The special election became a referendum on Medicare as the district’s seniors balked at the GOP plan to cut Medicare. The district has been a Republican stronghold for years, but Corwin saw her early lead dissolve when she came out in favor of House Budget Chairman Rep. Paul Ryan’s (R-Wis) Republican budget plan that would cut billions from Medicare.

Hochul cast herself as the protector of Medicare for her district with a large population over 55. She said, “We cannot balance our budget on the backs of our seniors.”

It is no secret that our government process is broken. To paraphrase a newly elected Tea Partyer, each legislator is 1 / (435 congressmen + 100 senators + 1 president + 9 supreme court judges) or 1 / 545 of the legislative process.

Almost no matter what, each side comes up with a position on each issue and tries to get it passed. If a Democratic solution comes to a vote in the House, it is defeated by lock-step voting ordered by the central Republican caucus. If a Republican solution comes to a vote in the Senate, it is defeated by lock-step voting dictated by the Democratic caucus. It does not matter to the legislators whether there is a good solution for the American people, it only matters that the other side not get any credit.

A perfect example is Senate Minority Leader Mitch McConnell’s narrow focus as he has said that ensuring Obama is a one-term president is his “top political priority.”

The focus is never on the benefit to the American people except to win their votes with promises that will not be kept in order to gain control of the government. And the newly elected Tea Party candidates are falling right into line.

It would be interesting to abolish all parties and outlaw all caucuses and allow candidates to run on their reputation and govern transparently on a bill’s own merits.

Obama said his plan was a balance between deficit reduction pain and investment for growth. The plan shows the deficit rising to $1.645 trillion in fiscal 2011, then falling sharply to $1.101 trillion in 2012, just in time for the presidential election.

It only provided a general guide on how to tackle entitlement outlays that include the Social Security and Medicare programs responsible for huge government spending.

“A decade of deficits, compounded by the effects of the recession and the steps we had to take to break it … has put us on an unsustainable course.”

This trend would trim the deficit as a share of the U.S. economy from 10.9 percent this year to 3.2 percent by 2015, keeping the pledge Obama made to his Group of 20 developing nation partners to cut the deficit in half by 2013.

The budget shows the deficit slowing the rate at which the U.S. adds to its debt, stabilizing at about 3 percent of gross domestic product (GDP) from 2015 onward.

The goal is to grow GDP and shrink the debt as a percentage of it. The nation’s debt is currently 72 percent of GDP and costs an additional 20 percent in interest charges. It is estimated that the debt will peak at 77 percent of GDP in 2015 before starting to recede.

An example would be a family with net income of $50,000 per year having debts of $36,000 and interest payments of $600 per month just to stay in place. No one will issue them more credit. There are two ways out of the hole–cut expenses and increase income.

And just like the family, the government will have to cut non-essential programs and excess assets to economize, while still providing services to Americans so that they can have jobs, get to jobs and work at jobs to build the nation’s income or GDP.

The fiscal year begins on October 1 each year, and the budget must be finalized by then (sometimes it runs a little late). The president’s budget for this year is still bogged down in bipartisan politics, and the only thing keeping the government running is a stop-gap measure to continue funding, which expires March 4.

It is halfway through the year, and the current budget is not yet approved. Who are these guys?

Seven months of disagreements, disputes, debates, discord and discussion will now ensue between Congressional parties, mostly in the Republican-controlled House of Representatives, whose members were largely elected on deep cut management of federal spending.

Members of both political parties, the president and American voters all want the same thing–spending within our means. That will require cooperation, even from those dedicated to run Obama out of office at any cost.

Americans do not want a spending freeze at unsustainable levels. Most of all Americans want to see dramatic progress in spending levels and understand what they are giving up.

It is not an easy path.

For fiscal year 2010, the budget proposal was $3.6 trillion. Of that amount, 60 percent went to Defense (20 percent; $715 billion), Social Security (20 percent; $708 billion), and Healthcare (Medicare, Medicaid and CHIP [Children's Health Program]; $753 billion).

What would you cut?

See The Budget.

Obama’s alienation of independents and white voters, along with the gap between the right and the left, means that it is possible that Republicans not only may pick up many seats, but also even regain control of Congress.

