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.

Fiddling with Tinkertoys

George Will, a long-time conservative voice, penned an editorial called “Trade war shows the reality of ‘America First’ in action” that should be required reading. Three quotes from the article will give the gist of his concerns. The title of this post will reveal itself in the final quote.

“The Wall Street Journal reports that US farmers are purchasing fewer farm machines – (John) Deere’s profits from this business are down 24% from a year ago – partly because farmers’ incomes have suffered as a result of the tit-for-tat trade spat that Trump started with China…Some good news for John Deere might be ominous news for US farmers: Equipment sales to Brazil and Argentina are up, perhaps partly because China has increased purchases from those nations’ farmers, who are American farmers’ competitors.”

“The Financial Times recalls that ‘hundreds of US companies and trade associations said in a joint communique in June that the proposed duties would cause the loss of two million jobs and reduce US economic output by 1%.’ ….Hence, Trump’s tariffs make US goods more expensive, thereby dampening US consumer activity.”

The final quote contrasts the up and down tariffs to a similar fiddling in 1937-38 which caused a “recession within (the) Depression.” During that period, capital went on strike flinching from the unknown. Will notes the similarity to Trump’s trade war, “They fiddle with global supply chains, as though the world economy is a Tinkertoy that they can pull apart and reassemble with impunity.”

In short, when the supply and sales chains  are unsettled, companies find other avenues. Using the first quote as an example, China started buying product from farmers in other countries like Brazil and Argentina while “cancelling the purchase of almost 500,000 metric tons of soybeans from US farmers.”

Tariffs are unwieldy tools that have much greater consequences than intended. Using a tennis analogy, they are an unforced error. The tariffs have forced companies to find other options. And, when the tariffs are waived at some point, it is hard to put those Tinkertoys back in the same slots.

Credit risk appraiser Moody’s buys a firm that assesses climate change risk

Even for those not very familiar with Moody’s, this headline speaks volumes about the impact of the risk of climate change on our country and planet. In a July 24, 2019 article in The New York Times by Christopher Flavelle called “Moody’s Buys Climate Data Firm, Signaling New Scrutiny of Climate Risks,” the company that measures credit risks for bond investors in companies, cities, counties, states and countries, has added to its expertise. Per Flavelle’s article

“Moody’s Corporation has purchased a controlling stake in a firm that measures the physical risks of climate change, the latest indication that global warming can threaten the creditworthiness of governments and companies around the world.

The rating agency bought a majority share in Four Twenty Seven, a California-based company that measures a range of hazards, including extreme rainfall, hurricanes, heat stress and sea level rise, and tracks their impact on 2,000 companies and 196 countries. In the US, the data covers 761 cities and more than 3,000 counties.

‘We are taking these risks very seriously,’ said Myriam Durand, global head of assessments at Moody’s Investor Service, who said the purchase would allow its credit analysts to be more precise in their review of climate-related risks. ‘You can’t mitigate what you don’t understand.’

Sudden shocks such as floods, wildfires, or storms can hurt businesses and send residents fleeing, taking away the tax revenue that government s use to pay debts. And, longer term threats – such as rising seas or higher temperatures – can make those places less desirable to live in, hurting property values and, in turn, the amount raised by taxes.”

To illustrate this risk, the same day I read a reprint of this article in The Charlotte Observer, the local paper ran a story on the town of Fair Bluff, NC which has been flooded twice in that past four years due to Hurricanes Matthew and Florence which lingered over their area. Sitting near the Lumber River, the citizens of Fair Bluff saw the river rise well beyond flood range. The previous flood of this magnitude occurred 90 years before. Sadly, the population and business is declining due to rebuilding costs. As a result, so is the tax revenue to provide services.

