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City Hall

Study: ‘Fiscal cliff’ may cost Kansas 40,000 jobs, $2.75 billion GDP

December 13, 2012

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— Kansas could lose more than 40,000 jobs next year, most of them in the private sector, if no deal is reached to avert mandatory tax hikes and spending cuts to defense and other federal operations under the “fiscal cliff,” according to an economic analysis.

Regional Economic Models Inc., a provider of economic models used by federal and state agencies across the country, estimates that 35,000 of the up to 40,400 jobs it anticipates the state potentially losing would be from private workers.

If the tax cuts pushed by President George W. Bush are eliminated there could be less consumer spending, harming Kansas retailers, REMI projects. There also could be a big hit to health care because of lower Medicare reimbursement rates and budget cuts, and there could be other large-scale job losses for Kansas in professional service such as architecture and engineering that support capital investments and heavy manufacturing.

Scott Nystrom, associate economist with REMI, said the good news for Kansas and other Upper Midwest states is that they have more diversified economies, including agriculture. That makes them less vulnerable to changes in federal and consumer spending and more able to weather the fiscal cliff.

Still, REMI projects a gross domestic product loss topping $2.75 billion for Kansas should the nation go over the cliff.

Jeremy Hill, director of the Center for Economic Development and Business Research at Wichita State University, said the tax cuts would have the biggest impact on Kansas, but defense also could take a hit. Hawker Beechcraft, now in bankruptcy proceedings, is among the most vulnerable Kansas aerospace companies to possible cuts, Hill said.

The company declined comment on the potential impact of defense spending cuts on its business plan.

However, Hill noted that the nation’s light aerial attack fleet, which is more efficient and cost effective to maintain, is likely to benefit from defense cutbacks, and Hawker Beechcraft has a portion of that defense segment work.

At Spirit AeroSystems in Wichita the majority of the work is in commercial aviation, not defense. But Spirit still works on three significant defense programs, including building parts for Boeing on the Air Force refueling tanker as well as the Navy’s P-8A Poseidon Subhunter and the Marines CH-53K Heavylift Helicopter.

“While these are very high on the priority list, looming mechanical cuts to both defense and the FAA are of great concern, as they are to every aerospace company doing business in the defense and commercial aviation sectors,” said Spirit spokesman Ken Evans in an email.

The REMI numbers, posted this week on an interactive database on its website, allows states to look at the fiscal impact on their own state economies based on their differing industries, populations and other factors. The company’s regional economic model uses government data such as Bureau of Labor statistics, Bureau of Economic Analysis, and Census information.

The possibility of a fiscal cliff already has had a major impact on defense due to uncertainty, impacting jobs, investment and innovation, Evans said.

The Federal Funds Information for States, a joint service of the National Governors Association and the National Conference of State Legislatures, has estimated the potential impact of an across-the-board defense sequester in Kansas at $210.1 million, including $182.4 million in procurement contracts.

“If the sequestration part does act like a tipping point for a company’s viability, then the impact could be much worse for Kansas than what was modeled in the REMI estimate,” Hill said.

Spokeswoman Sherriene Jones-Sontag said Kansas Gov. Sam Brownback believes lawmakers in Washington will come to an agreement. She declined to specifically comment on the “hypotheticals” of REMI’s fiscal cliff economic analysis.

Kansas used REMI modeling last spring to evaluate the economic effects of last session’s tax policy, she said. State officials anticipate companies will add 22,900 new jobs in Kansas on top of normal growth next year — for which they credit the Legislature’s state income tax cuts and the exemption of the owners of 191,000 partnerships, sole proprietorships and other businesses from paying income taxes. Those projections, however, do not factor in a “fiscal cliff” scenario.

Comments

Richard Heckler 1 year, 3 months ago

How scary can the cliff possibly be? Not all that scary as the sensationalizing makes it I would bet. So I say congress go home go home. Let the new congress work it out. That's the smart approach.

Meanwhile let's take a look at the cliff... http://www.thenation.com/blog/171932/guide-going-cliff

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Richard Heckler 1 year, 3 months ago

What impact would the conversion to private accounts have on the national debt?

The government would have to borrow an additional $4 trillion over the next 20 years to make up the money that would be drained out of the system by private accounts.