Washington strategists are focusing on how the president can make a political comeback in 2012, abandoning the 2010 elections to fate.  The White House has different ideas, with a strategy to win or minimize the damage in 2010. 

Even though Senator Scott Brown has proven himself a Republican independent, breaking ranks with his party to pass important legislation for the good of the country, he is still in the Republican caucus. 

Brown was elected by a landslide in the special election to complete the term of Democratic Senator Ted Kennedy, an office he held for nearly 47 years.  His campaign announcement said that the state “needs an independent thinker” and the anti-Obama, anti-incumbent sentiment carried him to office. 

It was a wake-up call for Democrats. 

The stakes

In November, there are 36 Senate seats and all 435 House seats up for reelection.  Democrats need to capture 39 additional seats to regain control of the House and one additional seat for the Senate.  The key states focused on for Senate races by Republicans are:

• Connecticut (Senator Christopher Dodd – Dem)
• Delaware (seat formerly held by Vice president Joe Biden – Dem)
• Illinois (Rod Blagojevich’s appointee Roland Burris is retiring – Dem)
• Massachusetts (Scott Brown – Rep)
• Nevada (Senate Majority Leader Harry Reid –Dem)
• New York (seat formerly held by Secretary of State Hillary Clinton – Dem)
• Pennsylvania (Senator Arlen Specter – Dem – lost primary).

Loss of all those Senate seats would reduce the upper house to a near tie vote on every piece of legislation, and considering the infighting and hostility between parties now, there may very well be nothing accomplished until 2012 ends.  This would play into Republican hands who would like nothing more than to campaign against a president who accomplished nothing in the last two years of his first term.  

The strategy

The Democrats plan a two-part strategy that includes softening sentiments against Washington, the Democratic side of Congress, and the president. 

Part One

First, Democrats can be expected to intensify the accomplishments of the Patient Protection and Affordable Care Act (health care reform), and the American Recovery and Reinvestment Act (economic stimulus), as well as the Credit CARD Act of 2009 and the Dodd-Frank Wall Street Reform and Consumer Protection Act (financial reform). 

This will be to demonstrate that Democrats can accomplish positive things for the American middle class in spite of bloc voting to defeat all actions.  Voters are upset, however, on the health care provision that requires everyone to have health care by 2014 or face penalties. 

Democrats might be advised to address modifying that portion of the health care bill. 

Obama disappointed his anti-war support base, when he lengthened troop withdrawal from 16 months in campaign promises to 19 months after he took office and backloaded his campaign promise of withdrawing one to two brigades per month. 

The president has now officially committed to ending our military involvement in Iraq by August 31, 2010, removing all U.S. combat troops.  Of course, 50,000 troops will still remain to train and advise Iraqi security and conduct counter terrorism operations.  Those troops will be likely at times to engage in fighting at the request of Iraqi commanders, but all troops will be out of Iraq by the end of 2011. 

Democrats are also looking to regather environmentalists with the president’s push to replace our black economy (fossil fuels) with a green economy (renewable energy sources). 

They will highlight to environmentalists the strong (if not somewhat tardy) handling of the Gulf oil spill with the promise of restoring the Gulf environment, backed by the $20 billion escrowed by BP.  The passage of the H.R. 4213 bill, extending unemployment benefits, also increased the tax on oil to 34 cents per barrel to fund against future spills (H.R. 4213 (p286) Title IV: Subtitle D – Sec. 431). 

That bill, however, does not address a federal law that caps corporate liability at $75 million for economic damages beyond direct cleanup costs. Democratic Senators tried to pass a bill that would have increased the cap to $10 billion, but Republicans blocked them.

There are certainly items the Republicans can snipe at, like accusing Democrats of tax-and-spend, while they support lower taxes for all – with no responsibility for any of it, unless they are trapped into talking about their history of running up the deficit when they held the power. 

Republicans have established a glaring very public record of voting as a bloc against every major proposal, including equal pay for all and the extension of unemployment benefits for the millions of workers without jobs. 

Recently, Obama was the first sitting president to appear on a daytime talk show.  The president needs more appearances on The View and other daytime shows with large homemaker followings who can influence their family members to see him as a regular family man with a tough job.