There is a huge financial impact of climate change on the lives and business of people and communities. Rebuilding a town that may continue to be in harms way adds to the risk and some people are choosing to relocate. And, It is not just small towns. Houston has had two major floods over the past five years, as well. Houston has felt on a larger scale what Fair Bluff has felt. Not only do the rains of the Hurricane sit over them, the rivers upstate overfill and flow toward the sea. This causes extra flooding.

So, Moody’s is improving their ability to assess repayment risk to bondholders. A city that has rebuilt or prepared poorly is at greater risk of flight of people, businesses and tax dollars. What should also be alarming to American citizens is while Moody’s is taking forward thinking action, the US government is stripping climate change reports from their websites and demoting, transferring or running off Ph.Ds who are expert in measuring and addressing climate change. In short, we are throwing away a technical advantage that could help the US and the world.

Repeating what Ms. Durand said above, “You can’t mitigate what you don’t understand.”  So, please ask all politicians what they plan to do about climate change including the US president. And, a question for those who still buy the hoax stuff, why is Moody’s spending all of that money on a hoax?

 

Weariness and Frankness

This independent voter is weary of people not addressing the obvious and rationalizing actions and behaviors that are less productive. Having been a member of both parties, a Democrat for about ten years of my early adult life and about twenty years as a Republican, I define myself as fiscally conservative and socially progressive. Both parties have some good ideas, while both have some bad ones.

So, let me be frank with my opinions, built off this foundation.

Democrats can defeat Trump, but they can also lose to him. Please study why George McGovern and Walter Mondale got shellacked in 1972 and 1984 and why Michael Dukakis and John Kerry lost in 1988 and 2004. It is not ironic that winning candidates Bill Clinton and Barack Obama were more moderate Democrats. Democrats cannot beat Trump without Independents and some Republicans. They could start by working now to address shoring up the ACA as they committed to do in the mid-terms and not waiting until 2021. Medicare for All is worth the discussion, but we need to address issues today, especially after the healthcare fiasco the GOP went through in 2017.

With that said, people need to look under the hood as to why more progressive Democrats have a few socialistic ideas. We should not ignore that the US economy is fettered capitalism with some socialist underpinnings. On the top end down, we have rules that govern collusion, monopolies, interlocking boards, insider trading, bankruptcy, etc. and on the bottom end up, we have socialistic programs that offer Social Security, Medicare, Medicaid, Workers Comp, and unemployment protections. Yet, the reason for their focus is America has a widened disparity between the haves and have nots. The key is to have a good debate as to how we address this disparity, not name-call ideas to win elections. Plus, this discussion must be done in the context of our huge debt and deficit problem (see below).

Seeing a dozen Oregon Republican state lawmakers leave the state to avoid voting for a Carbon Cap and Trade bill should be a clarion call. Cap and Trade used to be a GOP idea, but fossil fuel funders told them not to like it. We are facing a climate change crisis and voters must ask what candidates are going to do about climate change. Let me emphasize I left the GOP twelve years ago in large part due to its stance on climate change. Fortunately, climate change action is not waiting on head-in-the-sand politicians, but could be leveraged by more federal help.

My concerns are exacerbated as not only did the US president announce our withdrawal from the Paris Climate Change Accord, he asked the G20 this week to soften language on climate change. It should be noted this is in contrast to his businessman stance, where a few years ago Trump staff requested in writing the Scottish government give them permission to build a sea wall at one of his golf courses to hold back the rising seas due to climate change. The word you are looking for his hypocrisy. The other words are fossil-fuel funding.

An issue not being discussed is rising US debt and deficit. Both parties are to blame. Nonpartisan groups and the Simpson-Bowles Deficit Reduction Committee clearly state this problem cannot be solved with just spending cuts and tax increases – it must have both, as the math will not otherwise work. These groups also note the GOP tax cut in December, 2017 was imprudent. But, Democrat candidates speaking of tax increases to pay for new social programs are being imprudent, as well. We need tax increases and spending cuts to pay for the poor stewardship of their predecessors.

