Continue reading »]]> December 12, 2011

Supreme Court to Weigh Arizona Statute on Immigration

The New York Times: By ADAM LIPTAK

WASHINGTON — In the space of a month, the Supreme Court has thrust itself into the center of American political life, agreeing to hear three major cases that could help determine which party controls the House of Representatives and whether President Obama wins a second term.

The court announced Monday that it would decide whether Arizona was entitled to impose tough anti-immigration measures over the Obama administration’s objections. The case joined a crowded docket that already included challenges to Mr. Obama’s signature legislative achievement, the 2010 health care overhaul law, and a momentous case on how Texas will conduct its elections.

The Texas case, which on Friday the court agreed to hear, could cause as many as four seats in the United States House of Representatives to change party control.

“It’s not just that these are big cases, but these are big cases that echo in the political arena,” said Nathaniel Persily, a professor of law and political science at Columbia University. “There is now a judicial forum for airing these political disputes.”

Arizona enacted its immigration law last year, and the Obama administration promptly sued to block four parts of it, saying they could not be reconciled with federal laws and policies.

The challenged provisions include a requirement that state law enforcement officials determine the immigration status of anyone they stop or arrest if officials have reason to believe that the individual might be an illegal immigrant. That provision also requires that the immigration status of people who are arrested be determined before they are released.

The law also makes it a crime under state law for immigrants to fail to register under a federal law and for illegal immigrants to work or to try find work. In addition, it allows the police to arrest people without warrants if they have probable cause to believe that they have done things that would make them deportable under federal law.

The United States Court of Appeals for the Ninth Circuit, in San Francisco, blocked all four provisions.

Applauding the Supreme Court’s decision to review that ruling, Gov. Jan Brewer, a Republican, was harshly critical of the administration.

“I was stunned at the audacity of the Obama administration to file suit against an individual state seeking to safeguard its people,” Ms. Brewer said in a statement. “That shock turned to outrage as the federal government proceeded to file suit against three more states — South Carolina, Alabama and now Utah — that followed Arizona’s lead.”

The health care and immigration decisions are likely to land in June, in the heat of the presidential campaign.

The court must act much faster in the Texas case, where its decision on Friday to stay the use of a set of election maps, created by federal judges, has thrown election planning there into disarray. Political observers believe that the new maps would increase the influence of Hispanic voters and thereby increase the number of Democrats in the House.

The court’s precedents point both ways in the health care case, and it is hard to say what the outcome will be. In the Arizona and Texas cases, recent decisions suggest that a majority of justices may look favorably on the positions of state officials, which would entail upholding the Arizona immigration law and rejecting at least a part of the court-drawn maps in Texas.

In May, the court upheld a different Arizona law, one that imposed harsh penalties on businesses that employed illegal immigrants. In a 2009 decision, Chief Justice John G. Roberts Jr., writing for the majority, expressed skepticism about the continuing vitality of a part of the Voting Rights Act of 1965 that the court in Texas relied on in substituting its own maps for ones drawn by the Legislature.

Legal scholars and court historians struggled to think of another recent Supreme Court term in a presidential election year with a similar pileup of cases with sharp political and societal consequences. The political impact of the term’s rulings may, moreover, be amplified by the court’s decision last year in Citizens United, which unleashed unlimited campaign spending by corporations and unions.

Some experts pointed to 1992, which featured a major abortion ruling and other big decisions. But the current term may be most reminiscent of the showdown between the Supreme Court and President Franklin D. Roosevelt in 1936, when the court struck down major pieces of New Deal legislation as well as a New York law establishing a minimum wage for women and children.

“There was a whole series of blockbuster cases, each with massive political implications and economic consequences for the country,” said Jeff Shesol, the author of “Supreme Power: Franklin Roosevelt vs. the Supreme Court.” That description sounds rather like the current term.

There is a great deal of happenstance in the shaping of a Supreme Court docket, and the fact that several cases arrived at the court at once does not necessarily suggest an agenda. The last term was lackluster; this one is lively.

“In most of these cases, it’s a coincidence of timing,” said Justin Driver, a law professor at the University of Texas.

The justices had little choice, for instance, in agreeing to hear a challenge to the health care law, as federal appeals courts were divided over its constitutionality and the Obama administration joined its opponents in urging the court to act quickly. But the Supreme Court did not have to signal that the case was a once-in-a-generation blockbuster by scheduling an extraordinary five and half hours of arguments.