Part Two

The second part of the Democratic strategy involves recruiting strong candidates for open Congressional and Senate seats, while playing up the divisions between the Tea Party and the traditional Republicans.  This is meant to split the Republican electorate and increase the chances of less electable candidates edging out strong moderates.  Then extensively research the candidates to help moderate voters reject them – just politics as normal.

It also involves using the White House and strong Congressional members to raise more campaign funds than the opposition. And the final step is to coordinate with Democratic allies like environmentalists and labor unions to mount a get-out-and-vote effort for young, first-time, and non-white voters.  These are the people who swept Obama into office. 

The opposition

Republicans believe that concern over the lack of jobs and resentment over the big-spending ways of the Administration will prevail in voting preferences over the merits of the stimulus and economic recovery, as well as health care and financial regulation reform.

They will trash the health care bill and the compulsory coverage, saying they will, if elected, repeal the bill, start over and do it right.  

Republicans will talk about coming tax increases and how they will hold or reduce taxes to put more money in voters’ pockets, allowing small businesses to create jobs.  They will try to kidnap the platform of change. 

Issues afloat

One significant item the Congress must deal with is the tax cuts implemented by President Bush that are due to expire at the end of 2010.  Read What to Expect if the Bush tax cuts expire. 

Democrats have already planned to extend some of the tax cuts, but are planning to let them expire for citizens with incomes over $250,000, saying they are the rich and their income that would go to taxes would not stimulate the economy anyway.  It will save $67.5 billion per year from being added to the deficit. 

What Democrats are missing is that voters who make above $250,000 see themselves as the upper middle class who would spend their disposable income in ways to stimulate the economy.  Drawing an arbitrary income line will drive those above it to the other camp.

If Democrats voted an extension of the Bush tax cuts for all, even short term, they could defuse the Republican election rhetoric that Democrats will raise taxes for Americans.  If they were really shrewd, they would also lower other taxes like the corporate income tax from 35 percent to the 23.5 percent par level with Europe. 

The Deficit

An issue separating Congress and American voters is the size of the deficit.  It is a subject that may, along with unemployment, sway elections to challengers. 

Many Members of Congress and voters misunderstand the role federal deficits play in managing the economy.  Major economists have taken the position that federal deficits are an integral part of a global economy based on trade deficits and dollar reserves.   Congress has yet to realize there is no advantage in being too “fiscally responsible.”

Let Republicans talk about balancing the budget and keeping taxes low.  They will have to avoid being trapped into talking about their own history of running up the deficit when they held the power.  Perhaps Dick Cheney was right – deficits don’t matter. 

Primary scorecard

They saw our two-house legislature as reflecting the will of the people, but with checks and balances to prevent “the tyranny of the majority” (James Madison). 

While the House with its 435 members representing the popular opinion of the nation’s voters, the Senate, with its two members per state, was visualized as a thoughtful and reflective body, like a modern think tank, where heated issues could cool somewhat and consequences could be considered before new laws were enacted. 

The Constitution provides for both houses to pass legislation with a simple majority vote of those present.  To prevent the “tyranny of the majority,” it also provides a method for the minority to delay a majority vote and gather support for its point of view.  That method is called the ‘filibuster.’ 

The Constitution allows each house to set its own rules.  Each piece of legislation allows a debate on the subject.  Senate rules allow a Senator, or series of Senators (each yielding the floor to the next), to speak for as long as they wish on any subject they choose.  The filibuster can be ended by a 3/5 or 60-Senator vote for cloture (end debate). 

The 60-Senator vote is known as a supermajority. 

It is also possible to end debate through a legal maneuver known as the Nuclear Option, where a Senator brings up a point of order, reminding the Senate that its rules are not being followed with the filibuster.  If the presiding officer makes a ruling to uphold the point of order, and if a simple majority of the Senators vote to uphold the ruling, the debate is ended and a vote on the issue is held immediately.   

Without the threat of filibuster, the Senate needs only a simple majority of 51 votes to pass legislation and uphold rulings.  But when filibuster is threatened on major bills and issues, 60 votes are needed to move past debate to the vote. 

The party-line divisiveness of the modern Senate has made almost all legislative issues require a supermajority to pass.  Although the supermajority vote to end debate is not a bad thing, its use as a weapon in the trench warfare between parties has left the voters as victims. 

An additional use of the 60-Senator vote is used to modify budgeting, authorization, as well as appropriation guidelines and restrictions. 

