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Speaker of the House John Boehner, Senate Majority Leader Harry Reid, House Minority Leader Nancy Pelosi, and Senate Minority Leader Mitch McConnell emerge from the White House on Nov. 16, 2012.

One might think, given all the debate over tax increases and spending cuts and averting a “fiscal cliff” at year’s end, that the White House’s pursuit of a $4-trillion, 10-year solution suggests the government’s habit of deficit spending could be cured.

One might be wrong.

“It will take almost $6 trillion in deficit reduction during the next decade to make a minimum down payment that puts the nation on a sounder fiscal footing.”

This is the conclusion of a Bloomberg Government study that examines the ratio of federal debt to the nation’s gross domestic product.

That ratio stands at about 73 percent today.

The “most likely” package to come out of the negotiations over averting the fiscal cliff of automatic tax increases and spending cuts scheduled at year’s end — that $4 trillion agreement — would allow the ratio of debt to GDP to grow to 80.2 percent, the BGov study shows. The study, written by BGov Director of Research Robert Litan and three other analysts, shows that it would require a $5.9-trillion, 10-year deficit reduction plan to hold the debt-to-GDP ratio at today’s level.

And holding course is not the most prudent course.

“`A 60 percent debt-to-GDP ratio is considered the financially sound level for countries to maintain,” Litan and company write. That would require a $9-trillion plan, more than double what’s likely to come out of the cliff talks.

Original post is Fiscal Cliff Deal No Deficit Solution by Political Capital.

Photograph by Jay Reiter/MCT via Getty Images

Instead of costly institutional care, Medicaid pays for a nurse's aide, a speech therapist and a registered nurse for home visits.

Mitt Romney’s remarks about the 47 percent of Americans whom he says are dependent on government services revealed a gaping hole in his logic of dependence.

Absent from Romney’s remarks, and from the reaction to them, is an acknowledgement of the degree of reliance among certain business on the federal government for their financial well-being.

A look at health care reveals several facts:

First, according to recently published data from the Census Bureau, one out of every three Americans is enrolled in Medicare or Medicaid. That’s almost 99 million people.

Second, some sectors of the health-care industry are highly dependent on federal funding.

For example, Medicare and Medicaid in 2011 spent about $49 billion on home health care services. That’s out of a $73 billion total spent on all home health services, or 67 percent of the bill. For nursing homes, that figure is 43 percent, and for hospitals it’s 40 percent.

So is this dependence a “good” or a “bad” thing?

From a business perspective, a smartly run company always follows the customers and their money. When federal Medicare and Medicaid spending accounts for one out of every three health-care dollars spent, or more than $800 billion in an annual tab of about $2.6 trillion in 2011, the business logic is clear.

For more, see BGov.com

Original post is Romney’s Dependence: Health Care? by Political Capital.

Photograph by Jose Cabezas/AFP/Getty Images

Soldiers of the 4th brigade combat team 4th infantry division of the U.S. Army dispose of waste left by mortar rounds at the Forward Operating Base Joyce, in the Kunar province in Afghanistan on August 20, 2012.

To solve a problem requires knowing that problem: analyzing it, diagnosing it and then treating it. Yet when it comes to the deficit, Washington is woefully ignorant.

A Bloomberg Government study, “What Really Caused the Mounting Federal Deficit”, provides a non-partisan assessment of why the deficit deteriorated from an average of 1.9 percent of gross domestic product per year in the three pre-financial crisis years, to 9.3 percent per year in 2009 through 2011.

The Bush tax cuts and the wars in Iraq and Afghanistan cannot be blamed, nor can stimulus measures taken by the Bush and Obama administrations.

The biggest cause of the 7.4 percentage point deterioration in the deficit was the economy itself, the study finds.

The downturn brought on by the financial crisis was responsible for 4.5 percentage points, or 60.8 percent, of the increase.

Tax revenue went down, and spending on areas such as income support went up.

Only 24.3 percent of  the deterioration was caused by specific stimulus measures, both on the spending and revenue side. The remainder was caused by rising costs that had nothing to do with the economy or stimulus: primarily, defense, Medicare and Social Security.