The court had more options in deciding how to act on a request from officials in Texas in the redistricting dispute. The court could have stayed out of the matter, effectively endorsing the maps that favored Democrats, which were drawn by a special three-judge court in San Antonio that ignored a separate set of maps drawn by the Republican-dominated Legislature.

The Supreme Court could have sent the case back to the special court, directing it to give more deference to the Legislature’s maps. Or the justices could have jumped in feet first. They took the boldest route.

It was, similarly, not a sure thing that the justices would accept the Arizona case, which was one of several cases in the federal pipeline involving tough state anti-immigration laws. Lower courts had not issued a final ruling on the Arizona law, giving the justices plausible reasons to wait. Instead, they chose to weigh in on one of the most combustible issues in American politics.

Supreme Court decisions routinely have political consequences, of course, sometimes quite direct ones. In 2000, 11 years to the day before the court agreed to hear the Arizona case, the court effectively decided a presidential election, in Bush v. Gore.

Putting that case to one side (as the court has, never citing it), court watchers have to go back two decades, at least, to think of Supreme Court terms as politically consequential as the current one.

Eric J. Segall, a law professor at Georgia State University, pointed to the term that ended in June 1992, which included major cases raising fundamental issues of abortion, freedom of speech, freedom of religion and school desegregation. The most important of those decisions was Planned Parenthood v. Casey, which reaffirmed the core of the right to abortion established by Roe v. Wade.

In the new crop of cases, too, the court may yet avoid creating political earthquakes.

“I would not be surprised at all if they are looking at Solomonic ways to avoid trouble in an election year,” Barry Friedman, a law professor at New York University, said of the justices.

Continue reading »]]> December 11, 2011 Reno Gazette Journal Nevada voting boundaries a done deal 11:55 a.m. update: CARSON CITY (AP) — Voting boundaries that will influence Nevada politics for the next decade are a done deal after months of posturing and punts, with political power shifting to populous Las Vegas at the expense of rural areas.

Democrats, who have a 65,000 voter
registration edge statewide, also have an
advantage in the maps that redraw
Nevada’s 21 Senate and 42 Assembly
districts, and carve out a fourth a
Congressional seat. 

Carson City District Judge James Todd
Russell entered his final order Thursday,
officially adopting effective dates for the
maps drawn by a panel of court-appointed
special masters. 

Two plans approved by Democrats during
the legislative session were vetoed by
Republican Gov. Brian Sandoval. Sandoval
refused to call a special session to tackle
the issue, tossing the political hot potato to
Russell. 

“I don’t get the sense that anybody got
rolled in this effort unfairly,” said Robert
Uithoven, a Republican strategist. 

Some rural legislators and other political
 analysts disagree. Republicans “gained
nothing and the rurals got thrown under the
bus,” said Assembly Minority Leader Pete
Goicoechea, R-Eureka. 

“The rural interests are the ones that
probably did the worse in this process,”
said Eric Herzik, political scientist at the
University of Nevada, Reno. “And so the
Republican governor, by going to the
courts, actually hurt the most Republican
base in the state.” 

The so-called cow county lawmakers “went
from an area where they had some
bargaining power to an arena where they
didn’t, Herzik said. 

During the political jostling in the
Legislature, Republicans were adamant
that at least one of Nevada’s Congressional
District have a majority of Hispanics to
reflect that population groups surge over
the past 10 years. Latinos now make up a
fourth of Nevada’s population. 

Democrats called that “packing,” and said 

 it would dilute the overall political Hispanic
influence. 

In his veto message, Sandoval, a former
federal judge, said the maps drawn by
Democrats violated the Voting Rights Act
and amounted to partisan gerrymandering. 

Ultimately the special masters determined
federal law doesn’t require a “minority-
majority” Hispanic district in Nevada, a
finding Russell adopted. 

Northern Nevada’s 2nd Congressional
District held by Mark Amodei remains solid
Republican territory, while the 1st District
in the south stays a Democratic stronghold. 

Democrats have a sizeable advantage in a
new 4th Congressional District, while the
3rd District currently held by Republican
Rep. Joe Heck has a slight Democratic
edge. 

In the state Assembly, Democrats currently
hold a 26-16 majority. Under the new
maps, 25 districts have clear Democratic
leanings, based on voter registration
numbers used to realign the boundaries.
Eleven seats appear solid GOP territory
and six are competitive. 