Each year by October 1, Congress must construct a budget it can stick to, considering government income as well as expenses.  It must authorize new and ongoing programs and agencies that come into being as the result of bill passage or already exist, with non-binding recommended spending levels to carry out the program’s policies.  And it must pass appropriation funding bills, providing the legal authority to use funds from the U.S. Treasury.  

The annual Congressional budget is simply an outline of anticipated federal spending for the coming year, setting limits on discretionary spending if everything works out according to plan.  It also allows procedural points of order for bills that exceed their spending caps.   

When a bill, chugging its way through the enactment process, generates a program or agency budget that will violate its Congressional appropriation, a Senator may raise a point of order.  That appropriation point can be waived by a 60-Senator vote. 

On the saving side of the government ledger, the Congressional budget resolution may include a “reconciliation” figure.  This is assigned to a congressional committee with directions to produce legislation that lowers spending by that amount. 

Passage of a reconciliation bill is an express train with a limit of 20 hours of debate and only a majority of Senate votes for enactment. 

We may learn more about reconciliation in the near future, with pressure building in Congress to pass a health reform bill and the recent upset in Massachusetts, where Republican Scott Brown was elected to serve out the remainder of Senator Ted Kennedy’s term, ending in 2012.  Although a proponent of health care reform, Brown has come out against President Obama’s health care plan in its present form as fiscally unsound. 

With the health care reform bill now in the merging process between House and Senate, we can be sure the 60-Senator rule will be in place, and the Democrats are now one Senator short of the necessary 60 votes for their plan.   

Options for passage of the health care reform bill in some form include

• convincing at least one Republican to vote their way
• scaling down or revising the plan to make it more agreeable to opponents
• requesting the House to pass the Senate bill intact
• using the reconciliation process to pass budget item portions of the bill (that will expire in either five or ten years)

As aggravating and as slow as the Senate process is using the 60-Senator hurdle, perhaps James Madison was right.  Perhaps it does protect us.

What ever happened to old-fashion cash?  We remember, those small paper bills with the pictures of notables long past on them.  They used to be green, but are getting more colorful.  The questions is why use cash when we can swipe our credit or debit cards.

Credit cards were started so people could temporarily borrow to purchase expensive goods today on the promise they would repay the lender with interest in the future.  They were for the collection of goods before we could pay for them.  And the key word here is borrow.

It wasn’t long before borrowers discovered that the cards could also be used for inexpensive goods such as newspapers or cups of coffee.  And it wasn’t long before the lenders discovered that the cards provided more interest income than any other investment type. 

And as credit cards were used more and more, people ignored the balances, and simply charged what they wanted.  The system was perfect for the consumer.  Keep buying goods as if they were free with only an easy payment every month. 

Then lenders discovered they could raise interest rates without consequence.  They also discovered that their debtors were having trouble meeting their agreed-upon payments.  And so the late fee was added. 

We are now all forced to be part of the credit card system.  We must have at least one credit card to get a FICO score, necessary for big-ticket items like new cars and mortgages. 

The problem arises when we swipe away, unaware exactly how much credit is outstanding on our account.  When one credit card gets too near the maximum, we just whip out another one. 

We soon find we can only pay the minimum payment on each card each month.  The trap has been sprung.  How does this happen?  How do responsible people like us get into such a fix?

The brain wants what it wants.

In his book,
The Happiness Hypothesis: Finding Modern Truth in Ancient Wisdom
psychology professor Jonathan Haidt compares people’s behavior to a person riding atop an elephant.  The rider represents our rational outlook, newly developed as we became civilized.    The elephant represents our older, primitive attitude.  A complex maneuvering exists between our rational, analytic side and the older, impulsive, primitive side.  When the two sides work together, our brains can accomplish amazing things.  But sometimes, the elephant asserts its dominance and ignores the rider’s rational voice. 

The brain wants what it wants.  And the elephant has learned that wishes do come true as long as the card swipe is approved. 

Payday spending

In today’s recession economy, the credit card bubble is shrinking rather than bursting.  Both lower-price and middle-income major retailers are commenting on the major shift away from credit to cash and debit cards, and the trend toward payday spending.

Interviewed customers reported being unable to purchase even necessities shortly before paydays.  Retailers are reporting spending spurts in the days immediately following normal paydays.   