Politicians from both parties would rather play politics than figure out what caused the problem in the first place. Instead, the U.S. faces a “fiscal cliff” in the new year of sequestration and tax rate increases that few want and which could have disastrous economic effects.

A sensible plan to address the deficit would focus on wiping out the structural deficit and rely on economic growth to address the cyclical deficit. As it happens, the U.K.’s deficit plan is based entirely on this reasoning.

Instead, in the U.S. tax increases have the potential to lower consumer spending, and much of sequestration focuses on areas of the budget that didn’t cause the deficit.

Original post is Deficit Reality: Not DC Talking Point by Political Capital.

Photograph by Ty Wright/Bloomberg

Corn production in the U.S. will drop 13 percent to a six-year low after the hottest July since 1936.

The severity of the worst U.S. drought in 56 years may be peaking, U.S. Agriculture Secretary Tom Vilsack said in an interview with Bloomberg News. Steadying weather conditions may limit food inflation next year and ease pressure to relax federal requirements for the use of corn to make ethanol.

Things may be looking up for U.S. airlines as well. Technology pushed by the FAA including improved cockpit radar is proving to save fuel on long flights by allowing planes to maneuver more like cars on a highway to avoid headwinds and bad weather, Bloomberg News reported today, especially over oceans where there are ground radar blind spots.

The BGOV Barometer shows wages made the biggest gain from January through June in more than five years, and retail sales last month rose the most since February. The S&P 500 is heading toward its sixth weekly advance and the longest winning streak since January 2011 as investors look for today’s release of an index of consumer sentiment and leading economic indicators in July.

And good news for Mitt Romney, too: A nonpartisan tax study found the Republican presidental candidate’s tax plan would shift only half as much in taxes from the rich to the not-rich and may even eliminate it, albeit using rosy assumptions.

Cary O’Reilly contributed to this post

Original post is Washington Daybook: Clearing Skies by Political Capital.

Photograph by Justin Sullivan/Getty Images

Republican vice presidential candidate Rep. Paul Ryan at a campaign rally at the Waukesha County Expo Center on August 12, 2012 in Wisconsin.

A narrative is quickly developing in Washington that former Massachusetts Governor Mitt Romney’s pick of Rep. Paul Ryan of Wisconsin as his running mate is a gift to President Obama.

Ryan’s proposal to “end Medicare as we know it” seems to play right into Democratic support for this popular entitlement (although the cap on the growth of Medicare spending in Ryan’s revised 2012 plan is the same as the Obama administration’s). Moreover, the congressman’s proposed massive cuts to discretionary spending – at less than 4 percent of GDP in 2050, they would essentially wipe out everything but defense – are even more draconian.

Not so fast. For one thing, Vice presidential choices rarely have much impact on presidential elections (Senator John McCain would have lost with whomever he had picked as his running mate). To the extent that this choice matters, the additional anti-Romney turnout it may trigger among otherwise disaffected Democrats almost certainly will be matched with additional Republican turnout from voters who until now were unexcited by the governor.

As for the substance of the Ryan (and now Romney) budget plan, look for the Republican candidates to argue to the relatively few, almost certainly independent, voters that at least one of them (Ryan) had the guts to take the political risk of offering a blueprint for keeping the United States from looking like Western Europe, Greece in particular. The president had his chance, they almost surely will say, to embrace the recommendations of the bipartisan deficit commission he appointed, but would not take that risk. The Obama team will have a hard time making a credible claim that Ryan sabotaged the commission’s report by not voting for it when the president didn’t support it either.

Perhaps most important, as convincing  academic literature documents, at least since the beginning of the 20th Century, presidential contests have almost always been referendums on the state of the economy – with special emphasis on its growth in the year of the election (for a prominent example, see Yale Professor Ray Fair’s Web site.  The meager growth of GDP so far in 2012 thus can hardly give comfort to Obama loyalists (at 2 percent this year); Fair’s model predicts Obama to win a shade under 50 percent of the popular vote).

I will go out on a limb without a model to back me up: if the economy continues puttering along at 2 percent growth or less and unemployment stuck near or above 8 percent, there is more than a 50 percent chance that a majority of those undecided voters will opt for change, any change.