Assembly Democrats would need to hold
on to the seats they have and gain two
more to command a supermajority needed
to approve tax and fee increase. 

“The Assembly will still be very difficult for
the Republicans to capture over the next
10 years,” Uithoven said, adding he
 thought chances were “very good” the GOP
could pick up a majority in the Senate
along the way. 

Senate Democrats have a narrow 11-10
edge over Republicans. Under the new
maps, 12 districts favor Democrats, six
favor Republicans and four could be
considered close. 

The GOP has their sights on two seats held
by Democratic Sens. Shirley Breeden and
Allison Copening, who benefited in 2008
from the buzz and momentum that
propelled President Barack Obama into
office. 

“There could be the reverse of that this
time around,” Uithoven said. “A lot can
happen between now and November.” 

Rural Republicans, however, are feeling
slighted. 

Where maps drawn by legislative
Democrats took one seat, District 3, from
Washoe County surrounding Reno and 

 shifted it to Clark County — home to about
70 percent of the state’s population — the
special masters retained that district at the
expense of rural areas. District 3, once
held by powerful former Sen. Bill Raggio,
R-Reno, is now held by Sen. Greg Brower,
a Republican appointed when Raggio
retired. But the new boundaries make it
competitive and target for Democrats. 

Goicoechea said in hindsight he thinks the
GOP could have struck a better deal for
rural concerns with Democrats in the
Legislature than what the court masters
decided. 

“I know we could have negotiated a better
package for the rurals,” said Goicoechea,
who last week announced his intent to run
for the state Senate in District 19 — an
area that spans roughly 500 miles from the
Idaho to the California line in southern
Nevada. 

“I think there would be a number of
legislators who would have negotiated if
they thought this was going to be the
outcome.” 

Assemblyman Tick Segerblom, D-Las
Vegas, said he was disappointed
lawmakers couldn’t come to agreement
during the session. 

“The maps are what they are and we’re
going to live with them,” said Segerblom,
chairman of the Assembly committee that
handled reapportionment.

Continue reading »]]> Nevada Policy Research Institute, A three part series follows:
A repellant for tyrants: Part I
Why the constitutional separation of powers is important

Joseph Becker

Tuesday, October 18, 2011

Most liberty advocates are quite familiar with Lord Acton’s proclamation that “Power tends to corrupt, and absolute power corrupts, absolutely.” And though America’s founders pre-dated Lord Acton, this concept was not lost on them when they considered the separation of powers.

“There can be no liberty where the legislative and executive powers are united in the same person, or body of magistrates,” wrote James Madison in Federalist 47, quoting Montesquieu. “Or,” Madison continued, still quoting, “if the power of judging be not separated from the legislative and executive powers….”

From NPRI’s Center for Justice and Constitutional LitigationIndeed, Montesquieu, writes political scientist Donald Lutz, was the most frequently quoted authority on government and politics in colonial pre-revolutionary British America — cited by the American founders more than any source except the Bible.

Constitutional scholar George W. Carey of Georgetown University — a noted expert in U.S. political theory — argues that the separation of powers is, in many respects, the most important of our constitutional principles, and beyond question, the most misunderstood.

According to Carey, most students of the American system have accepted the proposition that “separation of powers was intentionally fused into our system to thwart majority rule in one way or another.” He takes great exception to this notion, believing instead that the Framers “infused” the separation of powers into the U.S. Constitution as a safeguard against tyranny.

A review of the Framers’ writings substantiates this.

“The accumulation of all powers, legislative, executive, and judiciary,” wrote Madison, “in the same hands, whether of one, a few, or many, and whether hereditary, self-appointed, or elective, may justly be pronounced the very definition of tyranny.”

“No political truth is certainly of greater intrinsic value, or is stamped with the authority of more enlightened patrons of liberty,” he asserted.

Thomas Jefferson, too, agreed that the concentration of powers leads to despotism.

Jefferson openly criticized the Virginia Constitution of 1776 precisely because the powers of government were concentrated, rather than separated. Both of Jefferson’s written drafts of the Virginia Constitution (1776 and 1783) contained specific provisions for the separation of powers.

There is more than this circumstantial evidence that Jefferson saw a link between the concentration of powers and despotism. When “all the power of government, legislative, executive, and judiciary, result to the legislative body,” he wrote, “the concentrating of these in the same hands is precisely the definition of despotic government.”

