BY PANOS PREVEDOUROS PHD – By now you have probably come across at least one alarmist video or email warning you of the impending collapse of the US economy and the change of status for the US dollar from a reserve currency to a devalued bank note.
While some form of dollar devaluation may occur as a partial solution to the huge and increasing US debt to the rest of the world, internally it does not solve the problem of state and local government out-of-control spending. Quite the opposite will occur.
For example, a 20% devaluation of the dollar makes our worth to the rest of the world 20% lower and everything we import (and we import a lot) becomes 20% more expensive, overnight. A “slide” in the value of the dollar has been occurring for several years now, thanks in part to the Treasury’s abundant printing of greenbacks.
State bankruptcy is an option. A consequence of this is mass layoffs and payments in IOUs, which cannot pay the mortgage and other bills of citizens. In severe cases experienced elsewhere, including the United Kingdom, there were months at a time with rolling blackouts, limited transportation service, no public project construction, etc. Really tough times are possible.
Before the time comes that draconian measures need to be taken due to directives of external organizations such as the International Monetary Fund, our micromanaging, union-and-special-interest-backed leaders have started the usual “death by one thousand cuts” process in the form of cuts and taxes.
One of the sore areas of the nation is infrastructure. However, infrastructure is legally structured as a form of discretionary spending, so it is an easy victim of cuts. Here are some as reported today by the American Society of Civil Engineers.
U.S. House of Representatives FY 11 proposed budget:
1. Eliminates the High Speed Rail program ($5 billion)
2. Cuts $430 million from the Federal Transit Administration’s New Starts program
3. Eliminates the TIGER grant program ($600 million)
4. Cancels federal payments of $150 million to the DC metro rail system
5. Cuts $151 million from Amtrak
6. Cuts $200 million from FAA Facilities and Equipment
7. Cuts $1.4 billion from the Clean Water State Revolving Fund
8. Cuts $557 million from the Drinking Water State Revolving Fund
9. Cuts $341 million from the US Army Corps of Engineers
10. Cuts $138 million from the National Science Foundation
11. Cuts $186 million from the National Institute of Standards and Technology
12. Cuts $27 million from the US Geological Survey
13. Cuts $1.1 billion from the Department of Energy Office of Science
Hawaii’s House of Representatives is considering many tax increases the collective impact of which, if passed, will be huge:
HB786: Doubles the solid waste management surcharge. Effective July 1, 2011.
HB794: Temporarily places a cap on itemized deductions claimed on state income tax returns until 01/01/16. Suspends the refunding feature of the capital goods excise tax credit for eligible depreciable tangible personal property placed in service after 12/31/10.
HB796: Reduces certain allowable tax credits for taxable years beginning on or after 1/1/11.
HB799: Suspends temporarily the exemptions for certain persons and certain amounts of gross income or proceeds from the general excise and use tax and requires the payment of the tax at a 1% rate.
HB805: Repeals the income tax exemption for income derived from stock options or stock from a qualified high technology business.
HB806: Prohibits a deduction for traveling expenses while away from home and out-of-state.
For the last one, a friend wrote me a note as follows: “Terrifying. In our own business, we spend thousands each year on out of state travel and expenses. If we stopped taking out-of-state work because it cost too much to travel, we would starve to death, so would have no choice but to leave Hawaii.”
Hold on to … you know what!
Postscript: Of major relevance to Honolulu are items 2 and 4 on the infrastructure cuts. Item 2 is the program from which Honolulu Rail may get federal funds; ours is a New Starts project and there will be no funds for new projects (only funds for News Starts in progress.) Item 4 clearly shows what Congress can do. The expansion of the DC metro is an approved rail transit project, but the federal funding is being cancelled. (Please forward this info to Peter “Hallelujah” Carlisle.)