Truly undecided voters at this stage are unlikely to give Obama (along with Federal Reserve Chairman Ben Bernanke) much credit for saving the economy from a Depression-like collapse, which they deserve. To the contrary, many or most of these voters likely object to what they see as unfair and ineffective “bailouts.” A ticket headed by an energized Romney with a smart, telegenic Ryan at his side now offers that change to voters who may not know or care about the details in the Romney-Ryan budget plan. All the attack ads in the world may not change that outcome.

Robert E. Litan is director of research for Bloomberg Government, BGov

Original post is Ryan Not Necessarily Gift to Obama by Political Capital.

Photograph by Bill Clark/CQ Roll Call/Getty Images

A rally at the Supreme Court to mark the second anniversary of the Citizens United v. FEC Supreme Court.

The Supreme Court’s ruling in Citizens United v. Federal Election Commission may have overturned a century-old ban on corporations spending money on federal elections.

Yet that 2010 ruling, which also spawned the creation of independent expenditure-only committees known as super-PACs with unlimited fundraising ability, has not opened floodgates to corporate donations as some, including President Barack Obama, predicted.

A Bloomberg Government study finds that corporate money has largely stayed out of the 2012 election cycle so far, including the Republican presidential nominating process. Corporations contributed only 7.6 percent of the donations to super-PACs between December 2011 and March 2012.

The study by BGov analyst Melissa Avstreih  also finds that almost all of the $6.82 million in corporate donations came from privately owned companies.

Individuals, not corporations, are the major contributors to super-PACs.

This study doesn’t examine corporate contributions made to nonprofit groups registered as 501(c)4 organizations, which are exempt from disclosing the identity of their donors.

Original post is Super-PACs: Little From Corporations by Political Capital.

Photograph by Pete Marovich/Zuma Press

After the Supreme Court's decision to uphold the health care reform law's individual mandate in an opinion authored by Chief Justice John Roberts.

Bloomberg Government’s David Ellis has a line on something here:

“Turns out that crowds might not be so wise after all,” Ellis writes today.

His story:

The BGOV Barometer shows how subscribers at Intrade.com placed increasing wagers that the U.S. Supreme Court would declare unconstitutional a provision of the federal health law requiring Americans to purchase medical insurance. Bets against the so-called individual mandate surviving a court challenge rose to a record in the hours before the court announced its decision just after 10 a.m. Washington time yesterday.

Bettors on Intrade’s political futures market were willing to pay as much as $8.20 to collect $10 if a majority of the justices voted to overturn the mandate. That was up from $4.75 on March 25, before the start of Supreme Court arguments on the health-care law.

“The alleged wisdom of the crowds can just as easily be described as the delusion of the self-appointed cognoscenti,” said Gary Langer, president of Langer Research Associates in New York.

“In some cases, good data — produced by thoughtful and tested methods, rather than in the echo chamber of the Internet — can provide insight as to likely outcomes,” said Langer, who compiles the Bloomberg Consumer Comfort Index. “In others such as the individual judgment of nine learned men and women in black robes, not so much.”

Dublin-based Intrade is an Internet betting pool that offers users a chance to speculate on the outcomes of real-world developments that are presented in a yes-or-no format. Winners receive $10 per share at the close of the betting window, while losers receive zero.  The site charges members a flat monthly fee of $4.99 per account to access the betting pool.

Intrade was established in 2001 and opened its site to political betting three year later. The site gained prominence in 2008 when it predicted Barack Obama would win 364 electoral votes, one short of his eventual total in the U.S. presidential race.

“This is not the first time the market has got it wrong,” Carl Wolfenden, Intrade’s exchange operations manager, said in an e-mail. “Barack Obama was trading at over 90 percent to win the 2008 New Hampshire primary before losing to Hillary Clinton. Mitt Romney was also trading well above 80 percent to win Colorado in this year’s Republican primaries before losing to Rick Santorum.”

Though markets such as Intrade may be flawed, they do provide insight into the political trends, according to Koleman Strumpf, professor of business economics at the University of Kansas School of Business.