“It will be no alleviation that these powers will be exercised by a plurality of hands and not by a single one. One hundred and seventy-three despots would surely be as oppressive as one.”

This quote of Jefferson raises two points warranting further discussion. First, concentration of power in the legislature was thought, at the time, to be extremely likely but particularly dangerous. As such, the Framers followed a policy of weakening the strong (Congress) and strengthening the weak (the President and the Court), a policy that, today, is labeled “checks and balances.” For example, as part of the strengthening process, they gave the President a qualified veto and provided judges with life tenure during good behavior. To weaken Congress, they divided it.

The goal, in sum, was to minimize the threat of tyranny and avoid arbitrary and capricious rule by government.

Second, and just as important, Jefferson thought the danger of concentrated power would be just as dangerous even if a “plurality of hands” exercised those powers. Imagine the danger Jefferson would have foreseen if, as we often see today in Nevada, the same “hands” (connected to the same body) were occupying posts in more than one branch simultaneously.

It warrants serious concern when the same individual occupies governmental posts in more than one branch of government. Historically, other circumventions of the separation-of-powers doctrine have also resulted in dangerously tyrannical, arbitrary and capricious actions by government.

Newspaperman Frank E. Gannet identified one such attempt in a scathing open letter issued in February of 1937, criticizing President Franklin D. Roosevelt’s failed court-packing scheme. When the high Court repeatedly struck down New Deal legislation as unconstitutional (an important check), Roosevelt attempted to circumvent the separation of powers by threatening to place six additional justices (more of his liking and political ilk) on the high Court. If Roosevelt’s scheme had been successful, the new court majority would have thus blurred the lines between not just two but all three branches.

Another dangerous circumvention that gave huge new powers to the executive branch was the creation of administrative agencies — providing ample evidence of the imminent dangers to liberty produced when rulemaking (legislative), enforcement (executive) and administrative-law judging (judicial) entities all operate under one federal department’s politically appointed secretary.

This advent of “expert”-led administrative agencies, in the wake of the Progressive Era, has meant not only a vast expansion of the federal government, but also a significant increase in its arbitrary and capricious actions.

Joseph Becker is chief legal officer and director of the Center for Justice and Constitutional Litigation at the Nevada Policy Research Institute. For more visit http://justice.npri.org/ and http://npri.org.

Read more:

A repellant for tyrants: Part II
Flouting the separation-of-powers principle breeds autocracy and bureaucratic metastasis

Joseph Becker

Wednesday, October 26, 2011

When state governments ignore the separation-of-powers doctrine, the consequences can be dire.

By way of quick review: The separation-of-powers principle provides that those entrusted with duties and powers in either the judicial, executive or legislative branch of a government are not permitted — except in limited and highly specific instances — to exercise the functions or powers of the other branches.

In America’s federal constitution, the separation-of-powers provisions are inherent and are nowhere mandated upon the states. Nevertheless, many states have expressly embodied these tenets.

In the Silver State, the authors of its constitution did so even more tenaciously than most states. Article 3, Section 1 of the Nevada Constitution reads, “…no persons charged with the exercise of powers properly belonging to one of these departments [legislative, executive, and judicial] shall exercise any functions appertaining to either of the others.” [Emphasis added]

On the national level, the potentially dire consequences of disregarding the separation-of-powers principles are easily seen when government’s war power is the issue.

The preamble to the U.S. Constitution notes that “maintaining the common defence” [sic] was one of the core justifications for forming a national government. At the same time, however, the Framers deployed the separation-of-powers principle to ensure that the war-making ability of the new national government was closely guarded.

“In deciding which branch of government should hold the power of war,” notes Louis Fisher, scholar of the U.S. Constitution at the Library of Congress, “the Framers … studied the British monarchical model, which concentrated the war power in the executive, and they wholly rejected it. Instead, they agreed that the authority to take the country from a state of peace to a state of war must be vested in Congress.”

John Jay wrote to that same point in Federalist No. 4:

… absolute monarchs will often make war when their nations are to get nothing by it, but for purposes and objects merely personal, such as a thirst for military glory, revenge for personal affronts, ambition, or private compacts to aggrandize or support their particular families or partisans. These and a variety of other motives, which affect only the mind of the sovereign, often lead him to engage in wars not sanctified by justice or by the voice and interests of his people.

