Austerity Watch Daily covers critical news about national sovereign debt, Credit Default Swaps, state and municipal deficit actions, and discussions about the US deficit and debt.
Late today, Portugal’s prime minister said he may leave after the parliament rejected an austerity program which was to be in place until 2013. Portugal has been identified as the next European nation which will require bailout funds–joining Greece and Ireland. Premier José Sócrates said he will resign if the proposed national financial cuts are not made. This could lead to a new government made up of politicians opposed to budget reductions, but without a concrete plan to reduce Portugal’s deficit.
Here are the highlights:
UK: Chancellor of the Exchequer George Brown vowed that the government’s spending plan would aid the country’s “squeezed” middle class. He is vowing no tax increases or giveaways. The plan will offer help to ” first-time buyers, motorists and 25 million income tax payers,” according to The Guardian. Unfortunately, that will be tough to pull off given that the independent Office for Budget Responsibility slashed its forecast for GDP growth to 1.7% from the 2.1% it estimated in November. Growth forecasts for 2012 were cut to 2.5% from 2.6%.
US: Has it been one year since Health Care Reform has passed? It sure seems like it’s been longer. Leave it to the Wall Street Journal’s editorial page to come up with fresh reasons to dislike the law dubbed ObamaCare by its many critics. A new estimate from the Congressional Budget Office estimates that the entitlement’s health insurance subsidies will cost $1.13 trillion between 2012 and 2021, up 8.6% jump from its previous estimate. Odds are outstanding that these estimates will rise again. Such is the nature of health care and cost estimates.
States: Legislators in Texas are due today to take up the state’s proposed two-year budget. Like other states, Texas faces tough economic times. Legislators are debating whether to dip into the state’s Rainy Day Fund. But, as Former Texas State Rep. Jim Dunnam notes in the Austin American-Statesman, Texas has some Texas-sized fiscal problems.
But according to state budget analysts, the economic downturn is only a temporary piece of the current $27 billion shortfall. In reality, there is another huge nail in our tire. It’s called the 2006 Tax Swap, and it is costing us about $10 billion dollars in the current budget.
In 2006 the Texas Supreme Court declared our school finance system unconstitutional. As a result 5 bills were proposed and signed by Gov. Rick Perry that restructured the school tax system in Texas. Property taxes were lowered, corporate franchise taxes were eliminated, cigarette taxes were raised and a new “Margins Tax” was adopted.
Perry sold the bills as a “Tax Swap,” meaning they would leave Texas schools with the same funding as before. Perry argued that over time his new “margins tax,” a modified business income tax, would provide a stable and even growing source of school funds. At the time, most Democrats and some Republicans tried to point out that Perry’s math didn’t add up, but their alternative was voted down.
It soon turned out that Perry’s claims were not just wrong; they were the exact opposite of the truth. Perry’s 2006 Tax Swap is now a huge drain on funds for our schools – a nail in our tire.
In other state fiscal news, New Jersey Gov. Chris Christie was dealt a blow by a judge appointed by the State Supreme Court who found that the state had unconstitutionally cut $16 billion in aid to school districts over the past two years. Speaking on a local talk show, Christie vowed that he would nor raise taxes to resolve the issue. Otherwise, he was non-committal.
Cash-strapped states are taking aim at unemployment benefits. CNNMoney reports that states including Florida and Arizona are debating whether to limit the number of weeks people can collect. Others including Indiana may restrict how many people are eligible for benefits. As the web site notes:
The problem stems from the massive increase in jobless claims during the Great Recession. The surge drained state unemployment trust funds, forcing states to borrow from a federal fund to cover their 26 weeks of unemployment benefits. Some 32 states now owe $45.7 billion to the fund, and could have to pay about $1.4 billion in interest this year.
–Jonathan Berr
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