The (nonpartisan) Concord Coalition projects debt to be over 100% of US economy

Followers of my blog know I am a broken record on doing something about the US debt and deficit. Below is a copy of a piece entitled “New CBO Report Projects Much Larger Debt Under Plausible Assumptions” by Joshua Gordon that was forwarded by The Concord Coalition.

“In a follow-up to the new Congressional Budget Office (CBO) baseline projections, the CBO released a report last week analyzing the effect that select policy alternatives would have on budget deficits and federal debt. CBO also produced an ‘alternative scenario’ that combines some of these different policy assumptions to create what we view as a more plausible budget baseline because it better reflects current policy rather than a strict application of current law.

The alternative scenario makes two major changes to the official baseline; one on the spending side and the other on the revenue side.

On spending, the main difference is that in making their baseline the CBO convention is to assume that discretionary spending — the spending on defense and non-defense programs controlled by the annual appropriations process — will increase only to keep pace with inflation when there are no existing spending caps in place (the caps were eliminated in the August budget deal). The alternative scenario assumes higher discretionary spending over the next ten years such that it remains constant as a share of the economy (6.3 percent of GDP) compared to the baseline’s assumption where spending drops to 5.6 percent of GDP by 2029. It’s a plausible assumption given the August budget deal and the fact that discretionary spending has never dropped below 6 percent of GDP.

The revenue difference between the alternative scenario and the baseline is the assumption that a future Congress and President will extend a number of different tax policies that are currently scheduled to expire. For example, the alternative scenario assumes that the major individual income tax provisions of the 2017 Tax Cut and Jobs Act that are currently scheduled to expire after 2025, will be extended. In addition, the alternative assumes further delays in taxes created by the Affordable Care Act that have been extended over-and-over again by Congress. Assuming that this behavior with regard to tax policy continues creates a more plausible revenue scenario.

The differences in assumptions leads to outlays being about $1 trillion higher and revenues $1.7 trillion lower over the 2020-2029 period. As a result, debt would grow from 79 percent of GDP to 104 percent in 2029, surpassing 100 percent of GDP in 2028 for the first time since immediately after World War II (1946). The debt in 2029 would be 8.8 percentage points of GDP higher than in the baseline. Deficits over the 10-year period would average 1 percent of GDP higher than in the baseline (5.7 percent instead of 4.7 percent).

While the numbers are sobering, nothing in the CBO’s report is groundbreaking. Instead, it should serve as a reminder that under current law the budget situation is getting worse and is unsustainable over the long term. And that even assumptions made about current law are likely too optimistic — because policymakers’ current policy preferences will tend to make things worse.”

We are at over $22 trillion in debt with the annual deficit for the fiscal year ending this month to be just beneath $1 trillion on an annual revenue base of about $3.4 trillion. In other words, we will be spending about $4.4 trillion this year.

This problem cannot be solved with just spending cuts nor can it be solved with just tax increases. The math will not work. We must have both. Please ask politicians what they plan to do about this ticking time bomb. If they give poor answers, do not vote for them. We must have a plan and the plan cannot be making the debt worse as has been done with the 2017 tax cut and recent spending bills.

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And the band played on – letter to the editor

My local newspaper printed my letter to the editor based on the theme of a recent post. Please feel free to adapt and use it, if you agree with the concept.

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I feel like citing the song lyric “and the band played on” in reference to elected leaders ignoring problems which will only get worse. On climate change, environmental degradation, increasing US debt, aging infrastructure, and insufficient gun governance, we have ticking time bombs. The kids get what is needed on climate change, environment and guns. But, debt and infrastructure must also be dealt with. And, not addressing the former makes the latter harder.

These are the questions we must be asking our politicians. If they are evasive or give poor answers, do not vote for them. We don’t need a wall. We need safe bridges and railways.

 

We should pay attention when people sound alarms at their own peril

It fascinates me when an old post starts getting some attention. Right now, one called “Who is Paul O’Neill and why should his opinions matter?” is getting a few looks (a link is below). In essence, O’Neill was fired as Secretary of the Treasury for voicing an opinion the President did not like.

What did he say, you ask? He said he was concerned about the debt and felt the Bush Tax Cuts were unneeded. This is after Bill Clinton handed a surplus budget to the younger Bush. It should be noted the debt is now 5 times larger.

Recently, the well respected Director of National Intelligence Dan Coats resigned under pressure as he told the inconvenient truth about Russian influence and its continuation. Like O’Neill, this clarion call should be heeded. Like with General James Mattis’ resignation last December, Coats departure is giving GOP Senators pause, yet they refuse to act.