Former President Bush and Congress racked up an average $793 billion deficit each year Bush was in office.

Social Security privatization would raise the size of the government’s deficit by another $300 billion per year for the next 20 years. This does not seem to bother Republicans, as long as they are in power.

In fact, by the time the second Bush left office, the national debt had grown to $12.1 trillion. Over half of that amount had been created by Bush’s tax cuts for the very wealthy.

Another 30% of the national debt had been created by the tax cuts for the wealthy under Presidents Reagan and George H.W. Bush.

Fully 81% of the national debt was created by just these three Republican Presidents.

Dollars and Sense

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Richard Heckler 1 year, 3 months ago

--- How would the rest of the U.S. economy be affected if the private accounts replaced the current system?

Put simply, moving to a system of private accounts would not only put retirement income at risk—it would likely put the entire economy at risk.

The current Social Security system generates powerful, economy-stimulating multiplier effects. This was part of its original intent. In the early 1930s, the vast majority of the elderly were poor. While they were working, they could not afford to both save for retirement and put food on the table, and most had no employer pension.

When Social Security began, elders spent every penny of that income. In turn, each dollar they spent was spent again by the people and businesses from whom they had bought things. In much the same way, every dollar that goes out in pensions today creates about 2.5 times as much total income. If the move to private accounts reduces elders’ spending levels, as almost all analysts predict, that reduction in spending will have an even larger impact on slowing economic growth.

The current Social Security system also reduces the income disparity between the rich and the poor. Private accounts would increase inequality—and increased inequality hinders economic growth.

The rapid increase in income inequality that occurred in the 1920s was one of the causes of the Great Depression. And the rapid increase in inequality under the Reagan and two Bush administrations was one of the causes of the current “Great Recession.”

Dollars and Sense

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Richard Heckler 1 year, 3 months ago

Opponents have taken two tracks to attack Social Security.

The first is to claim the system as it is will fail, and the second is to claim that privatization is a better way to provide for retirement security. The first claim was the favorite from 1935 to about 2001.Then the privatization claim became the vogue. Now the first is back on the table.

With corporations routinely defaulting on their pension promises, more and more workers must rely on their individual wealth to make up the difference. The stock market collapse at the turn of the millennium wiped out much of the financial wealth of middle class Americans, and the collapse of the housing bubble has wiped out much of their remaining wealth.

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Richard Heckler 1 year, 3 months ago

Have opponents actually lied to the public about Social Security?

Yes. Former President George W. Bush repeatedly claimed that those who put their money in private accounts would be “guaranteed a better return than they would receive from the current Social Security system.

But every sale of stock on the stock market includes the disclaimer: “the return on this investment is not guaranteed and may be negative” for good reason. During the 20th century, there were several periods lasting more than ten years when the return on stocks was negative.

After the Dow Jones stock index went down by over 75% between 1929 and 1933, the Dow did not return to its 1929 level until 1953. In claiming that the rate of return on a stock investment is guaranteed to be greater than the return on any other asset, Bush was lying.

If an investment-firm broker made this claim to his clients, he would be arrested and charged with stock fraud. Michael Milken went to jail for several years for making just this type of promise about financial investments.

Dollars and Sense

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Richard Heckler 1 year, 3 months ago

GOP walks away from the alleged Fiscal Cliff talks after discovering the GOP votes were not there to support the extreme right wing aka Koch/Cantor/Brownback/Wal-Mart/Fundamentalist Christian thinkers.

Democrat Party must break with Obama on Social Security/Medicare Cuts!

So the word for what is being proposed is “cut”—as in: President Obama and congressional Republicans are proposing to cut Social Security.

“This is a cut affecting every single beneficiary—widows, orphans, people with disabilities and many others. It is a cut which hurts the most those who are most vulnerable: the oldest of the old, those disabled at the youngest ages, and the poorest of the poor.

Perhaps fittingly, this will be done during the holiday season, when the American people are distracted,” says Nancy Altman, the founding co-director of the advocacy group Social Security Works. “They will cut Social Security not openly but by stealth—through a cruel cut known colloquially as the chained CPI.”

This is what Democrats—and most Republicans—said during the recently finished campaign that they would never do.

