Businessweek reported New York City Mayor Michael Bloomberg and a coalition of 24 local leaders yesterday urged state legislators to support a plan proposed by Governor Andrew Cuomo to raise the retirement age from 62 to 65 and “allow for a voluntary 401(k)-type retirement plan.” Cuomo and his supporters say that no change in the pension plan will result in a jobs cut, but public-worker unions and Comptroller Thomas DiNapoli, the trustee of the pension fund, oppose changes.

Currently, state and local governments in New York are borrowing $750 million from the same $140 billion pension fund to which they owe money and will likely borrow $1 billion more in the next year, according to the New York Times. DiNapoli defended his stance saying the current pension plan gives “you help right now, not 30 years from now.”

While overall U.S. manufacturing grew less than forecast in February, manufacturing in Philadelphia grew at the fastest rate in four months and in New York at the fastest rate since June 2010.BA

Imagine sitting down at your kitchen table to solve your family’s budget problems.  Before you start working on the budget, you immediately declare that your biggest expenditures are off limits.  Do you think you’d ever solve your problems?  It may be hard to believe, but that’s exactly what Congress is doing when they talk about cutting spending.

Let me explain. Although there’s been lots of talk in Washington about cutting spending, most of the so-called cuts come from the smallest part of the federal budget, discretionary spending. Discretionary spending is made up of items that Congress funds on a yearly basis–things like defense, education and transportation.  In the government’s last fiscal year, discretionary spending took up 37 percent of all federal spending.  Mandatory spending, on the other hand, took up 56% of all federal spending.  Mandatory spending funds programs like Social Security and Medicare that have been obligated by previously passed laws and are funded on “auto-pilot.”  (Check out our latest infographic to see it broken down in graphic form.)

In testimony before the House Budget Committee yesterday, Defense Secretary Leon Panetta touched on this very issue.  Panetta, the former head of the Office of Management and Budget under President Bill Clinton, has some credible experience in developing budgets.  He said:

“Look, discretionary spending is one-third of the budget. You can’t ignore that two-thirds of the budget that are blowing through the ceiling right now. That has to be part of any deal.”

Panetta is right.  Congress will never get our nation’s finances under control unless everything is on the table.BA

How much does a haircut cost the average American? $15 dollars? $20 dollars? $30 dollars? What about $300,000 dollars? That last number isn’t an exaggeration, it’s the amount the Senate’s barbershop received in a bailout at the end of last year.

The bailout is a result of the Senate barbershop going deep into red ink. Without the bailout the shop, which has been open for the last 110 years, would have been forced into bankruptcy. Many businesses, such as the House of Representatives’ barbershop, would cut wages, benefits, or hours for employees to make up for their shortfalls. Because the Senate barbershop is a subsidized group and its employees are members of public unions, those cuts weren’t made, running the shop in debt. Meanwhile, on the south side of the hill, Joe Quattrone has made House Cuts profitable.

How does a barbershop run $300,000 into debt though? Lets look at the differences between the two operations;

• Senate: 11 full time employees
• House: 3 employees, 1 of whom is part time

• Senate: Pays no rent for their space.
• House: Pays $2,000-$3,000 dollars per year for space.

• Senate: Employees are unionized and federal employees with benefits matching those of employees at similar GS levels. Salaries of the top 4 barbers are, $54,761; $70,349; $73,658; and $81,641.
• House: The top two barbers made $22,000 and $30,000 dollars last year with no benefits as they are self-employed.

The main difference between the two shops is privatization. In 1994 the House side barbershop was privatized and operation was handed over to Mr. Quattrone. Now instead of running into red ink, Quattrone is turningprofits, despite extra expenses in rent and lower prices. While the salaries and benefits for the House side’s shop are not as lavish, Mr. Quattrone reasons, “Money’s not everything. I love coming to work every day. Would you rather go to a job you hated for $50,000 or one you liked for $40,000?”

