washington in chaos as the november election approaches: what lies beyond? api’s biennial tanker...

Washington in Chaos as the November

Election Approaches: What Lies Beyond?

API’s Biennial Tanker ConferenceOrlando, Florida

May 21, 2012

Kenneth J. Kies Managing Director

Federal Policy GroupA Practice of Clark & Wamberg

View from Washington

Overview

Federal Fiscal Outlook Economic Outlook Debt Ceiling Outcome and Super Committee Results The President’s FY 2013 Budget Tax Increases Ahead in 2013? Tax Legislative Agenda for 2012? Political Outlook Possible Game Changers

The Outlook for 2011

Federal Fiscal Outlook

Deficit Outlook Under Obama Budget

Annual Budget DeficitBaseline vs. Obama Budget

$1,413

$1,293 $1,300 $1,327

$901

$668$610 $649 $612 $575

$626 $658 $681

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

Fiscal Year

An

nu

al D

efi

cit

($

bill

ion

)

CBO Baseline Obama Budget

Source: CBO Baseline Budget Outlook, March 2012/ President Obama’s budget for fiscal year 2013, Source: CBO Baseline Budget Outlook, March 2012/ President Obama’s budget for fiscal year 2013, February 2012February 2012

Federal Debt Outlook: Treasury

Total Public Debt -- Treasury (Annual Report on the Public Debt, June, 2011; $ Trillions)

$20.1

$21.4

$18.9

$17.7

$16.5

$9.9

$11.9

$13.5

$15.4

$0

$5

$10

$15

$20

2008 2009 2010 2011 2012 2013 2014 2015 2016

Fiscal Year

Pu

bli

cly

Hel

d D

ebt

($ T

rill

ion

s)

Federal Debt Outlook: Treasury

Total Public Debt (As % of GDP) -- Treasury

69%

84%

93%

102%105% 106% 106% 107% 108%

0%

20%

40%

60%

80%

100%

120%

2008 2009 2010 2011 2012 2013 2014 2015 2016Fiscal Year

Source: Annual Report on the Public Debt, June, Source: Annual Report on the Public Debt, June, 2011 2011

Projections Actually Understate Scope of Real Problem

Assumes No Medicare “Doc” Fix Assumes Bush Tax Cuts Expire for those with

income over $250,000 Assumes no individual AMT “patch” Possibly unrealistic economic assumptions

Economic Outlook

Economic Indicators

Consumer confidence

– At 69.2 in April, down from 69.5 in March 2012. The index would need to be at 90 to indicate the economy is on solid footing.

(source: Conference Board) Residential real estate remains troubled

5.78% of all mortgage borrowers were delinquent in the 1th quarter of 2012, down from the 1st quarter 2010 high of 10.1%, but far above the historical average of about 2%.

Delinquency rates for FHA loans, which typically go to low-to-moderate income borrowers, are up over the past year, to 12.1%.

GDP growth for most of 2011 was very poor—just 0.4%, 1.3%, and 1.8% in the first three quarters, though Q4 improved to 3.0%. GDP growth for the first quarter of 2012 was 2.2%.

Unemployment in April was 8.1%, down from 8.2% in March. 522,000 job-seekers gave up looking for work in April. Only 115,000 net new jobs were created in April.

Economic Indicators

Labor force participation rates continue to drop, particularly among men and youth, to record or near-record lows, while long-term unemployment is at record highs

The civilian labor force participation rate declined in April 2012 to just 63.6% of the population 16 years and older, the lowest level since December of 1981 according to the Bureau of Labor Statistics. For March, the participation rate was not much better: 63.8%.

The labor force participation rate for men 20 and older in April 2012 was just 72.9%, the lowest since World War II. January to March the rate was 73.3%.

Teen employment dropped to 25.4% in April, the lowest in post-WW II history. In January of 2012, only 59.9% of adults aged 20-24 were employed, down from a high of over 70%.

Overall unemployment rates have declined largely because the millions of people who have left the workforce are not counted as unemployed.