If Obama cuts the deal, he will, in the words of CREDO political director Becky Bond, be engaging in a “massive betrayal” of his own campaign commitments, and of the voters who reelected him barely a month ago.

The question is whether the president’s backers will back the betrayal.

The only responsible response is to say “No!”

The American Association of Retired People has does just that, rejecting the “chained-CPI” scheme as a “dramatic benefit cut would push thousands more into poverty and result in increased economic hardship for those trying desperately to keep up with rising prices.”

In this case, AARP speaks not just for seniors but for the vast majority of voters. Sixty percent of voters say it is unacceptable to change the way Social Security benefits are calculated so that benefits increase with inflation at a slower rate than they do now, according to a new Washington Post/ABC News poll.

Needless to say, those numbers put congressional Democrats and progressive interest groups in a bind. They can look the other way as President Obama cuts a deal that cuts Social Security, or they can do what the American people expect them to do: raise their voices in loud objection—so loud that the president has no choice except to keep his campaign promises.

For congressional Democrats, the stakes are much higher than they are for Obama. The president is done with elections. But the Democratic Party must compete in elections to come, and the fight that is now playing out will define whether they do so as defenders of Social Security or as a party that is always on the watch for ways to compromise with House Budget Committee chairman Paul Ryan and other Republicans who salivate at the prospect of weakening and eventually privatizing Social Security.

The Nation

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Richard Heckler 1 year, 4 months ago

What Fiscal Cliff? Ben Bernanke came up with "Fiscal Cliff' nonsense.

--- Fiscal Cliff... fact or radical GOP hoax from Ben Bernanke

Much information .... YOU decide http://www.motherjones.com/search/apachesolr_search/Fiscal%20Cliff

--- Killing Social Security Insurance Is Not An Option. http://www.dollarsandsense.org/archives/2010/0111orr.html

--- Killing Medicare Insurance is simply not an option. http://www.thenation.com/article/159769/paul-ryans-plan-destroy-medicare

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JayhawkFan1985 1 year, 4 months ago

The real fiscal cliff as far as the State of Kansas goes is described really well at: http://www.nytimes.com/interactive/2012/12/01/us/government-incentives.html?ref=us#KS

There is a giveaway to global corporations that is coming at the expense of Kansas kids in schools, Kansas commuters on highways that need to be improved, Kansas lakes and rivers that are polluted, etc...

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Richard Heckler 1 year, 4 months ago

Face it folks the GOP... not the Cliff is the largest threat to the USA.

What If There Is No Fiscal Crisis? —By David Corn| Thu Dec. 13, 2012 1:05 PM PST

If there is no fiscal crisis, can there be a fiscal cliff?

There is no fiscal crisis.

Bruce Bartlett, who was an economics official in the administrations of Presidents Ronald Reagan and George H.W. Bush, is a contributor to the New York Times' Economix blog, and in an important post a few days ago he delved into the Government Accountability Office's new estimates of the federal government’s long-term budget outlook. The bottom line: "The idea that we are facing a crisis is complete nonsense." Bartlett, by the way, considers himself a conservative, a reality-based conservative.

[S]pending is not out of control. Entitlement programs like Social Security and Medicare are rising gently as the baby-boom generation retires. All other spending, including that for the military and domestic discretionary programs, falls—with the notable exception of interest on the debt

In other words, the inability to raise revenue to diminish deficits—and tackle rising interest payments—is the major problem.

To be sure, some restraint is needed in federal entitlement programs…Spending for Social Security, in particular, is very stable. Relatively modest changes, such as raising the taxable earnings base slightly, would be sufficient to put the program on a sound footing virtually forever.

Bartlett chides Republicans for droning on and on that domestic discretionary spending is responsible for bloated government. But, he points out, "such programs have already been cut sharply by the Budget Control Act of 2011." He adds, "That leaves interest on the debt as the principal driver of long-term spending and deficits."

And if the Rs continue to resist raising revenues, he maintains, there will be higher spending for interest on the debt. (The interest line in that chart could even be much greater, if interest rates go up.)

Bartlett advocates letting all the George W. Bush tax cuts expire and all the automatic spending cuts kick in. He acknowledges that this might cause a short-term hit to the economy, but he argues that taming the deficits will lead to medium- and long-term growth. Whether that's the right policy solution or not—it does entail a difficult trade-off—it's at least based on data that reflects the real world.

