The Collapse of the U.S. Economy

Midnight in the Food-Stamp Economy

December 30, 2009

Reuters - At 11 p.m. on the last day of the month, shoppers flock to the nearest Walmart. They load their carts with food and household items and wait for the midnight hour. That's when food stamp credits are loaded on their electronic benefits transfer cards.

"Once the clock strikes midnight and EBT cards are charged, you can see our results start to tick up," says Tom Schoewe, Wal-Mart Stores Inc's chief financial officer.

As food stamps become an increasingly common currency in a struggling U.S. economy, they are dictating changes in how even the biggest retailers do business.

From Costco to Wal-Mart, store chains are rethinking years of strategy as they watch prized customers lose jobs and turn to this benefit, the stigma of which is disappearing not just in society, but in corporate America.

Besides staffing up for the spike in shoppers on the first day of the month, retailers are adjusting when and what they stock, updating point-of-sale systems to accept food stamps and shifting expansion plans to focus on lower-income shoppers.

As of September, a record of more than 37 million people were enrolled for the government benefit, federal officials told Reuters, an increase of nearly 35 percent since the U.S. slid into recession at the end of 2007.

An estimated one in eight Americans depends on the benefit to buy food. With the nation's unemployment in double digits, more people are expected to enroll. By some government estimates, up to 16 million people who are not receiving food stamps today could qualify.

What's more, unemployed Americans are finding that it takes longer and longer to get work. This suggests that food stamps will play a bigger role over the next few years, not just for people, but for stores in need of customers, according to interviews with retail executives, economists, federal and state officials and benefit recipients.

"It is a very important and increasingly important source of revenue for the ... supermarkets and stores that have been approved across the country to process those benefits," Kevin Concannon, U.S. undersecretary of agriculture, said in an interview this month.

Stores have little choice but to respond. And they are.

In the fiscal year that ended in September, 193,753 U.S. retailers accepted food stamps, 17 percent more than the same period two years earlier.

"For some chains... it's 10 to 12 percent of their revenues," Concannon said. "Depending on how poor the area may be, it may even be higher."

Tellingly, electronic benefits transfer (EBT) transactions processed by retailers jumped 53 percent this year on a same-store sales basis on Black Friday, the kickoff to the U.S. holiday shopping season, payments processor First Data told Reuters.

EBT includes food stamps and other government benefits like temporary cash assistance for needy families and food assistance for new and expecting mothers...

Most food stamp recipients subsist on earnings below the poverty line -- roughly $22,000 annually for a family of four -- and many new users are from the ranks of the working poor...

Eighty-five percent of food stamp benefits are redeemed at grocery and warehouse stores, and the program means serious business for such retailers.

Nearly $55 billion in food stamps may be redeemed this year, up from about $37 billion in 2008 and $31 billion in 2007, according to The Nilson Report.

The USDA expects to have more than $64 billion to spend on food stamp benefits in fiscal 2010, including nearly $6 billion in anticipated stimulus money, up 14 percent from fiscal 2009...

Technology is one reason the food-stamp stigma is fading. While recipients once announced their status by pulling out bulky coupon books at the checkout counter, today's users are far less noticeable. Benefits from the food stamp program, now known as the Supplemental Nutrition Assistance Program (SNAP), and other types of government financial assistance are loaded onto EBT cards that can be swiped to make a payment, just like a debit or credit card.

According to J.P. Morgan which administers EBT programs for more than 20 states, 85 percent of food stamps are depleted within the first three days they are available...

There are currently 1.25 million households receiving food stamp benefits in California, and 1.22 million households in Texas, according to the USDA. As of 2007, the latest year of available data, only half of eligible individuals in those states were enrolled to receive the benefits.

Many Californians are intimidated by the application process or do not realize they are eligible, keeping food stamp usage far below where it should be, said Alameda County Community Food Bank spokesman Brian Higgins.

Calls to his food bank, across the bay from San Francisco, for emergency food help have surged.

"In our first 13 years, we only went over 1,500 (phone calls) in one month twice," he said. "We've gone over 3,000 (phone calls) for the fourth month in a row and the numbers are going up."

The food bank, which runs a food stamp outreach program, tells callers that they might qualify for the benefit...

U.S. Congress Raises Debt Ceiling to USD 12.4 Trillion

December 25, 2009

Zee News - The Senate voted Thursday to raise the ceiling on the government debt to $12.4 trillion, a massive increase over the current limit and a political problem that President Barack Obama has promised to address next year.

The Senate’s rare Christmas Eve vote, 60-39, follows House passage last week and raises the debt ceiling by $290 billion. The vote split mainly down party lines, with Democrats voting to raise the limit and Republicans voting against doing so. There was one defection on each side, by senators whose seats will be on the ballot next year: GOP Sen. George Voinovich of Ohio and Democratic Sen. Evan Bayh of Indiana.

The bill permits the Treasury Department to issue enough bonds to fund the government’s operations and programs until mid-February. The Senate will vote again on the issue January 20...