The last time that happened was around 1991 when the U.S. was entering recession.  In recent years when home prices were soaring, consumers tapped their inflated home equity to fund purchases made with credit cards.  It was a fantasy with no end. 

But it did end with high mortgages and no equity, high credit balances, and in the worst of conditions, no job income to pay off any of it.

Limiting credit 

Facing the decrease in credit card usage, lenders are focusing on monetizing cards to produce the highest income possible for them.  For the many people unable to live without credit, lenders are raising interest rates and late fees as well as other financial trickery to receive the most income from those who have difficulty making their minimum payments on time or at all. 

For consumers who don’t use their cards or pay their full balance every month, lenders are severely cutting credit limits or canceling the account as unprofitable. 

And consumers are receiving fewer credit card offers from all sources. 

The CARD Act

The CARD (Credit Card Accountability, Responsibility and Disclosure) ACT of 2009 taking effect in February 2010, limits lenders from:

• increasing interest rates on existing balances or in the first twelve months of a new account except when the interest is variable, an introductory period ends, or the consumer fails to comply with an agreed-to plan (almost all credit cards have variable rates)
• increasing interest rates based on unrelated account payments (e.g. utilities, other cards)
• failing to review accounts and decrease interest rates to previous levels when reasons for previous increases no longer apply (e.g. creditworthiness)
• mailing monthly statements less than 21 days before the due date
• making significant changes to accounts with less than 45 days notice
• not allowing consumers to ‘opt out’ or freeze the further use of their cards
• double-cycle billing or adjusting finance charges on previous billing cycles
• changing payment dates
• creating late fees if the due date was a weekend or lender changed address within 60 days
• charging fees for consumers to pay by mail, electronic transfer, telephone or other methods
• charging gift card fees such as dormancy fees, inactivity fees or service fees unless fully disclosed prior to purchase or expiring them within 5 years of activation
• charging more than 25 percent of the credit limit in upfront fees for sub-prime cards
• charging over-limit fees without consumer approval to accept the fee in place of credit rejection

Lenders won’t give up

Although the CARD Act attempts to limit lending practices the Federal Reserve labels “unfair or deceptive,” it will not stop lenders from poring over the legislation to find what lawmakers have missed and what is not explicitly prohibited. 

Fees and hidden calculations that are already being applied include:

• charging inactivity fees for card holders who do not use their cards, including those who have been forced to ‘opt out’ and freeze their use by aggressive term changes (they are prevented from activity and charged a fee for inactivity)
• extending the time period from 30 days to 90 days to calculate variable interest rates based on the highest prime rate in the period
• issuing a base or “floor” rate on which the interest rate will be calculated, even if the prime rate goes lower
• raising fees and removing caps on finance charges for cash advances and balance transfers so the card holder pays the higher of either the percentage fee or the minimum finance charge (can be $20 per transaction)
• calculating and charging late fees based on the card balance
• charging expedited payment fees to avoid late payments
• charging foreign transaction fees for any transaction that touches a foreign bank, instead of just currency exchanges (e.g. a foreign bank can change U.S. dollars to U.S. dollars and charge a currency exchange fee) 

CreditCards.com gives more examples of creative charges.

Retail challenge

Stores are also facing financial challenges with the pressure of controlling their credit accounts from defaults and still making customers feel welcome.  They are tightening credit and still trying to boost sales with moves like purchase discounts if a customer just applies for a card, and interest-free financing and delayed payments on secured purchases. 

Debt to Debit

To avoid going further into debt, comsumers are migrating to swiping their debit cards, with the thought that if it comes out of their checking account, it is not debt.  In 2009, membership in debit card programs increased 45% over the previous year.

And lenders are encouraging consumers to do it by offering debit-card reward programs.

Some banks are offering cash incentives to a narrowly focused segment of consumers.  But less than half of consumers who sign up actually qualify for the cash benefit.  The hooks are in the small print, requiring customers to set up direct deposit, maintain a minimum account balance, and swipe their debit card a minimum number of times per month. 

Direct deposit tends to encourage customers to stay with the bank longer because of the perceived bother to change.  Minimum account balances give the bank the use of the depositor’s money, perhaps without interest.  Using a debit card creates cash flow for the bank from interchange fees.   And having our personal checking account information allows the pitching and cross-selling of more products and services. 