The number of long-term (27 weeks or more) unemployed persons has quadrupled since 2008. Of the 5.1 million unemployed over 27 weeks, 4 million have been unemployed over a year. 41.3% of all unemployed persons are long-term unemployed, more than twice historical norms.

States and Cities in Fiscal Crisis

States face over $3 trillion pension funding shortfall

– A 2011 University of Chicago and Northwestern’s Kellogg School of Management study found that all 50 states collectively face a $5.17 trillion pension obligation, but only have $1.94 trillion set aside in state pension funds, a difference of $3.23 trillion.

– Stanford University study shows possible pension funding liability of $500 billion for California alone.

– Pension funds for state and local workers are understated by $1.5 trillion or more, meaning that the benefits are much costlier than many governments and taxpayers thought. Economists: State, local pension funds understate shortfall by $1.5 trillion or more – Washington Post, March 3, 2011

States and Cities in Fiscal Crisis

States face over $3 trillion pension funding shortfall (continued)

– Pension costs force major layoffs. Citing pension costs, Costa Mesa, Calif., plans to lay off nearly half its employees – Washington Post, March 19, 2011

– Rhode Island has barely one million residents and a pension shortfall of at least $6.8 billion for city employees. Washington Post, September 6, 2011

– Across New York, state and local governments are borrowing $750 million this year “from the very same $140 billion pension fund to which they owe money…to finance their contributions to the state pension system.” New York Times, February 27, 2012

Some cities face bankruptcy

– “Los Angeles could go bankrupt if it doesn't overhaul its finances with new taxes, possible layoffs and the privatization of some city services, the city's top budget official says.” San Francisco Chronicle, April 7, 2012

– Stockton, California's City Council will be asked next week to begin the process of becoming the largest U.S. city to file for bankruptcy.” Bloomberg, March 1, 2012

The Debt Ceiling Deal

Agreement to Increase the Debt Limit

$900 Billion Initial Increase in the Debt Limit– Increased in two tranches: $400 billion and $500

billion– $500 billion occurs if Congress doesn’t block it

$917 Billion in Spending Cuts tied to Initial Increase

Bill created a “Congressional Joint Select Committee on Deficit Reduction” (a.k.a. “Super Committee”) to locate up to $1.5 trillion in additional deficit reduction

If Committee fails to locate at least $1.2 trillion in savings, across-the-board cuts kick in but not until January 2, 2013.

Some Perspective on the Debt Limit Deal

The Debt Agreement Must Reduce the Deficit by at least $2.1 trillion over the next ten years

The Federal Government is Slated to Spend more than $46 trillion over the next ten years

Bottom Line: The Debt Agreement cuts 4% from Federal Spending over the next ten years

Put Another Way: Cuts in Debt Agreement do not cover half of Federal Interest payments of $5.4 trillion over the next ten years

Source: The Congressional Budget Office: “Budget and Economic Outlook: Fiscal Years 2011 to 2021”, “CBO Analysis of August 1 Budget Control Act”

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

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

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

Translation:

The Family Budget was cut by $3.85, not $385

President Obama’s Deficit-Reduction Plan Uncovered

The Promise:

“It’s a plan to reduce our debt by more than $4 trillion.”

- President Obama, September 19, 2011


The Reality:

The plan INCREASES the deficit by

$3.049 TRILLION


The Math:

$4.850 trillion: Deficit-reduction purported in the President’s plan

Minus: $5.109 trillion: Tax cuts and spending increases the President seeks that are not in current law

Minus: $1.084 trillion: Troop withdrawal savings in the plan already anticipated

Minus: $1.349 trillion: Deficit-reductions included in the President’s plan that already have been enacted into law

Minus: $ .357 trillion: Additional Interest Expense on the Debt ____________

Equals:$ 3.049 trillion DEFICIT INCREASE

Federal Revenues Are 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 - 16.3% (projected)

Outcome of the Super Committee

Super Fail– USAToday, November 22, 2011

Deficit Panel Folds Its Tent– The Wall Street Journal, November 22, 2011

Super committee rests in pieces– The Christian Science Monitor, November 22, 2011

Deficit supercommittee announces failure– The Washington Times, November 21, 2011

Supercommittee Failure PosesThreat to U.S.– Bloomberg, November 22, 2011

Short Term Consequences NOT MUCH

Snooze Alert: President Obama’s FY 2013 Budget

“If there was ever a year to ignore the President’s annual budget proposal, this is it.”