“The market wasn’t literally wrong — while most participants said the mandate would be overturned, 30 percent said it would remain,” said Strumpf, who has studied prediction markets. “Obama’s re-election prospects rose following the court’s decisions, and that gives you a good indication of the political impact going forward.”

Intrade’s betting question was “The U.S. Supreme Court to rule individual mandate unconstitutional before midnight ET 31 Dec 2012.” In the ruling, Chief Justice John Roberts agreed with opponents who contended that the mandate exceeded congressional power to regulate interstate commerce, while finding the mandate could be upheld under Congress’s ability to impose taxes. That nuance led some on Intrade’s Website to ask whether refunds would be available to losing bettors.

“We will not be considering such appeals,” Wolfenden said.

Original post is Intrade Bettors Lost on Health Care by Political Capital.

Photograph by Win McNamee/Getty Images

The U.S. Computer Emergency Readiness Team/National Cybersecurity and Communications Integration Center facility in Arlington, Virginia.

Hackers, crackers and script kiddies take note:

The federal government is spending to keep your prying fingers out of places they don’t belong.

Cybersecurity contractors should pay attention as well.

A Bloomberg Government study finds that cybersecurity spending during the past five years at nondefense federal agencies increased by 73 percent. The study, “Trends in the $1.3 Billion Market for Cybersecurity In Civilian Agencies,” also identifies areas of opportunity for cybersecurity companies interested in doing business with the federal government.

The study was produced by Bloomberg Government federal business intelligence analyst Jason Wilson. An earlier installment of the study examined the $1.8 billion market for defense cybersecurity.

For more details, see a report on the study at bgov.com.

Original post is Cybersecurity Gov’t Spending Boom by Political Capital.

Photograph by Jim Wilson/The New York Times via Redux

Skateboarders in a pool behind a house in foreclosure in Fresno, California.

What do public universities and litigation over faulty drywall have in common?

Both have been deemed appropriate uses of money set aside for the states to help their citizens recover from the housing crises, according to a study by Bloomberg Government tax analyst Berenice Juarez.

The study — the second of a two-part series, “Inside the $25 Billion Mortgage Settlement” — documents how the states plan to spend $2.54 billion of the settlement set aside for them. The settlement provides $2.54 billion for housing and foreclosure prevention “to the extent practicable.”

That language leaves a lot of wiggle room for creative politicians.

Juarez reports that, while more than half of the states are using some or all of the money as intended, others are not making a good-faith effort “to follow the spirit or intent of the settlement.”

The settlement among the states and five of the nation’s biggest residential-loan servicers was intended to remediate harm that homeowners and communities suffered as a result of shoddy foreclosure practices.

A study, “Hardest Hit States to Use Settlement Money On Budgets, Not Housing,” was published Monday. Part 1 of the study, “A Preview of National Mortgage Servicing Standards,” published on June 11, outlined how the settlement probably will be a model for the servicing standards that the Consumer Financial Protection Bureau will propose for all banks.

For more information, see BGov.com.

Original post is Housing Relief Holds `Wiggle Room’ by Political Capital.

Photograph by Sandy Huffaker/Corbis

Joblessness and the accompanying loss of health benefits drove an additional 3.7 million people into the Medicaid program in 2009, the largest single-year increase since the early days of the government insurance plan, according to an annual survey by the Kaiser Family Foundation.

There’s a lot of election-year finger-pointing over blame for the explosion of U.S. debt.

It misses some of the biggest culprits: The aging of the Baby Boom generation and sluggish recovery from the deepest recession since the 1930s.

The BGOV Barometer shows that 77 percent of the growth in federal budget deficits over the past three years can be traced to a recession-driven drop in tax revenue, coupled with spending increases required by law to assist the poor and elderly. Another 11 percent is the result of increased outlays for the Pentagon and veterans’ services.

The breakdown illustrates how little of the deficit is affected by annual spending decisions by Congress and the administration. Social Security and the recession’s effect on tax collections and safety-net programs added more red ink during the last three years than all other government programs combined.

See the full story on the debt-drivers at Bloomberg.com.

Original post is Debt-Drivers: Baby Boom, Recession by Political Capital.