Budget Affordability

We all, I’m sure, feel sorry for lenders and retailers and their financial problems, but we are probably more concerned for our own business of family and home.   It may mean hardships for some, giving up the extra expense items and buying only what we can afford, but our grandparents would be proud of us. 

We may still have to swipe on occasion, but we still have choices of how to use the system to our advantage.  The situation arose because we were unable to see our entire financial picture at once, and how much we owed in total.

Knowing that, we can keep a close eye on our statements, what things are costing us, how much per month we are spending and how much we should spend.  We can avoid and negotiate some fees and leave banks that gouge us, perhaps dealing with smaller banks or credit unions where customers are more than just a number. 

We can begin to stop being victims.

Purchasing big-ticket items like a home or a car or home appliances will still require lender dealings, but once our debts are paid down, our bookkeeping ledger will turn from red to black and that will make us feel wealthier. 

This new way of life will be strange to many, and we may have to resort for a time to payday spending, but paying for a product with our current funds, knowing that it is ours, rather than future funds and sharing ownership with the lender will give us a great sense of satisfaction.

This type of commitment requires a budget.  It doesn’t have to be a to-the-penny budget, but we can set affordability targets and limits on how much we will spend for everything from groceries to holiday gifts.  We can also see the total of what we owe in one place, all at once.    

Remember Christmas clubs and layaway plans?  They were methods of putting aside funds for holidays and gifts.  The good news is that the concept can be applied for any purpose with any steady contribution. 

And to really feel in control, we can pay for purchases and put aside funds in good, old-fashioned cash. 

We can do it.

If you would know the value of money, go and try to borrow some.
–Benjamin Franklin

Old-fashioned Cash

A group of Democratic fiscal conservatives in the House of Representatives, known as “Blue Dogs,” broke off talks on a U.S. healthcare reform bill due to their concerns about containing medical costs of the bill.

The bill is said to estimate costs to the government of $1 trillion over ten years and their concerns over containing medical costs have not been resolved.

The House Democratic leaders could attempt to force the bill through the full House, but it could be killed if it fails.

Now, $1 trillion over ten years is 100 billion per year – a big piece of change.  But here’s the other side.  The Commonwealth Fund, a New York City-based foundation supporting research on health care, says “A comprehensive set of insurance, payment, and system reforms could guarantee affordable health insurance coverage, improve health outcomes, and slow the growth of health spending by $3 trillion by the end of the next decade.”  Read the website, there’s a lot of good stuff there. 

Robert Zirkelbach, spokesperson for America’s Health Insurance Plans, says, “the most expensive thing we can do is nothing at all.  If we do nothing, the Congressional Budget Office projects that our annual health costs will soar to about $13,000 per person in 2017, while the number of uninsured will climb to 54 million by 2019.  Already more than half of Americans say they have cut back on health care in the past year due to cost concerns.  Roughly one in four of us say we put off care we needed, and one in five of us didn’t fill a prescription.”

Between 2000 and 2005, 266,000 companies dropped their employee health insurance.

I’m glad there are some in Congress looking after my tax dollars, but are they too nearsighted?  I have said before, people “with” do not feel the pain of those “without.”

Our mechanic said my wife’s tires needed changing, and I could have said we will put it off because we couldn’t afford it.  How would I have felt if the police called one day and said my wife’s car blew a tire and was upside down in a ditch?  We couldn’t afford it now, but we bought them anyway.

It seems to me this $1 trillion bill is a total reform bill.  Can we ask the “Blue Dogs” what they are willing to live with and work with that number?  And if that works in the budget, we can expand.

I certainly don’t want to rewrite the bill, but what are the most important provisions?  What are the targets we can hit?

• Shouldn’t every American child have health insurance so they can grow up?
• Shouldn’t pregnant women have healthcare to deliver healthy babies?
• Shouldn’t preventative care and healthy lifestyles be promoted more, not only by government, but by insurance companies as well?
• Can the government institute a service sliding scale based on reported income, with the difference being shared by the government, the medical provider and the insurance company?

I’m hoping the lawmakers are able to think outside the box on this issue.  Partial reform is better than no reform.  Keep the pressure up.  Call your Congressional representatives.  Tell them to do something …