National Journal Daily, February 13, 2012

Pending Federal Tax Increases (continued)

Current Law Tax Increases to Take Effect in 2013 (includes effect of (1) higher top marginal ordinary income tax rate, (2) expiration

of qualified dividend tax rate, (3) expiration of reduced long term capital gains tax rate,

(4) imposition of higher Medicare tax)

Type of Income Top Rate in

2011

Top Rate in

2013

Earned Income 37.9% 43.4%

Unearned Income (except Qualified Dividends

and Long Term Capital Gains)

35% 43.4%

Qualified Dividends 15% 43.4%

Long Term Capital Gains 15% 23.8%

Pending Federal Tax Increases (continued)

“Congress risks taking the economy over a ‘massive fiscal cliff,’ Federal Reserve Chairman Ben Bernanke warned lawmakers on Wednesday.

In remarks that hit Wall Street stock prices, the central bank boss suggested the economy could hit a serious roadblock if Congress allows the Bush tax rates and payroll tax cut to expire and $1.2 trillion in spending cuts to be implemented simultaneously in January.”

- The Hill, March 1, 2012

What Is On the Legislative Agenda for 2012?

White House spokesman Josh Earnest said extending the payroll tax break through next year, a fight that will consume Congress after lawmakers return to Washington in January, is “the last must-do

item of business on the president’s congressional agenda.” - The Wall Street Journal, January 1, 2012

Political Outlook for 2012

Congressional Outlook

Senate Outlook

2010 Results in 53 Democrats and 47 Republicans Democrats have 22 seats to defend in 2012

House Outlook

Current Make upRepublicans 240Democrats 193Vacancies 2

Factors that could affect 2012 Outcome Economy/Jobs

Presidential Race

Obama Vulnerabilities 2008 compared to 2012

– Support for Gay Marriage– Economy/Jobs– Women– Young Voters– Independent Voters– Unions– Jewish Voters– African American Voters– Hispanic Voters– No George Bush

Republican Vulnerabilities

- The primaries

President Obama’s Unemployment Problem

Average Monthly Unemployment Average Monthly Unemployment RateRate

• Obama: Obama: 9.2%9.2%• Ford: Ford: 7.8%7.8%• Reagan: Reagan: 7.5%7.5%• Carter: Carter: 6.5%6.5%• Bush 41: Bush 41: 6.3%6.3%• Kennedy:Kennedy: 6.0%6.0%• Bush 43: Bush 43: 5.3%5.3%• Clinton: Clinton: 5.2%5.2%• Nixon: Nixon: 4.2%4.2%• Eisenhower: Eisenhower: 4.9%4.9%• Truman: Truman: 4.2%4.2%• Johnson: Johnson: 4.2%4.2%

Can Gas Prices Prediction the Election?

President Average Price per Gallon on First Inauguration Day

Average Price per Gallon on Day Re-Elected

Bill Clinton $1.06 (Jan. 20, 1993) $1.31 (Nov. 5, 1996)

George W. Bush $1.54 (Jan. 20, 2001) $2.07 (Nov. 2, 2004)

President Average Price per Gallon on Inauguration Day

Average Price per Gallon on May 14, 2012

Barack Obama $1.93 (Jan. 20, 2009) $3.75

Source: U.S. Energy Information Administration, weekly average for midgrade conventional gas prices/Source: U.S. Energy Information Administration, weekly average for midgrade conventional gas prices/ AAAAAA

Does Obama Have a Money Problem?

The Obama campaign is lagging behind its fund-raisingpace of four years ago. Shortfalls in contributions frommajor industries have made the campaign more reliant

on small donors and joint fund-raising with theDemocratic National Committee.