Back in late 2007, a Texas financial analyst noticed that people who could “fog a mirror,” were getting huge mortgage loans on properties that seemed to be over-inflated in value. He did his homework and was able to get a meeting with the CFO of Bear Stearns. He told the CFO he thought Bear Stearns was over-extended with risk and was going to to go under.The CFO thanked him and the guy uttered these parting words – well, I am going to bet against you. Within the year, Bear Stearns was bought for a very discounted price before it went under.

Colin Kaepernick is a good NFL quarterback, but he has been blackballed from the league after calling attention to the unequal rights and treatment of Blacks in America. His civil protest was hyper-politicized by a hyper-political president, so he was blackballed, a term which seems apt. Yet, we have a difference in how Blacks are treated. Even further, our society is more economically unequal than it has ever been, with haves owning much greater shares. A society cannot withstand such differentiation for too long. Kaepernick’s protest should be heeded not condemned. His protest is far more emblematic of American values than a flag or anthem ever could be.

Those who are giving clarion calls should be given due consideration. There are financial analysts who have cautioned against Brexit from the outset. Those concerns have fallen on too many deaf ears. Their corollary message is even more dire – do not leave the EU without a deal. That is beyond poor stewardship. It matters not what the current PM says. Yet, if it does happen, it is only fitting that Mr. Johnson is the one trying to deal with the fallout.

Before I close, let me go back to someone who is similar to the Texas man who tried to forewarn Bear Stearns. The movie “The Big Short” highlighted one person of several who saw the housing recession coming. When his concerns fell on deaf ears, he had them create a product to pay off if he was right.  The industry laughed at him until a couple of years later they realized he was right. His clients made a fortune. The movie ends by telling us what this man is now investing in – water. While it does not get much play here, we have a global water crisis which rivals climate change as a concern. He saw it coming.

https://musingsofanoldfart.wordpress.com/2013/03/20/who-is-paul-oneill-and-why-should-his-opinions-matter/

Perception matters more than reality to the US president

Our friend Jill has written an excellent post on “Trumponomics 101” (a link is provided below). What I opined in a comment is Trump is more about perception than reality. Here are a few examples:

– he beats his chest on his trade and tariff decisions, but they have dampened the global economy, of which we are a key part, as well as certain US industries.

– he left the Trans Pacific Partnership which was designed to compete better with China on trade (note the other ten countries proceeded without us).

– he claims being tough on immigration and terror, but his travel ban and reduction in legal immigration are dilutive to our economy (note legal immigration has fallen as well).

– he touts his tax law, but it borrowed from our future to make a pretty good economy a little better for eighteen months or so.

Focusing on another tax cut to lessen the impact of the slowing growth is malfeasance, as was the first tax cut in December, 2017. And, lowering interest rates won’t push a lot of investment as businesses are concerned by the chaos caused by Trump.

So, Trump is worried about the market and economy retrenching from its growth not recognizing the headwinds he created. Note, for brevity I did not speak to other headwinds – not investing more in renewables, infrastructure, healthcare, etc.

Yet, the biggest perception he painted to his followers before the election was the US economy was in trouble citing the unemployment rate at 30%, then 40% then 42%. The reality is the unemployment rate was beneath 5% and we were in an economic growth period of 90 consecutive months (7 1/2 years) which continues to this day. He convinced his followers that he alone helped turn the economy around, which was doing pretty good.

Reality does matter. And, you won’t get a lot of that from Trump, who had a faux reality TV show.

Trumponomics 101

Melania Trump, thank you for the invitation, but no thanks

Yesterday, I received a letter from First Lady Melania Trump and the Republican National Committee asking for donations for her husband’s campaign. The letter espoused all of the good things which have occurred under the president and all the bad that would happen should he not win in 2020. Since a pre-addressed envelope was enclosed, I sent the following letter.

August 14, 2019

Republican National Committee
c/o Melania Trump
PO Box 96994
Washington, DC 20090-6994

Dear Ms. Trump,

Thank you for your service to your country. I received your invitation to support your husband’s campaign for 2020 and I must respectfully decline. As an Independent and former Republican voter, I must confess I see your husband’s presidency differently from what you noted in the letter.

While I am pleased the economic growth that was almost eight years strong has continued under his presidency, we are at least dialoguing with North Korea and a bipartisan law was passed to push prison and sentencing reform, I am concerned with several other policy positions and his overall behavior as president.