Fortunately, Terrance Gainer, Senate Sergeant at Arms, has decided to privatize Senate Hair Care Services, the official name of the barbershop. He says, “If you put aside [the employees’] livelihoods, it’s costing the government money, and that includes taxpayers like you and me. That’s the way it is,” he said. “I just have not pulled the trigger. That’s on me.”

With nearly 27,000 customers last year the Senate side barbershop isn’t going anywhere, but hopefully its bailouts are long gone. After all, all they need to do is look just across the hill for a business model that works.BA

AP - The European Central Bank has made euro529.5 billion ($712.4 billion) in low-interest loans to banks in the second round of a massive credit infusion credited with easing the eurozone debt crisis.

Politico - Last summer’s deal to end the fight over the debt ceiling could resurface earlier than expected.

The phrase “Greek default” has been on the pages of newsstands for some time now, as the world fears the worst may come to Europe. Worst case scenario could mean the breakup of the Euro Zone (or countries that share the euro) and downward economic spiral of some of the richest countries in the world. This week, European leaders agreed to yet another bailout package for Greece.

However, the picture is not as rosy as it appears. A leaked document by the IMF reveals that the bailout will not be enough to save Greece from fiscal demise. Furthermore, the report expects the austerity measures taken, will hold Greece’s economy too low for Greece to be able to recover from of its fiscal debt crisis.

Washington could learn a lot from Greece’s example. By regeining  in spending and reducing our deficits’s, hopefully we won’t need to be asking for a bailout of our own.

For more information on the terms of the bailout and what this will mean for Greece, see our fact sheet.BA

5 “Here in New York City we celebrate Presidents Day by allowing people to park on both sides of the street.” –David Letterman

4 The Onion: Congress Cooperating?

3 “You can tell gas prices are going up in California. Prius owners are getting that smug look again.” –Jay Leno

2 “It’s been reported that Mitt Romney’s campaign is spending cash twice as fast as they’re earning it. Hey, it turns out he is just like us after all.” –Conan O’Brien

1 Political Cartoon:Debt or Gas Prices?BA

Here’s a roundup of this morning’s must-read budget and economic stories:

According to The Hill, the U.S. may reach its debt limit around November.

The Associated Press, The Hill and USA Today have more details on President Obama’s corporate tax reform plan.

The Hill and Roll Call report the House may scale back the transportation reauthorization bill.

The Wall Street Journal says the calculating the cost of the stimulus is much easier than determining how many jobs it created or saved.

CNN Money says Social Security’s finances have eroded in the last year.

The Associated Press reports the U.S. Postal Service will start making cuts in May.

According to The Wall Street Journal, the European Central Bank president believes there is no other option for European countries than to tackle their debt problems head on.

On the opinion pages: David Brooks says the U.S. is more like Europe than people think and Arthur Brooks argues it’s time to cut spending and reform entitlements.

BA

AP - Greece is planning to launch a public offer for a massive bond swap designed to knock euro107 billion ($142 billion) off its debt held by banks and other private investors.

AP - Massive tax cuts proposed by GOP presidential candidates Newt Gingrich and Rick Santorum would cause the national debt to explode while Mitt Romney's budget plan could generate red ink in line with current projections, according to a new study released Thursday.

The New York Times today published an interactive map that allows you to view dependence upon government programs by county in the US. The map details the level of personal income from government programs like Medicare, Medicaid, Social Security and unemployment benefits. Overall an increase in the level of income from the government has risen from 8% in 1969, to 18% in 2009. More than doubling the amount of government subsidized income.

In Illinois, the state is facing spending cuts to decrease a budget deficit of $8 billion dollars. The state is closing 60 state officesand eliminating two prisons, totaling 1,100 layoffs for public workers. Even though these changes should result in $88.9 million in savings, the state’s finances are still unsustainable. Gov. Pat Quinn is quoted saying, “Today, our rendezvous with reality has arrived,’’ yet the governor proposed a budget this year that out spends last, with a total of $33.8 billion dollars.  Its predicted that without cuts to automatic spending measures – Medicaid and government pensions – the state will not be able to bring spending down to controllable levels in the near future.