Until 1950, in America, the Framers’ plan was highly respected. All wars, big and small, were either declared or authorized by Congress. No president claimed that he alone could order the country to war. Unfortunately, this principle has been largely ignored since World War II.

Then, notes Fisher, things changed dramatically “when President Harry Truman took the country to war in Korea without ever going to Congress for authority.

“He argued that he had obtained ‘authority’ from the United Nations Security Council. Years later, President George H.W. Bush would point to the Security Council for his ‘authority’ to order a war against Iraq, and President Bill Clinton would resort to the same argument when sending military force against the Serbs and threatening to invade Haiti.”

Fisher goes on to write that in focusing on “convenience and short-term results … the long-term health of constitutional government has suffered. No one can plausibly contend that the president, as commander in chief, and the Senate, as confirmer of treaties, may eliminate the role of the House of Representatives in matters of war.”

Eliminating the House in the process blatantly violates not only the separation of powers but the sovereignty that is placed in the people and their representatives.

While treaties (along with the U.S. Constitution) are the “supreme law of the land,” treaties entered into unconstitutionally (for example, delegating to international entities non-delegable powers) are not bona fide treaties and thus do not enjoy this “supremacy.”

Congress has also gone far astray, ignoring the separation-of-powers principle, in its creation of administrative agencies — agencies that legislate through “rulemaking,” execute through the enforcement of the rules they create, and adjudicate through administrative law judges.

Such bogus “administrative branches” report to merely their own unelected federal department secretaries. Even were rulemaking a power that Congress could constitutionally delegate, Congress moved well off the constitutional map in “delegating” not only its own legislative powers, but also powers that were never those of Congress in the first place!

The result today is that legions of American citizens are subjected to federal agencies inventing regulations that bear only the loosest relationship to congressional directives. Say what you will about members of Congress — at least, for them, re-election is still key. The power of voters to un-elect them in fairly short order (especially in the House) creates a significant check on the extent to which they will do the totally abhorrent.

Citizens in the clutches of federal administrative agencies have no such comparable check. Agencies’ enforcement and adjudication of these rules are administered by employees of these same departments, perhaps even in the next cubicle.

Not surprisingly, this particular abandonment of separation-of-powers principles fostered a bureaucratic expansion of the federal government — the likes of which had never been seen in the long series of years preceding the creation of these rulemaking administrative agencies.

Joseph Becker is chief legal officer and director of the Center for Justice and Constitutional Litigation at the Nevada Policy Research Institute. For more visit http://justice.npri.org/ and http://www.npri.org/.

Read more:

A repellant for tyrants: Part III
Ignoring Nevada’s separation-of-powers clause has led to constitutional mayhem

Joseph Becker

Tuesday, November 22, 2011

When state governments ignore the separation-of-powers provisions in their state constitutions, bad things happen.

The separation-of-powers doctrine provides that government officials entrusted with duties and powers in either the judicial, executive or legislative branch of government are prohibited from exercising powers or interfering with those exercising powers in the other branches.

In the federal constitution, the separation of powers is implicit in its structure. And although it does not mandate the doctrine upon the states, most states have embodied its tenets and have done so expressly.

Nevada has done so even more tenaciously than most states. Article 3, Section 1, of Nevada’s constitution says, “no persons charged with the exercise of powers properly belonging to one of these departments [legislative, executive, and judicial] shall exercise any functions appertaining to either of the others.” (Emphasis added)

The United States’ constitution limited the federal government’s sphere of power and influence to only those few powers enumerated within the document, and the lion’s share of governmental activity remained with the states under the Tenth Amendment. For this reason, the separation-of-powers principle at the state level is every bit as vital as at the federal level.

In Nevada, the last decade has seen multiple examples of constitutional mayhem arise because deference to the separation-of-powers doctrine is no longer standard operating procedure. In fact, two examples litter today’s headlines.

One example is the congressional redistricting fiasco in which Nevada’s executive and legislative branches ended up in a standoff over who “loved Hispanics more.” Unable to reach a compromise, the legislative branch, with the complicity of the governor, unconstitutionally delegated its role to the judiciary.

Because of population changes relative to other states, as enumerated in the 2010 U.S. Census, Nevada was awarded an additional congressional seat in the U.S. House. Under Article 4, Section 5, of the Nevada Constitution, the responsibility to draw congressional districts lies with the Nevada Legislature. Although lawmakers passed two redistricting plans, the governor vetoed both of them.