On the policy side, I am very concerned with the our building debt and the US decision to pull out of the Paris Climate Change Accord as well as unwinding several regulations that make it easier for companies to degrade our environment. I am also concerned with treating our allies and trading partners so poorly. We are retrenching from our leadership position and we are less trusted by other world leaders. That is unfortunate as we are diminishing a major strength of our country. We cannot shrink to greatness.

On the behavior side, it is frustrating that our president consistently dishonors the office he holds. Our president must be one of our better angels, not our worst. We need our president to be truthful and not denigrate and bully people who disagree with his positions. And, we must not have our president spouting racist and xenophobic comments. Country leaders from Sweden, UK, Ireland, Scotland, Germany, New Zealand , eg condemned his recent remarks.

Please encourage your husband to become the leader we need him to be. Right now, he is just a person occupying a leadership position. We need more from him than that. If he is not prepared to make such changes, I would ask the Republican Party to find a replacement candidate. I am concerned for our democracy and our planet. It frightens me to have to say these words.

Please forgive my candor. You are the best thing he has going for him, so maybe you can encourage some change. Thank you again for your service and doing your best to bring honor to the First Lady role.

Keith Wilson
Charlotte, Independent Voter

 

Unsurprising news

The Associated Press reported today the US deficit for the first ten months of the 2018-19 fiscal year has increased by 27% over last year’s ten month deficit. The $867 billion deficit is in line to pass $1 trillion for the year ending September 30, 2019.

This is not a surprise as the tax law passed in December, 2017 is projected to increase the debt by $1.5 trillion over the next ten years. That is on top of the expected increase without change of $10 trillion. And, to make matters worse two spending bills in 2018 and 2019 have increased spending, with the latter increase yet to be felt.

Expenses are up 8% and revenue is up only 3% with such a good economy. As mentioned before, we should be paying down the debt in good times, but the tax bill reduced the revenue from where it would have been.

Politicians, including this president, have an unhealthy focus on short term results. The long term impact can be blamed on future politicians, in their minds. We have a ticking time bomb, where our $22 trillion debt will be closer to $35 trillion in ten years sans change.

Some poor president and Congress will have to step up to solve this problem. And, they will unfairly get blamed.  It will take both spending cuts and tax increases to get us there. And, to show how frustrating harmful action is, a Senator from Florida yesterday said we need a tax cut to spur the economy with the pending recession – really? More debt is the answer?

We need fiscal stewardship and leadership. We are not getting it from these incumbents. And, that is a dereliction in duty.

 

A plea for progressive Democrat voters

The following plea is made by an Independent voter who has been a member of both parties. I am fiscally conservative and socially progressive. I am an advocate for the disenfranchised, environment and debt education. What all this means is I believe in helping people climb ladders, equal opportunity and rights, protecting our environment, but recognizing we have to pay for things.

My plea for progressive Democrat voters is as follows: If someone

  • cares about our global reputation and trade,
  • cares about good healthcare options,
  • cares about fighting climate change,
  • cares about protecting the environment and bee pollinators,
  • cares about our growing debt problem made worse by this president,
  • cares about civil rights and liberties for all,
  • cares about common decency,
  • cares about data-driven analysis, and
  • knows that our economy has been growing for over 120 months, only 30 of which have been under this president,

then please vote for Donald Trump’s opponent.

But. you must vote and not phone it in. Trump won in 2016 because he got people who were not crazy about Hillary to stay home or vote for Jill Flynn.

As for the Democrats – beating Trump truly is the major consideration. He is a clear and present danger to our democracy, our planet and even his own party. Please do not nominate a candidate that will not appeal to moderate Dems and Independents. Trump should not win this election if Dems do this. He can win if he continues to resonate with his race baiting and fear mongering of perceived evils of socialism and Dems nominate a George McGovern or Walter Mondale like candidate (please research how they did in the general election).

I am writing this to any progressive readers. We cannot be stupid about this election. Trump is beatable, but he can also win. Watergate was all about making sure Nixon ran against McGovern and not Edmund Muskie and getting dirt on McGovern once they got Muskie to drop out of the race (please research Nixon’s dirty tricks and Muskie’s tears of anger). Trump is more corrupt than Nixon, per conservative writer George Will – I agree. He will do everything in his power to lie, cheat and bully. Take that to the bank.

Finally, a note to all Democrat candidates – get every fact you can correct. Trump uses facts and truth as commodities – sparingly and only when they help him. But, even then he is prone to embellish his own role in good news. Fact-checkers have reported all candidates fudge the truth, but they also show no one comes close to Trump’s rate of lying. Do not be like that. Argue facts, diplomatically and forcefully. And, if anyone or group promotes violence in reaction to the hateful rhetoric, be quick to condemn it. Violence has no place in political discourse.