The Federal Reserve Bank of Atlanta has released a new survey of regional businesses on the expectation of inflation in the short and long term. The Wall Street Journal reports, short term the survey found that businesses believed inflation would stay steady at 1.8%, below the 2% target for the Federal Reserve. Long term though the survey indicated that businesses in the region expect inflation to rise to 2.9% in the five to ten year range, slowing an economic recovery with increases in prices. While the survey is the first of its kind to highlight the worry of increased inflation rates in the long term, the Federal Reserve insists they have tools to ensure that inflation will not experience dramatic changes.BA

Last night’s Republican presidential debate opened with deficit spending and what the candidates planned to do to get spending under control.  Let’s take a look at what they said:

What Santorum said:  ”I put together a specific plan that cuts $5 trillion over five years, that spends less money each year for the next four years….  I actually had experience in tackling some of the toughest problems we have in this country: the growth in entitlement spending….  When I was born, less than 10 percent of the federal budget was entitlement spending, it’s now 60 percent of the budget.  Some people have suggested defense spending is the problem.  When I was born, defense spending was 60 percent of the budget.  It is now 17 percent.  …Defense spending will not be cut in my administration.”  Santorum went on to discuss the need to reform the Medicaid entitlement program.

Our take:  Mandatory spending, which is sometimes referred to as entitlement spending, took up 56% of all federal spending in the last fiscal year.  Although Santorum mentioned the need to reform Medicaid and food stamps, he left out the most expensive ones:  Social Security and Medicare.  Suggesting that defense spending is not part of the problem is a stretch.  Defense spending was the second largest line-item in the federal budget last year, so to act like it is a small part of the federal budget, is inaccurate.

What Romney said:  ”I am going to go through every single program and ask if we can afford it….  I’m going to cut the [federal] employment by 10 percent, and I am going to link the pay of government workers with the pay in the private sector….”  Romney went on to discuss the need to reform the Medicaid entitlement program and federal housing programs by sending them to the states.

Our take:  Although it is a start, cutting federal employment and lowering federal wages is a drop in the ocean when you look at the federal government’s finances.   The simple reality is that the largest expenditures in government as of last year are:  Social Security,  Defense, Income Security, Medicare and Medicaid, respectively.  Without seriously addressing these programs, the U.S. will never get its spending under control.

What Gingrich said:  ”…You have to have jobs and economic growth to get back to a balanced  budget.  …The leading developer of North Dakota oil estimated recently that if we would open up federal land and offshore, you would have $16 – 18 trillion in royalties to the federal government in the next generation.  …We need to reform government.”

Our take:  Although economic growth will help the government improve its financial shape, growing the economy alone will not solve the spending problems of America.  With 10,000 baby boomers retiring every day, programs like Social Security and Medicare are rapidly growing.  And growing the economy does not address the structural reforms that are badly needed and simply prolongs the inevitable problem, which we all understand makes it grow worse. 

What Paul said:  ”I have never voted for a budget deficit.  I never voted to increase the national debt.  …There is only one appropriation bills I have voted for….”

Our take:  Like the others, Paul didn’t seriously address how he will address the largest federal expenditures.  To be fair, the moderator altered the question for Paul so he didn’t necessarily have a fair shot to respond. In the past, Paul has offered detailed examples of how he would decrease government expenditures.BA

I came to Washington, D.C. almost 6 years ago and like most of us, fell in love with the constant political debate and discussions that permeate this city. Happy hour became a full on discourse on the issues of the day and everyone brought their passions to the table. I discovered that people from opposite sides of the political spectrum, not surprisingly, have radically different opinions on what functions of government are important.

But there is one issue that disproportionately affects everyone. It doesn’t matter if your favorite president was Jimmy Carter, Ronald Reagan or even William Howard Taft (really? William Taft?)