When America forgets its ideals, we become just another country. I hear we must be a nation of laws, but we are treating migrants like chattel and not following due legal process. There is a reason so many attorneys are volunteering their services to migrants. If we are concerned about illegal immigrants, punishing companies that hire them would limit the economic slavery that goes on every day. Yet, we should also recognize that these folks are doing many jobs Americans don’t want. So, a thoughtful, humane and fact-based solution is warranted rather than a political one. Both parties are to blame, but I hold this president to account for making a recurring problem much worse with his words and actions. He reneged on a bipartisan agreement sixteen months ago and the House never took up a bipartisan Senate bill passed in 2013.

Finally, if we are to be a nation of laws, we should be gravely concerned the country is being run like a mafia family. The White House incumbent is clearly making money off the presidency and favoring countries where he sees business growth for his empire. It greatly troubles me that is daughter and son-in-law are serving unvetted and unapproved roles in the White House, because the president values loyalty over competence and experience. Then, comes the lying, bullying and denigration of critics, allies, media, public servants, etc. I have long been concerned over his setting policy off his lies be it climate change, voter fraud, Russian influence, Saudi prince innocence, Iran nuclear deal, the ACA, environmental pollution, and so on.

There is so much more I could write about. We need Americans to pay attention to better news sources, question things, and push back on politicians asking what they intend to do about issues. We need Congress to remember their job of governance. I feel this president is a clear and present danger to our democracy, our planet and even the Republican party. We are a Republic, not a kingdom and certainly not a mafia-ruled domain.

Tuesday’s gone with the wind -redux

Please hum one of my favorite Lynyrd Skynyrd songs, “Tuesday’s Gone,” as you read a few miscellaneous thoughts this Tuesday. In no particular order:

– Most news agencies are purposefully not mentioning rhe killer’s name in Virginia Beach. I did hear the killer was a pleasant fellow by all accounts. This rebuts the comment about the good guy with a gun stoppng the bad guy – how do you know?

– Why must every issue or small thing be contentious? This president wears me out and has increased stress levels around the country. Please Mr. Trump stop commenting on so many topics. Please stop picking fights when they are not needed.

– And, the press needs to focus less on the many pedestrian faux pas of the president and more on the bigger issues like tariffs and trade, retrenching from our global position, climate change, environmental degradation, ignoring debt, and ongoing obstruction of justice and diminishing our democratic institutions. Coverage of the small stuff dilutes the impact of the large stuff.

– The middle part of our country is hurting with the flooding from these frequent behemoth storms that slowly move across the country. Plus, it is impacting farmers at the very time they must decide what to plant, which is influenced by the tariff issues.

– Finally, speaking of tariffs, political comedian Bill Maher noted on his show on Friday that Democrats should start calling tariffs what they are – a tax. He said they should be referred to as a “Trump Tax,”

That is all I have for this Tuesday. “Tuesday’s gone with the the wind. My baby’s gone with the wind.”

A specific deficit problem – Social Security and Medicare

While we have an annual US deficit approaching $1 trillion on budgeted revenue around $3.4 trillion, nothing much is being done about it or our current debt of $22 trillion. A tangible subset of this problem includes Social Security and Medicare, which were reported yesterday by trustees to run out of money in the near future – Medicare by 2026 and Social Security by 2035.

A nonpartisan group called The Concord Coalition, who tracks and reports on our debt and deficit issues, offered the following statement.

“Today the trustees once again warn that Medicare and Social Security are not on sound financial ground,” said Robert L. Bixby, Concord’s executive director. “Sudden and substantial benefit cuts await beneficiaries in less than 20 years — well within the lifetimes of many current beneficiaries — if lawmakers fail to act. Any ‘political leader’ worthy of that title, including those out on the 2020 campaign trial, should make it a priority to find solutions that are both fiscally and generationally responsible.”

