Waiting for Prosperity

Federal budget decisions and local communities

Investment bankers are back on their feet,but many Wisconsin workers are not so lucky

Wisconsin job growth has been the slowest in the U.S.

Feds say Wisconsin leads nation in job lossFox News April 25, 2012

Wisconsin budget cuts have left communities struggling to maintain services needed for growth

Transportation

Highway maintenance

Jobtraining

Education

5

Why the state cut so much fundingWisconsin hasa structural debt –more money going outthan coming in.1. WI cut taxes for 20 years, losing billions of dollars

2. The 2008 recession tanked the state economy which decimated public income (sales tax, property tax & income tax declined due to more unemployed)

3. Federal aid to the states has not been adequate to meet depth of needs created by Great Recession

Tax cuts reduced the state revenue base

“We cut taxes in the very first budget and haven’t stopped since. We cut taxes 91 times totaling $16.7 billion”. Governor Tommy Thompson: State of the State Address Jan 31, 2001

“Over $2 billion in tax cuts are either funded in the budget or phased-in over the next four years.” Governor Jim Doyle: Address to the State Senate on October 26, 2007

“In his first month, Walker focused on spending money through tax cuts adding about $117 million to the state's budget problem over the next two years” Associated Press Feb. 1, 2011

Why isn’t the federal government doing more?

Conflict in the Capitol:Fundamental differences on the role of government

InvestmentProblem: During a downturn, private spending falls due to unemployment and low wages. As the demand for goods slows, business stops investing. Vicious circle. Solution: Public investments in needed infrastructure to create employment and demand (multiplier effects) until private sector starts investing again.Social safety net is good for economy; should borrow in bad times when money is cheap; pay down as private sector recovers.

AusterityProblem: When government spends too much, public sector crowds out the private sector, pushing up the price of capital. So private investors fail to invest, number of jobs shrinks. Vicious circle.

Solution: Cut public spending to lower public debt. Then business will have confidence to invest in private sector and growth will return.Social safety net is a drag on private sector, slows recovery by keeping people out of the labor force. Most important goal is to cut taxes to get private money flowing

ARRA invested $787 billion into the economy$288 billion in tax breaks to:

-- individuals ($237 billion)-- businesses ($51 billion)

$499 billion in Investments:– $144 billion in state aid ( mainly education and Medicaid)

– $111 billion infrastructure and science

– $81 billion for low-income households

– $59 billion for healthcare modernization

– $51 billion for education and training

– $43 billion for energy

– $ 8 billion in miscellaneous expendituresSource: Economic Policy Institute, Good Jobs First, recovery.gov

The Recovery Act helped Wisconsin families

Gave almost every employee a $500 tax break in 2009 and 2010

Saved 59,000 jobs

Provided $153 million in support for laid off workers

Supported health care for 1.3 million elderly, disabled and low-income families

The Recovery Act saved or created over 3 million jobs – but the funding spent by March 2012

Treasury and the Federal Reserve rescued the big banks & continue to provide them

with cheap money Treasury (TARP +)

Liquidity Loans for Banks and Financial Firms $292.4 BToxic Asset Purchases 98.0 B

Support for GSEs (Fannie Mae, Freddie Mac, FHA) 533.9 BIMF Expansion 100.0 B

Total $1,024.3 B

Federal ReservePurchase of Mortgage-backed Securities $1,121.0 BLoans to Banks and Financial Companies 1,847.6 B

Purchase of Toxic Assets 152.6 BForeign Central Bank Currency Liquidity 582.7 B

Total $3.7 trillion

Source: As of Q1 2010; Financial Crisis Tracker www.prwatch.org – updated monthly

1992-I

1992-III

19

93-I 19

93-III

1994-I

1994-III

19

95-I 19

95-III

1996-I

1996-III

19

97-I 19

97-III

1998-I

1998-III

19

99-I 19

99-III

2000-I

2000-III

20

01-I 20

01-III

2002-I

2002-III

20

03-I 20

03-III

2004-I

2004-III

20

05-I 20

05-III

2006-I

2006-III

20

07-I 20

07-III

2008-I

2008-III

20

09-I 20

09-III

2010-I

50

100

150

200

250

300

350

400

450 Financial Sector Profits

Billi

ons o

f Dol

lars

Source: Bureau of Economic Analysis, National Income and Accounts Table, Corporate Profits by Industry, 2101

Financial sector profits are back to pre-Recession levels

But employment has been slower to recover

15

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

10%

12%

14%

16%

18%

20%

22%

24%

26%

Federal Spending as a Share of the Economy, 1950-2011

Perc

ent o

f GDP

Source: Office of Management and Budget, 2012

Spending went up in response to the recession

Federal deficit is now being used to justify cuts and refusal to aid state and local government

• Massive tax cuts in 2001, more in 2006

• Two wars fought on borrowed money

• The worst financial crisis and recession since the Great Depression

Why is the US facing such a serious deficit ?

17

Causes of the federal deficit

18

Who Benefits Most from the Bush Tax Cuts?

Less than 10

10-20 20-30 30-40 40-50 50-75 75-100

100-200

200-500

500-1,000

More than

1,000

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

$121 $310 $700 $900 $940 $1,164 $1,242 $1,895 $4,456

$22,407

$135,489

Distribution of Federal Tax Change by Cash Income Level, 2011

Household Income (Thousands of Dollars)

Dol

lars

20

Investment vs Austerity for 2013 budget

Austerity – Cong. Ryan’s budget adopted by House of Reps

1. Requires $4.2 trillion in federal spending cuts over ten years

2. Lowers taxes further on wealthy and corporations

3. Makes long-term cuts in Medicare and other safety net programs

Investment – Pres. Obama’sbudget “grow the economy plan”

1. Invests $750 billion in infrastructure and local

government2. Raises on top 2 percent and

closes loopholes on corporations3. Stabilizes health care and social security for the long term.