Unemployment Funds Going ‘Absolutely Broke’

40 state programs to be emptied by the jobless tsunami within two years

December 22, 2009

Washington Post - The recession's jobless toll is draining unemployment-compensation funds so fast that according to federal projections, 40 state programs will go broke within two years and need $90 billion in loans to keep issuing the benefit checks.

The shortfalls are putting pressure on governments to either raise taxes or shrink the aid payments.

Debates over the state benefit programs have erupted in South Carolina, Nevada, Kansas, Vermont and Indiana. And the budget gaps are expected to spread and become more acute in the coming year, compelling legislators in many states to reconsider their operations.

Currently, 25 states have run out of unemployment money and have borrowed $24 billion from the federal government to cover the gaps. By 2011, according to Department of Labor estimates, 40 state funds will have been emptied by the jobless tsunami.

Give-and-take

The Indiana legislation protected the aid checks, Niezgodski said, but it came after a give-and-take this spring in which Gov. Mitchell E. Daniels Jr. (R) said the state had been providing "Rolls-Royce benefits" and several thousand union workers countered by protesting proposed cuts at the state capitol. In January, the legislature is slated to consider a bill to delay the proposed tax increases intended to refill the fund.

In Nevada, Gov. Jim Gibbons (R) and legislators have feuded over the unemployment program, which is $85 million in debt to the federal government, with Gibbons accusing the legislature of "callous disregard" for not setting a tax rate.

And last week, a state task force in Kentucky recommended cutting benefits about 9 percent and imposing a week's delay in their payment. The average benefit check there is about $309 a week. The task force also proposed raising taxes.

Two choices

State unemployment-compensation funds are separated from general budgets, so when there is a shortfall, only two primary solutions are typically considered -- either cut the benefit or raise the payroll tax.

Industry and business groups often lobby against raising the payroll tax on employers, while unions and other worker groups protest benefit cuts.

Nationally, the average tax is about 0.6 percent of payroll; the average weekly check is about $300.

Not prepared

The troubles the state programs face can be traced to a failure during the economic boom to properly prepare for a downturn, experts said.

Unemployment benefits are funded by the payroll tax on employers that is collected at a rate that is supposed to keep the funds solvent. Firms that fire lots of people are supposed to pay higher rates. The federal government pays for administrative costs, and in a recession, it pays for the extension of unemployment benefits beyond 26 weeks. But over the years, the drive to minimize state taxes on employers has reduced the funds to unsustainable levels...

In Virginia, the unemployment program has borrowed $89 million from the federal government, while Maryland has not borrowed, according to the federal data.

Wayne Vroman, an expert in unemployment insurance at the Urban Institute, said that entering the recession, state programs were on average funded at only one-third the level they should have been, according to generally accepted funding guidelines.

"If you fund a program adequately, you don't need to come to these kinds of difficult decisions," he said.

Before the recession, he said, the funding guidelines "were rarely honored."

While the amount of the states' loans from the federal government is expected to grow rapidly, it is not expected to add to the federal debt.

"In the past, the federal government has always gotten its money back," Vroman said.

Struggling to fill the gap

In the meantime, however, more states are struggling to fill the gap. West Virginia imposed a freeze on benefit levels this year, and legislators in South Carolina are considering one.

"We've obviously got problems with the fund," said South Carolina House Majority Leader Kenny Bingham (R), blaming the trouble in part on the state's unemployment rate of more than 12 percent.

The state owes about $654 million to the federal government for unemployment payments.

"We're not trying to cut benefits," he said. But "if you jack rates up, those business that are struggling to hang on, you make things more difficult."

Federal Workers Owe More Than $3 Billion in Back Taxes

December 15, 2009

AP - Federal workers owed the government more than $3 billion in back income taxes in 2008, just as federal tax revenues started to suffer from the recession.

More than 276,000 federal employees and retirees owed back income taxes as of Sept. 30, 2008, according to data from the Internal Revenue Service. The $3.04 billion owed was up from $2.7 billion owed by federal employees and retirees in 2007.

Among cabinet agencies, the Department of Housing and Urban Development had the highest delinquency rate, at just over 4 percent. The Treasury Department, which includes the IRS, had the lowest delinquency rate, at 0.98 percent.

Overall, the 9.7 million federal workers included in the data had a delinquency rate of about 2.9 percent.

"It's not right for a few to shirk their obligations, and it's especially offensive that these tax delinquencies come from federal employees and contractors," said Sen. Chuck Grassley of Iowa, the top Republican on the Senate Finance Committee.

The IRS doesn't provide a comparable delinquency rate for income taxes paid by the public. The nation's overall compliance rate, which includes taxes paid by small businesses and corporations, has hovered around 85 percent for decades, according to IRS statistics.

Most residents who owe back income taxes file returns but cannot pay the full amount at tax time, said IRS spokesman Anthony Burke. Others have their tax bills increased through audits and cannot pay the higher bill.

The statistics on federal employees do not include those who are on payment plans. The IRS doesn't publicize the data, but makes it available upon request. The data was first reported by Washington radio station WTOP.

The recession has put a big dent in federal tax receipts. Individual income tax receipts for the fiscal year that ended in September were down about 20 percent from the year before.