Constitutionally, this leaves only two choices for the Legislature — either pass a bill which the governor will sign or muster the support necessary for two-thirds votes in the Assembly and Senate to override the gubernatorial veto. If this cannot be done, the third constitutional option is for the governor to use his constitutional authority to call the Legislature into special session until they hammer something out that either he will not veto or the Legislature can override.

This, of course, did not happen. Instead, these two branches punted to the First District Court, which appointed, at taxpayers’ expense, a panel of “special masters” to usurp the duties of the Legislature. Then the secretary of state appealed to the Supreme Court, charging the district court judge had “impermissibly abdicated” his duty to rule on key legal issues by appointing the special masters. Whereupon the Supreme Court approved the district court’s — and the special masters’ — usurpation.

Thus, if there’s a legal challenge to the redistricting map, it will be appealed to … whom? Why, the Nevada Supreme Court, of course — the very same governmental entity that facilitated the very plan whose constitutionality is being challenged.

Fair hearing for the challenger? You be the judge.

The second separation-of-powers debacle currently making headlines in Nevada is the Foreclosure Mediation Program, brainchild of the 2009 Nevada Legislature. Not surprisingly, the program is once again being challenged in state court.

For starters, it is important to understand that the Foreclosure Mediation Program attempts to legitimize the unconstitutional taking of private property. The legislature’s imposition of a duty (upon the court, no less) to renegotiate mortgages between parties to an already existing private contract, for some public benefit, violates the Takings Clauses of both the U.S. and Nevada constitutions.

Making matters decidedly worse and violating the all-important separation-of-powers clause in the process was the Nevada Legislature’s imposition of the responsibility for executing this constitutionally infirm mischief upon the judicial branch, rather than the executive branch. The court’s proper role is to adjudicate actual cases or controversies between real and adverse parties — not those invented or conjured up through legislative malfeasance.

So, because the Legislature ignored the separation-of-powers clause in 2009, the same individuals who were consulted to assist with crafting the original law, who implemented the program from its outset, who promote the program on their website, who boast regarding the number of Nevadans helped by the program, and who collect fees for the program’s administration, are constitutionally charged with the role of impartial adjudicators of the program’s constitutionality!

Even though it is the state’s high court that should hear this case, it is not difficult to see that the Supreme Court justices, by abandoning the separation-of-powers principles in 2009, have created for themselves a significant conflict of interest and must now recuse themselves from hearing the very case over which they should pass judgment.

Of course, there’s even more fun to be had in the separation-of-powers arena by going back only seven years to a time when now-U.S. Senator Dean Heller was secretary of state and now-Governor Brian Sandoval was attorney general.

Frustrated by a Nevada Assembly and Senate occupied by state employees voting themselves pay raises during their four-month stint in Carson City, then-secretary Heller brought a suit challenging the constitutionality of this practice. After all, as cited above, the Nevada Constitution reads that “no person charged with the exercise of powers properly belonging to one of these departments [legislative, executive, and judicial] shall exercise any functions appertaining to either of the others.” (Emphasis added)

Nevertheless, in a twist of jurisprudential irony, the Nevada Supreme Court dodged this political hot potato by invoking a separation-of-powers principle.

The justices denied standing to Heller’s challenge, holding that under the separation-of-powers clause itself, only the Legislature has the right to decide who may properly sit in its chambers.

For the court to so determine would, said the justices, violate the very separation-of-powers provision in the Nevada Constitution that Heller had implored the court to invoke.

Joseph Becker is chief legal officer and director of the Center for Justice and Constitutional Litigation at the Nevada Policy Research Institute. For more visit http://justice.npri.org and http://npri.org.

You can find this online at: http://www.npri.org/publications/a-repellant-for-tyrants-part-i

7130 Placid St.
Las Vegas, NV 89119

Tel (702) 222-0642
Fax (702) 227-0927
E-mail office at npri.org

Continue reading »]]> Moneynews
Another Danger Sign: US Debt Eclipses Economic Output
Monday, November 21, 2011 06:24 PM

By: Forrest Jones

The United States has joined the rogues gallery of nations whose debt has exceeded its annual economic output, or gross domestic product (GDP).

The U.S. national debt has broken $15.033 trillion, higher than the $15.032 trillion gross domestic product, meaning as of now, the country’s debts are higher than its annual output, according to usdebtclock.org, citing government data.