His post, though, does make one thing clear: President Barack Obama (or anyone else) need not rush into a big deal at this moment. There is no imminent fiscal crisis regarding entitlements. The Republicans are merely hyping the matter to bolster their attempts to extract a ransom for either (a) extending the Bush tax cuts for the bottom 98 percent, or (b) acceding to a hike in the debt ceiling, which will soon reach its latest limit, or both.

The sky is not falling. It is not on fire. And the cliff may not be that frightening.

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patkindle 1 year, 4 months ago

it is all for the greater good and all apart of the grand plan besides no one cares about kansas, to few people to vote

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kippcolorado 1 year, 4 months ago

You people better learn that you can't sit on your asses in Lawrence and change your state for the better. That goes double for whoever the Kansas Democratic Party Chair is. The state of Kansas is an embarrassment, and KU is looking especially bad, speaking as a Lawrence native and KU alum. I won't even spend any money in the state now, much less contribute to anything KU. You do realize that your state is owned by the John Birch Society, don't you? When I was growing up in Lawrence these people were despised, now they're glorified in the Journal-World and by Rush Limbaugh. Be extremely ashamed.When is the Koch Brothers statue coming to campus?

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kippcolorado 1 year, 4 months ago

Are you Kansas people just deliberately ignorant, or is it that you didn't learn math well enough to understand that the Republicans you voted for are screwing you?

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rockchalk1977 1 year, 4 months ago

Revenue generated from "taxing the rich" will run the federal government for 8 days and the national debt will continue to grow out of control. http://usdebtclock.org/

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gccs14r 1 year, 4 months ago

People who say taxing the 1% won't do anything seem to not realize what the 99:1 split signifies. The 1% have 99% of the money. The 99% have 1% of the money. Of course raising taxes on the 1% will improve the balance sheet, and will do a lot more good than raising the taxes on the rest of us will. People who say, "But the 1% already pay most of the taxes", fail to realize that since they 1% has 99% of the money, they should pay 99% of the taxes. They're certainly getting more benefit from government services than the rest of us are, so they should pay for it.

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OonlyBonly 1 year, 4 months ago

Keyword? "MAY." Tell your president to start behaving as a President not a spoiled child who's not getting his way.

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Richard Heckler 1 year, 4 months ago

The Fiscal Cliff does not exist it is just more GOP useless terminology that the news media has latched on to....

Social Security,Medicare & Medicaid Are NOT Entitlements - Risky Loans ARE!

Social Security Insurance is paid for and is not an entitlement. Medicare is paid for and not an entitlement. Medicaid is necessary and not an entitlement. The word entitlement is used rather loosely in the beltway and Topeka.

What is en entitlement is reckless financing that has created havoc in millions upon millions of USA households. Yes reckless financing of home loans and the financing of large buyouts using a variety of avenues all of which has created much grief for Americans in our own USA.

How can republicans, bankers and regulators either be stupid or simply not give a damn?

YOU decide.

How did blue and white collar workers lose these millions upon millions of jobs?

It’s not the Unions! It's the really big big reckless financing over the past 33 years.

--- 1. Mergers = industry and jobs lost to other countries

--- 2. Hostile Takeovers = industry and jobs lost to other countries

--- 3. Leveraged Buyouts = industry and jobs lost to other countries

--- 4. Free Trade Agreements = industry and jobs lost to other countries

--- 5. Reagan/Bush Savings and Loan home loan scandal which killed the economy and cost the USA millions of jobs. = industry and jobs lost to other countries

--- 6. Bush/Cheney Home Loan scandal killed the economy and cost the USA millions of jobs = industry and jobs lost to other countries

--- 7. Bush tax cuts

All of above ultimately translate into millions upon millions upon millions of blue and white collar USA job losses in some cases to dictatorships. Big time layoffs are the end result. These jobs go abroad with tax codes that prevent taxation on profits made abroad from USA big name corporations.

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just_another_bozo_on_this_bus 1 year, 4 months ago

There is no "fiscal cliff."

The predicted drastic effects of the sequester would only happen if Congress and Obama fail to do anything in the several months following the so-called "cliff" at the beginning of next year.