The New York Times, April 20, 2012

Obama Contributions: Then and Now

Source: Center for Responsive Politics; Federal Election Commission

$ Raised $ Spent $ On Hand

Obama Campaign2007 – 2008 (1st Quarter) $262 Million $192 Million $70 Million

Obama Campaign2011 – 2012 (1st Quarter) $196 Million $ 94 Million $102 Million

Contributions: Obama 2008 vs. Obama 2012

Source: Center for Responsive Politics; Federal Election Commission

Industry 2008 2012 % Change

Investment $ 8.2 Million $ 2.4 Million - 68

Real Estate 4.7 1.9 - 60

Finance 2.9 1.3 - 53

TV, Music, Movie 3.9 2.0 - 49

Lawyers/Firms 15.4 8.1 - 47

Business Service 4.5 2.4 - 46

Health 3.7 2.1 - 43

Education 5.7 3.8 - 33

Public Servants 2.1 1.6 - 26

Computer/Web 2.7 2.2 - 20

Business/Self-Emp 2.3 2.4 + 4

Retired 11.8 12.6 + 7

Women’s Issues 1.5 1.9 + 26

Poll Numbers Bad for All

Elected Officials Take a Hit

McClatchy-Marist: 49% “definitely plan” to vote against President Obama, September 13–14

CBS News/ NY Times poll May 11-13: Romney leading Obama 46% to 43%.

USA Today/Gallup poll May 8-14: Obama leading Romney 46% to 45%.

Real Clear Politics average April 9-May 7: Only 14% approve of how Congress is handling its job.

Real Clear Politics average for April 28 – May 14 for President Obama: 48% approve and 48.5% disapprove

In December of their third year in office here’s where past President’s were:

– Eisenhower (1955) 75% - Nixon (1971) 50% - Carter (1979) 53%– Reagan (1983) 54% - HW Bush (1991) 51% - Clinton (1995) 51%– W Bush (2003) 58%

How is Congress Doing?

The Bottom of the BarrelThe Bottom of the Barrel Degree of ConfidenceDegree of Confidence

The Military: The Military: 78% 78%

Small BusinessSmall Business 64% 64%

The PoliceThe Police 56% 56%

The ChurchThe Church 48% 48%

HospitalsHospitals 39% 39%

Supreme CourtSupreme Court 37% 37%

The PresidencyThe Presidency 35% 35%

Justice SystemJustice System 28% 28%

NewspapersNewspapers 28% 28%

TV NewsTV News 27% 27%

BanksBanks 23% 23%

Labor Labor 21% 21%

Big BusinessBig Business 19% 19%

HMOs HMOs 19% 19%

CONGRESSCONGRESS 14% 14% Gallup, June 23, Gallup, June 23,

20112011

The English Language has some wonderfully anthropomorphic collective nouns for the various groups of animals.

We are familiar with

a Herd of cows,

a Flock of chickens,

a School of fish,

a Gaggle of geese,

However less widely known is:

a Pride of Lions,

a Murder of crows,

Now consider a group of Baboons. They are the loudest, most dangerous, most obnoxious, most viciously aggressive

and least intelligent of all primates. And what is the proper collective noun for a group of baboons?

(as well as their cousins the rooks and ravens),

an Exaltation of doves,

and, presumably because they look so wise:

a Parliament of owls.

You just can't make this stuff up.

Go green –

Recycle Congress in 2012 !!!

A CONGRESS OF BABOONS! I guess that pretty much explains the things

that come out of Washington !

Believe it or not ……. a Congress!

Possible Game Changers

Possible Game Changers for 2012

President Obama’s Support of Gay Marriage U.S. Supreme Court decision on Obamacare Euro Zone Meltdown Iran Nuclear Activity North Korea China Economy Middle East Unrest Natural Disasters Terrorist Attack Debt Ceiling Pierced before November 2012 Election

Fast and Furious

Solyndra Bankruptcy

General Services Administration – “It didn’t stay in Vegas”

Cartagena - Gate

washington in chaos as the november election approaches: what lies beyond? api’s biennial tanker...

Documents

economic outlook slide

federal fiscal outlook

treasury slide

washington slide

federal debt outlook

deficit outlook

cbo baseline budget

unemployed persons