That’s serious, says Gennaro Bernile, a professor of finance at the University of Miami.

“The message is very simple: the minute that the debt becomes as large as GDP, GDP has to start growing more than the interest that the U.S. pays in order to keep up with the debt.”

That’s just to break even and assuming the U.S. doesn’t get dragged back into another recession.

“If the debt and the GDP are at the same level, and with the debt you have to pay interest at 1 percent, that means that next year the growth in GDP has to be at least 1 percent to keep just with the interest payments,” Bernile adds.

Like in Europe, U.S. policymakers must decide what steps to take to reduce debt burdens, as tough austerity measures often lead to reduced government, and reduced government leads to reduced public-sector payrolls, and that means less tax revenues going back into the Treasury.

“The big debate is how do you reconcile shrinking the government with not killing the economy, because the government is a big chunk of the economy, and if you shrink the government you shrink the economy,” Bernile says.

Other experts point out that should debt exceed GDP due to a cyclical dip in the economy, don’t worry about the sky falling.

But when debt exceeds GDP due to structural reasons, such as not matching spending with revenue, then the situation will get dicey.

“If it’s structural, that’s a problem,” says Steve Blitz, an economist at ITG Investment Research.

“If the economy is growing faster than the government is paying for that debt, then what will happen over time is that debt will just shrink relative to GDP as long as the budget deficit is going down. You get into trouble when you have an enlarged and growing structural budget deficit, and that comes from a misalignment of taxes and entitlements, and that is a problem.”

The country did enter the recession running structural deficits thanks in part to the Bush tax cuts, increased military spending and changes to Medicaid prescription policies, Blitz says.

“You ramp up your spending, you cut your taxes and as a result you created what you would call a structural deficit.”

But there is a way out, at least for the United States.

Spending will decline on its own as President Obama’s stimulus programs wear away and people return to work, military campaigns in the Middle East wind down while a better economy results in higher tax revenue.

Furthermore, the interest paid on U.S. debts are very low, and as the economy expands, growth will exceed the rate of interest paid on the debt.

“As a result, that will also work to bring down the debt-to-GDP ratio,” Blitz says.

“The problem you have in Italy and Greece is that they are paying interest on their debt that is way above the rate of growth of their economies.”

The U.S. shouldn’t get complacent, though.

“Are we in that situation today? No we are not. Can we get there? Yes.”

Medical costs are rising, and so are pensions even in private corporations, but political leaders spend more time politicizing the issue.

“It would really be nice if people in Washington began to act like adults,” Blitz says

“This is an economy-wide problem, it’s not a Republican problem, it’s not a Democrat problem, it’s not a liberal problem or a conservative problem. It is an issue that the U.S. economy faces.”

Others point out the country is spending too much but add it’s not too late for the U.S. to work its way out of its hole.

“I do not think this is a no-win situation. I do think it is reversible. The biggest problem is we need to act now. We can’t sit around and wait for the economy to get better. We have to be fiscally responsible,” says economist and author Mark Skousen.

“What it takes is leadership, and we don’t have leadership.”

That means leadership is lacking at the White House, Skousen adds.

It also means the country needs a simplified tax code.

Take the Bush tax cuts — they weren’t permanent but should have been.

Plus the tax code is confusing and hard to manage.

“I always point to Hong Kong as the best example. Hong Kong has had the same tax code for 50 years. It’s basically a progressive tax code with a maximum of 16 percent to 18 percent on individuals and businesses. We need that kind of tax planning,” Skousen says.

Some argue that the government needs to raise taxes to help narrow deficits, which almost always means tax hikes.

That doesn’t work either, Skousen says, adding that raising taxes will only encourage more spending.

“If you raise taxes it means they have more leeway to spend more money,” Skousen says, referring to policymakers, who almost always ask how much revenue is coming in when planning budgets.

“You let them off the hook.”

A Super Committee made up of 12 lawmakers, six Democrats and six Republicans, has been working on a plan to cut at least $1.2 trillion from the country’s deficits, but has failed.

“After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline,” the panel’s co-chairs, Republican Representative Jeb Hensarling and Democratic Senator Patty Murray, said in a statement on Nov. 21, CNBC reports.

Market watchers say they weren’t surprised.

“These days it’s pretty hard to have confidence in the political side of things,” says Rick Bensignor, chief market strategist at Merlin Securities in New York, CNBC adds.

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