open) Jay Rockefeller (D-W.Va.) (open) Lean Democrat Tom Harkin (Iowa) (open) Republican Favored Saxby Chambliss (Ga.) (open) Mitch McConnell (R-Ky) Democrat Favored Jeanne Shaheen (NH) Rothenberg Report, August 9, 2013 Page 44
  • 45. Outlook for Tax Reform in 2013 – Is More Redistribution Needed? Page 45
  • 46. The Tax Code Has Become More Progressive Year Income Class % of Total AGI % of Total Income Tax Paid 2010 Top 1% 18.9% 37.4% Bottom 50% 11.7% 2.4% Top 1% 22.86% 39.81% Bottom 50% 12.19% 3.36% Top 1% 20.81% 37.42% Bottom 50% 12.99% 3.91% Top 1% 14% 25.13% Bottom 50% 15.03% 5.81% Top 1% 8.46% 19.05% Bottom 50% 17.68% 7.05% 2007 2000 1990 1980 Source: The Tax Foundation, “Summary of Latest Federal Income Tax Data”, November 29, 2012 *Handout: Joint Committee on Taxation “Overview of the Federal Tax System”, February 24, 2012 Page 46
  • 47. 2012 Income Tax Liability for Individuals Income Class Total Tax Liability Total Returns Filed Average Tax Liability Per Return $30,000 and Below ($46.8 Billion) 53 Million $0 $30,001 $200,000 $425.2 Billion 95.7 Million $4,473 $200,001 and Above $561.5 Billion 6.3 Million $89,047 Source: Joint Committee on Taxation , Estimate Of Federal Tax Expenditures For Fiscal Years 2012-2017, February 1, 2013 Page 47
  • 48. Taxes to Increase in 2013 for Wealthier Taxpayers The White House projects wealthier taxpayers will pay an additional $27 billion in taxes in calendar year 2013 because of the Fiscal Cliff deal. The White House further estimates that high-income taxpayers will pay an additional $88 billion per year by FY2023. Sources: Joint Committee on Taxation, Estimate Of Federal Tax Expenditures For Fiscal Years 2012-2017, February 1, 2013 White House Office of Management and Budget, January 8, 2013 Page 48
  • 49. Tax Expenditures benefit more than the “Rich” 2012 Federal Tax Benefits Total Benefit for Incomes $200,001 and Above Total Benefit for Incomes $200,000 and Below Mortgage Interest $23.6 Billion $44.5 Billion Student Loan Interest $0 $1.3 Billion Education Credits $65 Million $11.8 Billion Child Tax Credit $16 Million $56.7 Billion Earned Income Tax Credit $0 $59 Billion Child Care Credit $166 Million $3.1 Billion Charitable Giving $21.6 Billion $16 Billion Local Taxes (Including Sales) $24.1 Billion $19.6 Billion Medical $1.4 Billion $10.3 Billion Real Estate Tax $6 Billion $18.2 Billion TOTAL $76.9 Billion $240.5 Billion Source: Joint Committee on Taxation , Estimate Of Federal Tax Expenditures For Fiscal Years 2012-2017, February 1, 2013 Page 49
  • 50. Tax Rates for California and New York City State Top Federal Tax Rate (inc. 3.8% Medicare tax) Top State/Local Tax Rate Total Top Income Tax Rate California 43.4% 13.3% 56.7% New York City 43.4% 12.696% 56.096% Page 50
  • 51. Selected Federal Means-Tested Programs and Refundable Tax Credits Outlay for the Federal Government 1972 (2012 Dollars) 1991 (2012 Dollars) 2011 (2012 Dollars) Earned Income Tax Credit Amount Spent* % of all Tax Filers 0 0 $8 Billion 7.6% $55 Billion 17.7% Child Tax Credit Amount Spent* % of all Tax Filers 0 0 0 0 $28 Billion 14.7% Supplemental Security Income Amount Spent % of all U.S. Residents 0 0 $23 Billion 1.8% $49 Billion 2.5% AFDC/TANF Amount Spent % of all U.S. Residents $18 Billion ** $20 Billion ** $18 Billion ** SNAP (Food Stamps) Amount Spent % of all US Residents $9 Billion 5.3% (11.1 million) $31 Billion 8.9% (22.6 million) $79 Billion 14.3% (44.7 million) Housing Assistance Amount Spent % of all Households $5 Billion 2.1% $26 Billion 4.1% $39 Billion 3.7% 0 0 $8 Billion 1.3% $36 Billion 3.0% Pell Grants Amount Spent % of US Residents Tax Code provisions in RED. *Numbers for tax credits consist only of amounts paid to tax filers because they exceed filers’ tax liabilities. **Comprehensive data on participation are not available for AFDC/TANF. Source: Congressional Budget Office, “Means-Tested Programs and Tax Credits for Low-Income Households,” February, 2013 Page 51
  • 52. The Outlook for 2013 Tax Reform Predictions Page 52