That issue is our government’s out of control spending and the resulting debt. When that realization hit me, I understood how crucial fiscal policy is….to pretty much everything.

Our out of control spending is hurting our national defense. Care about our national defense and security? Spending and debt impact that issue as well. Adm. Mike Mullen (retired), former chairman of the Joint Chiefs of Staff, has repeatedly argued that the national debt is the top threat to our nation’s security.  If we continue to spend at the rate that we are currently, we will lose the resources needed to keep our troops in the best position possible.  To further muddle the security waters, large parts of our debt are owed to other countries, including China. Maybe you’ve heard, but our interests don’t always align with theirs.

Our out of control spending is undermining America’s great generosity.

Malaria is a great example of this type of investment. Hundreds of thousands of children under 5 in Africa are living, playing and growing because of the huge investments the United States have made in malaria and global health over the past decade. Foreign assistance as a whole accounts for roughly 1% of our budget. But if we continue to spend the way we are, if we bury our heads in the sand and allow our fiscal situation to decline even further, we won’t be able to afford that 1% much longer.

Our out of control spending is endangering our future prospects. Entitlements have been a hot topic of discussion over the past few months. Our runaway budget directly impacts these programs as well. Every day 10,000 baby boomers become eligible to enroll in Medicare and over the next decade 15 million more people will be on Medicare. Social Security is also due for huge increases in cost because of more and more eligible recipients. If we don’t solve our spending problems, there will be no money left for these programs.

Obviously, whether you are a Democrat or Republican, issues that are important to you are being affected by the simple math of our growing spending and debt. That’s why the game of chicken that Washington insiders continue to play is absolutely maddening to me. We stand to lose too much if we chose to ignore our current circumstances.

So Washington, step up, if you really want to make a difference over the next 40 years, implement the common-sense solutions that this country needs to strengthen America’s ability to be great. We can be the generation that solves a historic fiscal crisis, let’s meet that challenge.BA

A new report from a bipartisan group warns that with the exception of Ron Paul's plan, the GOP candidates' economic proposals would likely worsen the nation's debt problem. The Committee for a Responsible Federal Budget also says the candidates need to spell out specific cuts rather than offering vague targets.

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We can all agree that good publicity is expensive. We have Hollywood, sports and big business to show us that spending $3.5 million dollars on a super bowl ad can make a difference, but how much is it worth to government agencies? What about publicity for the IRS?

Public relations firm Porter Novelli has held a contract with the Internal Revenue Service for the past 4 years totaling $17.5 million dollars in revenue for the PR firm. According to the Wall Street Journal the firm has reached the maximum allowable amount to be billed by law, leaving the IRS looking for a new firm. The agency is offering a maximum of $15 million dollars over a 5 year contract, to firms willing to bid. With the IRS ranking just above Congress and the Department of Education in a 2010 Pew Research Survey measuring favorability, it begs the question if the money could not be spent elsewhere.

The solicitation lists different communications priorities for the agency. Designing national informational campaigns, notifying the public about new tax provisions and market research are at the top of the list for the IRS. Though the first two priorities seem in line with objectives for the agency, how could market research be of benefit? According the same Pew Research Survey, the agency receives a near split of 40% saying the agency does a good job or better, 54% saying a fair or poor job and 6% without an opinion.

While we can expect firms to bid on the contract during the year, the whole idea of public relations for the IRS has David Bauman, the PR consultant representing Metta World Peace, saying, ”For the IRS, the first thing to do would be to change your name.” What do you think? Should the IRS spend $15 million dollars on public relations? Let us know in the comments.BA

Here’s a roundup of this morning’s must-read budget and economic stories:

President Obama will today unveil his plan to reform the corporate tax structure. Bloomberg, The New York Times, Politico, Reuters, The Wall Street Journal and The Washington Post have previews.

Fortune says the assumptions in President Obama’s fiscal year 2013 budget are unrealistic.