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donttreadonme 1 year, 4 months ago

I suspect the main opposition to higher income tax rates is driven by the millionaire pundits, radio hosts, and talking heads, and they are not "job creators".

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donttreadonme 1 year, 4 months ago

"Gotland whines... Taxing the "one percent" will not make a dent our debt and it will have a negative effect on the other 99%. "

Right. Because raising the marginal tax rate 4% on income above $250K will cause them to take their marbles and go home.

Here's a clue, it won't affect jobs at all because the vast majority of small business owners make less then $250K, and the personal income tax rate does not apply to corporations (which is where most of the jobs are anyway).

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Gotland 1 year, 4 months ago

Taxing the "one percent" will not make a dent our debt and it will have a negative effect on the other 99%.

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disappointed_regressive 1 year, 4 months ago

Study: ‘Fiscal cliff’ may cost Kansas 40,000 jobs, $2.75 billion GDP

No problemo. That crowd will conveniently blame it all on Governor Brownback and the GOP in Topeka.

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Steven Gaudreau 1 year, 4 months ago

Since I'm not a 1-2% I'm all for taxing them higher but demanding budget cuts from Obama is not an unreasonable request either. Both sides are to blame.

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Richard Heckler 1 year, 4 months ago

Republicans blew $47 million dollars and created no new jobs or industry. Meet supply side economics.

Worker's taxes siphoned off by their bosses Thursday, April 26, 2012 | Posted by Jim Hightower

Where is the $47 million tax dollars that belong to Kansas taxpayers?

My congratulations to workers in 16 states – from Maine to Georgia, New Jersey to Colorado! Many of you will be thrilled to know that the income taxes deducted from your paychecks each month are going to a very worthy cause: your corporate boss.

Good Jobs First, a non-profit, non-partisan research center, has analyzed state programs meant to create jobs, but instead have created some $700 million a year in corporate welfare. This scam starts with the normal practice of corporations withholding from each employee's monthly check the state income taxes their workers owe.

But rather than remitting this money to pay for state services, these 16 states simply allow the corporations to keep the tax payments for themselves! Adding to the funkiness of taxation-by-corporation, the bosses don't even have to tell workers that the company is siphoning off their state taxes for its own fun and profit.

These heists are rationalized in the name of "job creation," but that's a hoax, too. They're really just bribes the states pay to get corporations to move existing jobs from one state to another, or they're hostage payments to corporations that demand the public's money – or else they'll move their jobs out of state.

Last year, Kansas used workers' withholding taxes to bribe AMC Entertainment with a $47 million payment to move its headquarters from downtown Kansas City, Missouri, to a KC suburb on the Kansas side, just 10 miles away. What a ripoff!

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Richard Heckler 1 year, 4 months ago

Leaving the tax cuts for the 99% is a good thing. Let's do that for a change.

The 1%-2% have been receiving cuts for 33 years and where are the jobs? The Communist Chinese government is certainly happy with millions upon millions upon millions of USA jobs that somehow arrived there.

The 1%-2% have been making bundles of money sending jobs away. Mitt Romney and friends were doing it during the most recent election period . That tool is known as the leveraged buyout.

--- "Mitt Romney Made Millions from the Rescue of Detroit" as 25,000 GM jobs went to China.

--- " Investigative reports reveal how Republican presidential nominee Mitt Romney made some $15 million on the auto bailout and that three of Romney’s top donors made more than $4 billion for their hedge funds from the bailout.

--- As part of a massive government bailout, U.S. taxpayers paid $12 billion to save auto parts maker Delphi Corporation. Out of that taxpayer money, three billionaires and their partners took in a profit of over $4 billion. One big winner, with a profit of over 4,000 percent, were the billionaires’ silent partners, Ann and Mitt Romney. The Romneys made at least $15 million, and as much as $115 million.

Leaving the tax cuts for the 99% is a good thing. Let's do that for a change. The 99% spend more money in America than do the !%-2%. The 99% is the economic engine that drives the USA economy thus creates the jobs in the USA.

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msezdsit 1 year, 4 months ago

I wonder how many people, regardless of political persuasion, realize that the cuts that are proposed by either side will result in the loss of jobs. When in a economic downturn, it is a bad time to try to repay our debt. We can certainly work in that direction and certainly make some strides towards relieving our debt but jobs will be lost.

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