Labor Day US Budget Deficit Estimated at $1.32 Trillion Dollars

Posted on September 5, 2011 by Dr. David Edward Marcinko MBA MEd CMP™

Office of Management and Budget Report for 2011

By Children’s Home Society of Florida Foundation

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On September 1st, 2011, the White House Office of Management and Budget (OMB) released an updated estimate of the budget deficit. OMB Director Jacob Lew indicated that the deficit projections are now reduced.

OMB Projections

The February projection by OMB had been a deficit of $1.65 trillion for the current fiscal year. The new deficit number for fiscal year 2011 is $1.32 trillion. The larger number would be 10.9% of the economy. The reduced deficit number is still approximately 8.8% of the gross domestic product.

Lew gives credit to the Budget Control Act of 2011, signed by President Obama on August 2nd. Under the provisions of that act, there are substantial spending reductions.

Budget Committee Pleased

Senate Budget Committee Chair Kent Conrad (D-ND) was pleased with the lower budget numbers, but indicated there still is a long road to recovery. Referring to the Joint Select Committee on Deficit Reduction, he stated, “It is my hope the committee exceeds its $1.5 trillion target. It is also critical that the special committee considers measures to address the near-turn struggling economy.”

Assessment

In his address on September 8th 2011, President Obama is expected to discuss both the Joint Select Committee and long-term budget goals.

The OMB report also estimated the total debt by the end of 2011. The federal debt is a combination of debt held by the public and various government trust funds. The debt held by the public at the end of 2011 is estimated to be $10.26 trillion or 72% of the economy.

Conclusion

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US Reaches Debt Limit

Posted on May 16, 2011 by Dr. David Edward Marcinko MBA MEd CMP™

May 16th 2011 Deadline

By Children’s Home Society of Florida Foundation

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In February of 2010, the federal debt limit was set by Congress at $14.294 trillion. Treasury Secretary Timothy Geithner indicates that the United States will reach that debt limit on May 16th, 2011. Through various internal borrowing strategies, Secretary Geithner believes that there will not be an actual default on U.S. bonds until August 2nd, 2011. However, the Federal Government may face funding problems by late July if there is no expansion of the debt limit.

Three Sets of Negotiations

Facing a serious economic problem if the debt limit is not expanded, there are at least three sets of negotiations underway in Washington.

  • First, the “Gang of Six” Senators from both parties are still attempting to move forward with a bill that implements the recommended solution by the 2010 Presidential Fiscal Commission.
  • Second, at the request of President Obama, Vice President Joseph Biden is meeting with House and Senate leaders of both parties.
  • Finally, Senate Majority Leader Harry Reid (D-NV) disclosed this week that Senate Budget Chair Kent Conrad (D-ND) has prepared a new proposed compromise plan. The proposal by Sen. Conrad is to increase taxes in an amount equal to the budget cuts. In effect, the proposal is 50% tax increases and 50% budget reductions.

The Skeptics

Minority Leader Mitch McConnell (R-KY) was skeptical that the “Gang of Six” plan would succeed. He stated, “With all due respect to the Gang of Six or any other bipartisan discussion going on in this issue, the discussions that can lead to a result between now and August are the talks being led by Vice President Biden.”

House Speaker John Boehner (R-OH) spoke May 9th to the Economic Club of New York. He indicated that tax increases were not acceptable and that the deficit plan should instead focus on spending reductions.

In response to the comments by Boehner, White House Press Secretary Jay Carney suggested that the Speaker is “holding the US economy hostage.” Press Secretary Carney indicated that there needs to be flexibility in order to produce compromise.

Assessment

Majority Leader Reid continued the discussion later in the week and noted that it would be essential to have some tax increases. He stated that it “can’t all be done with spending cuts.

“House Majority Leader Eric Cantor (R-VA) is part of the discussion group with Vice President Biden. He indicated that he cannot disclose the specifics of the negotiations. However, in his view, House Republicans continue to support the spending reduction plan introduced by Rep. Paul Ryan (R-WI).

Editors Note: Your editor and this organization take no specific position on these comments. It is widely expected that the discussions on increasing the federal debt limit will lead to a compromise before the August deadline. The Republican negotiators continue to seek a solution that involves spending cuts. It now appears that Democratic negotiators are moving to a proposal with 50% tax increases and 50% budget reductions. Final negotiations are likely to produce a result that reduces federal spending and may include tax increases.