According to Politico, some in Congress want to extend the tax credit for wind power.

In two separate stories, The New York Times reports that, despite a new bailout agreement, worries remain about Greece.

Bloomberg says Hungary is set to cut spending as the size of the country’s deficit grows.

BA

The Week - But the economy might not be recovering at all: "Employers are hiring, manufacturing is revving up, and stocks are rallying," says Annalyn Censky at CNN. But that doesn't mean a true recovery is upon us. A showdown with Iran could push gas prices to $4 or $5 a gallon this spring. Job cuts by cash-strapped states and other public agencies are a continued drag on the economy. (Remember, "the government is the largest employer in the country.") And the "escalating European debt crisis" could level the still-feeble U.S. and global economy. Clearly, we aren't "on the path to a sustained recovery" quite yet."Economy in recovery? Not so fast"

With seemingly every day bringing more bad news from Europe, many are beginning to ask how much longer the United States has before our welfare state follows the European model into bankruptcy. The bad news is: It may already have.

This year, the fourth straight year that we borrowed more than $1 trillion to support the U.S. government, our budget deficit will top $1.3 trillion, 8.7 percent of our GDP. If you think that sounds bad, it’s because it is. In fact, only two European countries, Greece and Ireland, have larger budget deficits as a percentage of GDP. Things are only slightly better when you look at the size of our national debt, which now exceeds $15.3 trillion, 102 percent of GDP. Just four European countries have larger national debts than we do — Greece and Ireland again, plus Portugal and Italy. That means the U.S. government is actually less fiscally responsible than countries like France, Belgium, or Spain.

Keep reading this post . . .

Politico - New federal filings indicate he's nearly paid off his campaign debt.

Here’s a roundup of this morning’s must-read budget and economic stories:

• The Associated Press says gas prices are the highest they have ever been at this time of year.

• On Friday, the House and the Senate voted to extend the 2011 payroll tax cut for another year and to extend unemployment benefits. The New York Times and The Wall Street Journal have the details.

• The Hill says extending the payroll tax cut means the federal government is closer to reaching the debt ceiling.

• The Washington Post has a run down of all the tax cuts that will expire at the end of 2012.

• Reuters reports the Greek government appears to be on the verge of adopting additional measures to help tackle its debt problem.

BA

Reuters - U.S. job creation will pick up this year as a moderate economic recovery continues, the White House said on Friday, but it faces a key risk from the debt crisis in Europe.

AP - Germany's president resigned Friday in a scandal over favors he allegedly received before becoming head of state, and Chancellor Angela Merkel moved quickly to try and head off a domestic political crisis as she grapples with Europe's debt troubles.

Here’s a roundup of this morning’s must-read budget and economic stories:

Fortune takes a look at which states are in the best fiscal shape.

Negotiations on extending the 2011 payroll tax cut for another full year broke through yesterday and a deal looks likely. The Hill, New York Times, Politico and Roll Call have the details.

The Washington Post says President Obama’s budget makes changes to the U.S. Postal Service, including cutting Saturday mail service.

Fox News looks at the tax increases in the President’s budget.

The Hill, Politico and Reuters report President Obama has threatened to veto a multi-billion transportation reauthorization bill that Congress is currently considering.

The Wall Street Journal says the Obama Administration will offer a plan in the coming weeks to cut the corporate tax rate in exchange for closing certain loopholes.

The New York Times previews Greece’s debt restructuring plan, to be released next week.

The New York Times also looks at Portugal’s debt problems.

On the opinion pages: The Wall Street Journal likes the progress on the payroll tax cut deal.

BA

In a town where bipartisan budget chicanery has been raised to an art form, President Obama’s latest budget proposal should be hailed as the da Vinci of fiscal obfuscation.

The president claims that his budget proposal reduces debt by $4 trillion over the next 10 years, combining $2.4 trillion in spending cuts with $1.6 trillion in tax hikes. Almost none of that is true.

Keep reading this post . . .