Bixby added: “The trustees’ warnings seem all the more alarming because the country is not in a position of current or projected fiscal strength. Delaying reforms, however, would simply exaggerate the generational inequities of reform. For example, the trustees say it would now take an immediate and permanent benefit cut of 17 percent to keep the Social Security trust fund solvent for 75 years. Waiting until 2035 to take action would increase that benefit cut to 23 percent.”

As a retired actuary, I have written before about a few ideas, not limited to the following:

– increase the Social Security taxable wage base to above $180,000 drawing more FICA taxes from employees and employers;

– reduce Medicare retirement age to 62 and use ACA funding for that group to shore up (it will help the risk pools of both groups);

– limit cost of living increases on Social Security benefits along with measured changes to select Medicare benefits;

– increase judiciously FICA taxes to shore up shortfalls (Medicare Part A is currently 1.45% and Social Security is 6.2% up to the taxable wage base of roughly $128,000). Medicare Part B premiums change annually.

Please encourage your legislators to act now on these issues. Bixby’s caution is a good one. As we age as a country, it will only add pressure. Also ask candidates what they propose. Do not let them off the hook with a non-answer. Deferring action has been the norm.

Hey Dems, focus on these four issues

One of this Independent voter’s frustrations with politics, which is exacerbated by this President, is pressing issues are not getting discussed. And, some are made worse or are sabotaged by the current White House incumbent as we are told to focus our attention on issues he has overstated in importance or sold on fear.

While there are many issues, it is hard to boil the ocean. So, my advice to all politicians, but especially the Democrats who are pushing these ideas, is to narrow the focus to the following four issues.

– Stabilize the healthcare system and have a good debate on Medicare for All, which is a hard sell. The GOP has failed to realize that a reason they lost the House is not listening to most Americans, instead sabotaging the ACA reneging on commitments to insurers and trying to repeal it. As a retired benefits actuary, consultant and manager. I would suggest an idea to stabilize the ACA is to expand Medicare to retirees at age 60 or 62 and measure the impact for its veracity. But, we need to start by paying insurers what we committed to them.

– Climate change is real, is happening and is man-influenced. AOC is dramatizing a little about the end of the world, but the data point she is citing is if we do not make huge strides by 2030 (12 years), our ability to stop the warming trend impact is minimal. She has been ridiculed for he Green New Deal by the GOP, but I would rather discuss her plan than Senator Marco Rubio ignoring the fact the largest city in Florida is the most at risk city on the planet and is seeing a larger number of sunny days flooding from the rising tides. Who is the crazier person, the one speaking to a problem or the one ignoring it altogether?

– Job retraining is key, but we need to understand the major reasons the jobs are going away are technology/ robotics and CEOs chasing cheap labor. It is not immigration or trade, which are down the list. This especially true in those impoverished areas where industry has left them behind moving or closing a plant.

– Finally, the debt and deficit are critical to discuss. The debt just passed $22 trillion and is headed to $34 trillion by the end of 2027. The annual deficit will pass $1 trillion this year, which is nearly 1/3 of our annual revenue. My former party and, in particular, the Freedom Caucus, are as hypocritical as they come. When the Dems had the White House, the Freedom Caucus screamed bloody murder when the debt was $8 trillion, then $13 trillion. But, I give the same caution to Dems I give to the GOP, we must reduce spending and increase revenue. The math will not work otherwise, so says the CBO, Committee for a Responsible Federal Budget, The Concord Coalition and Simpson-Bowles Deficit Reduction Committee.

Of course, there are other critical issues. But, if you focus on the important few, it will resonate. This is especially true for younger folks – climate change, debt, future jobs and healthcare are important. In my view, the GOP has lost its way on issues of import. When I left the party twelve years ago, a key reason was its global warming denying stance. My thesis is if you are denying the greatest threat facing our planet, how can I trust you on resolving other issues?

We are behind the eight ball on too many issues. We are leaving our problems to our children and grandchildren. They will ask us, why did you do that? Why, indeed?