Conclusion

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Will Fiscal Commission Consider a VAT to Reduce the Federal Deficit?

Posted on June 8, 2010 by Dr. David Edward Marcinko MBA MEd CMP™

Moro on the National Commission on Fiscal Responsibility and Reform

By Robert Giese
bob.giese@chsfl.org

The National Commission on Fiscal Responsibility and Reform [NCFRR] continues to develop a comprehensive proposal to address the federal deficit. It has invited comments from members of Congress, leaders of all types of American organizations and private individuals.

We invite ME-P contributions, as well.

A Four- Point Proposal

James Q. Riordan, Sr. sent a letter this week to co-chair Alan K. Simpson, the former Senator from Wyoming. Mr. Riordan made four basic points about the fiscal problems and suggested a Value Added Tax (VAT) as a solution.

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First, he indicated that there is too much “unaffordable spending.” Even with limited spending growth, the income tax cannot be sufficiently increased to pay for current and future proposed spending without doing damage to the economy and increasing unemploymen.

Second, Riordan claims that the only potential solution is a VAT. However, because the VAT is a tax on consumption and would have great impact on middle and lower incomes, it needs to be accompanied by a progressive income tax.

His third point is that the new income tax would need to be very simple. In his view, there would be no deductions for home mortgage interest, charitable gifts or medical expenses.

Fourth, he would tax all income only once. There would presumably not be a corporate-level tax or an estate tax under this theory.

Inadequate Staff Resources

As the fiscal commission considers the options for reducing spending and increasing taxes, it has indicated that the current staff resources are inadequate. In response to a request by the commission, Senate Majority Reid sent a letter this week to the White House and requested additional staff support. The White House indicated that it will be pleased to “work with him” to provide additional assistance.

At a hearing on the financial challenges, Senator George Voinovich (R-OH) noted that the commission is under great pressure to develop an effective plan. He stated, “If we don’t get something out of that commission, we are over the cliff.”

Assessment

Senate Budget Committee Chair Kent Conrad (D-ND) was the prime supporter of the commission. He stated, “This is not a time to impose austerity in my judgment.” However, he indicated that austerity will be necessary in the future, and that budget cuts and tax increases “must be imposed in a way that is convincing.”

Editors Note: For now, we take no specific position on VAT or other tax and spending recommendations by the Fiscal Commission. This information is offered because potential Fiscal Commission plans may affect many of our ME-P physician readers, subscribers, consultants and advisors.

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Slow, Steady Progress on Estate Tax and Extenders

Posted on May 19, 2010 by Dr. David Edward Marcinko MBA MEd CMP™

Increased Exemption Possible?
By Robert Giese
bob.giese@chsfl.org

Senate Finance Chair Max Baucus (D-MT) has been in intensive negotiations with Sen. Jon Kyl (R-AZ) and Sen. Blanche Lincoln (D-AR) over the estate tax. Sen. Kyl and Sen. Lincoln have proposed increasing the $3.5 million exemption that was applicable in 2009 to $5 million per person. In addition, the previous estate tax rate of 45% would be reduced to 35%.

Ongoing Negotiations

Negotiations have been ongoing for several weeks. On May 11, 2010, Sen. Kyl reported, “We have an agreement about how we would like to move forward and an agreement on many of the offsets.” He continued by observing that the offsets are still subject to discussion. It is estimated that the offsets will be from $60 billion to $80 billion.

An Option

While the details of the proposed compromise have not been released, several aides suggested that it may include an estate tax option in 2010. If the option is enacted, lawyers, financial and estate planners could choose either the repeal of estate tax and lose part of the step-up in basis under the 2010 rules or select the new compromise estate exemption and estate tax rate.

Assessment

It may occur that the tax extenders and the estate tax are combined in one legislative bill. Senate Budget Chair Kent Conrad (D-ND) observed this week, “You have got 13 legislative weeks. It seems to me it would be wise to put all the tax measures together.”

Conclusion

The House proposal for the offsets for the tax extenders (including the IRA charitable rollover) is to change the “carried interests” of hedge fund managers from being taxed at capital gain rates to ordinary rates. It now is possible that the change in the law will occur, but it may be phased in over a number of years.

Editor’s Note: The Senate continues to attempt to complete work on the estate tax and the tax extenders by early June. The estate planning community and the charitable community are both hopeful that the Senate will resolve the current great uncertainty in planning by passing compromise legislation in both areas.

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