A Tale of two budgets:

House of Rep./Ryan Budget PlanMake all Bush tax cuts permanent

Maintain capital gains tax rate at 15%, no Buffet Rule

Maintains current FICA cap, no increase above $110k

Reduce tax rates for wealthy to 25% - average gain = $175,000

Reduce other tax rates to 10%

Cut the formal corporate tax rate to 25%

Eliminate taxes on overseas profits

Repeal Alternative Minimum Tax and taxes in Affordable Care Act

Estimated Reduction in Revenues over 10 years: $10 trillion

Impact of Spending Cuts in House/Ryan Budget

• 17 million people lose access to health care

• 21 million low-income Americans lose Medicaid within 7 years.

• 8 million people lose Food Stamps

• 2 million children removed from Head Start

• 1.8 million women, infants, and children lose food and healthcare support (WIC)

• Over 1 million students lose Pell Grant support

23

New Investments in Obama FY2012 Budget

President Obama's Investments

Billions of dollars

Transportation Trust Fund $526

Research and Development $141

Education $70

Broadband Internet $10

Clean Energy $2

Climate Monitoring $2

24

Estimates are in billions, over ten years

Repeal Bush Tax Cuts for Families Earning over $250,000 $849

Reinstate the 36% and 19.6% top tax rates 442

Tax qualified dividends as ordinary income 206

Reinstate the limitation on itemized deductions 123

Limit itemized deductions to 28 percent 584

Return Estate Tax to 2009 levels ($7 m, 35%) 143

Impose a Financial Responsibility Fee on Banks 71

Total revenue proposed: $1,561 trillion over 10 years

One half of revenue used to pay down the deficit.

New revenue in President’s FY2013 Budget

25

19721974

19761978

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Average Corporate Tax Rate

The taxes corporations actually pay fell from 42 percent in 1974 to 13 percent in 2011

Source: Bureau of Economic Analysis and Congressional Budget Office

26

Source: Citizens for Tax Justice, 2011

Many very profitable corporations paying no federal taxes, despite record profits

27

Public Wants Higher Taxes On Corporations

26%

14%

60%

Tax rates on corporations

should be higher

Tax rates on corporations

should be lower

Tax rates on corporations

should be keptat current rate

Tax rates on corporations should be higher

DemocratsIndependentsRepublicans

Weak GOPsMod/lib GOPsGOP women

80%61%38%

49%57%44%

In the past, both Democratic and Republican administrations taxed the wealthy at higher rates when the country needed revenue for public

investmentsWe asked those who benefited most from the American system to support the country - during wars and economic downturns

Source: Internal Revenue Service, 20091913

19161919

19221925

19281931

19341937

19401943

19461949

19521955

19581961

19641967

19701973

19761979

19821985

19881991

19941997

20002003

20062009

0%

1000%

2000%

3000%

4000%

5000%

6000%

7000%

8000%

9000%

10000% Top Federal Tax Bracket Rates, 1913 to 2008

Fede

ral M

argi

nal T

ax R

ate

Coolidge

Harding

WilsonRoosevelt

Truman

Johnson

Reagan

Bush Sr.

Bush Jr.

Clinton

Eisenhower

WWI Great Depression WWII Korean War Vietnam War Gulf WarAfghanistan /

Iraq

29

Investment Austerity

DepressionDams for rural electrificationRoads, bridges, public buildings

World War II GI Bill for College EducationInterstate Highway SystemFHA Home Loans

Crisis

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

-25%

-5%

15%

35%

55%

75%

95%

Tax Rate GDP percent change based on constant dollars

Tax

Rate

for t

he H

ighe

st B

rack

et

Grow

th R

ate

over

Tim

e

High tax rates on the wealthy do not slow economic growth

Economic Growth Rates

31

The Public Wants Higher Taxes On Corporations

26%

14%

60%

Tax rates on corporations

should be higher

Tax rates on corporations

should be lower

Tax rates on corporations

should be keptat current rate

Tax rates on corporations should be higher

DemocratsIndependentsRepublicans

Weak GOPsMod/lib GOPsGOP women

80%61%38%

49%57%44%

32

5%

1. We should raise income taxes on the richest 2% of households

Which one of these statements comes closer to your point of view?

And Supports Taxing The Richest 2%

2. We should not raise income taxes on anyone at this time

Mixed feelings

Strongly agree 56% 63%

32%

Strongly agree 29%

33

In Order to Support Public Investments

23%

77%

Increase funds for education, research, and transportation

Favor

Oppose

Strongly favor 40%

Cut funding for education, research, and transportationFavor

Oppose

17%83%

Strongly oppose 49%

75% of voters believe that spending more on transportation, education, and research will strengthen our economy and create jobs.

34

Pro-tax voters:Tax the rich/ Need more revenue

Combined View: Taxing Rich/Need for Revenue

Most Voters Are Either “Pro-Tax” Or “Anti-Tax,” One-Third (Independents) Want To Tax The Rich

But See No Need For Revenue

Anti-tax voters: cut spending

34%

35%

29%

Swing voters:Tax the rich/ cut spending

Austerity story

• Washington has a spending problem.

• We are broke.

• We are shackling our children with debt.

• To create jobs, we need to lower taxes on the wealthy and on corporations, and undo the regulations that handicap business.

36

Investment story We need to invest in America – create

jobs, invest in education and transportation – and build a 21st economy for our children.

Those who have done well in America, need to do well by America.

We can’t afford to give tax breaks to profitable corporations and the wealthy.

We can invest in the economy and pay down the deficit if everyone pays their fair share.