Friday, November 9, 2012

Virginia Considers the Fiscal Cliff

Today the Washington Post reported that Virginia Governor Bob McDonnell has ordered that state agencies should plan for a 4% reduction in funding expected to occur if America falls off the fiscal cliff.  While many have pointed out from Dean Baker to Paul Krugman and beyond that the fiscal cliff is oversold, an event that is not some disaster on 1/1/13 if not resolved by then, but one that gradually brings its potentially recessionary impact on the US in gradually over weeks and months, it is true that Virginia may well be more negatively impacted by it than any other states due to its greater reliance on DOD spending than any other state in per capita terms, and in order to get House Republicans to buy into a tax increase as part of a compromise (which they refused to go along with, despite this cliff), major cuts in DOD spending were put into it along with ending the Bush tax cuts (and we all know how terribly the US economy performed under the Clinton tax code), so that indeed it is not at all ridiculous of Virginia's governor to make appropriate plans in case of the worst possible outcome, although the fact that the Commonwealth has been running budget surpluses for the past three years mitigates this danger to the point that only a 4% contingent cut is being planned for.

The other matter that the governor is dealing with is that of the reality that Obama's ACA, that offshoot of a Republican Heritage Foundation proposal, will now remain the law of the land given the election outcome.  However, the implementation of it into practice depends on a major expansion of Medicaid. Indeed, when one gets down to the real gist of how Obamneycare expands insurance coverage, this is the main mechanism, well beyond what is expected to occur from the creation of the various state and federal and state/federal individual mandated exchanges.  However, the SCOTUS has stupidly and carelessly decided that states do not need to expand the program (and Medicaid should always have been a strictly federal program like Medicare, but... ).  In any case, Gov. McDonnell, facing the possibility of fiscal shortfalls arising from the falling off the fiscal cliff, is making clear that one of the first things to go would be any ACA-prescripted expansion of Medicaid coverage.  Indeed, even if the fiscal cliff is elided, he is not necessarily inclined to expand it anyway.

This indeed makes it clear that the major program most at risk due to the forthcoming fiscal cliff negotiations is indeed Medicaid. This has been clear for some time, and it is clear that if in fact Romney had won the election, Medicaid would have been on a serious chopping block.  It may still be.  After all, if there is an effort to seriously reduce federal spending being pushed in the upcoming negotiations between Obama and the Congress, there are only five programs that exceed $100 billion per year in the face of a budget deficit still more than ten times that.  Those programs are Defense, Social Security, Medicare, Interest Payments on the National Debt, and Medicaid.  The powerful political forces lined up to defend the top four (and some would argue that interest payments on the debt are beyond cutting, although a default on our debt would change that one) may indeed lead to the outcome of seriously cutting Medicaid, whose main recipients and supporters are poor and powerless.  The farce would be to fake a spending cut by sending Medicaid to the states, possibly entirely as Paul Ryan has suggested at times. But, as we are seeing in Virginia, sending it to the states may amount to ending it, or at least really seriously cutting it, leaving the poor uninsured en masse.

The deeper issue is that the whole fiscal cliff is a fabricated farce, drummed up out of the House Republicans' ridiculous and irresponsible effort to play serious games with raising the 94-year old debt ceiling.  That this ancient and unconstitutional limit has not been a serious issue in the past is precisely because no one was so stupid or irresponsible to mess with raising it when that needed to be done.  Now that the House GOP has decided to play blackmail games with it, it has become clear that this monstrosity that no other country in the world has ever had (some have targets based on percents of GDP, not absolute nominal debt ceilings), must go.  Bill Clinton told Obama back when this issue erupted in 2011 that he should just declare it unconstitutional and proceed paying the bills legally mandated previously by Congress, a move initially suggested by Bruce Bartlett back in the 80s when he was serving as Assistant Treasury Secretary for Ronald Reagan.  That issue is not immediately in play for the negotiations the last blackmail round set up for this totally unnecessary fiscal cliff, but when it comes up sometime later this spring, Obama should do the right thing and declare the debt ceiling unconstitutional, thus saving the republic any further fooling with this ridiculous farce.


marcel said...

A quibble:

... Medicaid, whose main recipients and supporters are poor and powerless.

I thought one of the things to come out of Krugman's discussion of the Ryan budget is that a major component of Medicaid is payment for nursing home care of elderly parents of many middle-aged, middle class voters. Am I remembering incorrectly? said...

You are correct, Marcel, although they tend not to be the better off of the middle class. That is a growing component of Medicaid, but still a minority of it.

Jack said...

I can't give you any dollar amounts, but I do know that many state run institutions are funded through Medicaid. These woould include developmental centers for the developmentally disabled. Schools that provide certain ancillary services such as speech remediation also receive funding for those servicces via Medicaid. It is not only the poor who rely on Medicaid. It is also the government, local and state, that pays for many of its services via Medicaid.

Anonymous said...


You raise a question with this statement: "although they tend not to be the better off of the middle class." What do you consider to be the better off of the middle class? I have my own thoughts on this; but I am curious as to what you believe. If you consider the Median Houusehold income to be at ~$50,000; I am sure they would not be considered the better off of the Middle Class.

Don Levit said...

It sounds like we don't need a debt limit, for we are a sovereign nation, the world's currency, and we have the full faith and credit of the USA backing our obligations. Shoot, we don't even need taxes to run our government, for we can spend money into existence.
Gee, it looks like God has a competitor!
Don Levit

Anonymous said...

Yes, Virginia, there is a Santa Claus.

Unfortunately, he is asleep right now. Maybe we can wake him up. said...

Very amusing to jump from "we don't need a debt limit" to "we don't need taxes," ha ha ha! Given that no other country on earth has ever had a debt limit like ours, pretty clearly one can do very well, thank you, without one. Trying to do without taxes when one has spending is quite another matter, however.

Don Levit said...

I agree with you.
I was thinking about the proponents of MR? on
They go the U.S. can never go bankrupt route, which I believe you support, all the way to taxes are not necessary, due to our ability to create money to spend.
I believe the full faith and credit of the U.S. Government IS based on our ability to tax, rather than our ability to create infinite dollars.
And, those taxes must bear a "healthy" relationship to expenses.
With 42 cents of every dollar going to debt this past year, and $16 trillion of debt on top of that, it is the debt limit that at least attempts to corral human passions from having more today in lieu of less tomorrow.
Don Levit

julie anderson said...

I agree with you.I believe that the any government which is been ruling they will definitely going to implement the new policies as health is the major issue of all the people!