Boom, boom, boom, boom – the US deficit and debt continue to explode

In honor of John Lee Hooker’s famous lyric, which is played at the beginning of “NCIS – New Orleans” and in the movie “Blues Brothers,” a good wake-up call for our US deficit and debt is “boom, boom, boom, boom.” Please note, this is not the trade deficit, which is overblown as a problem as we are more of a consumer nation. This is due to our government spending far more than they take in revenue.

Per the following introduction in a Bloomberg News article, “U.S. Budget Gap Balloons to $739 Billion Despite Tariff Revenue,” we have an escalating problem.

“The U.S. budget deficit widened to $738.6 billion in the first eight months of the fiscal year, a $206 billion increase from a year earlier, despite a revenue boost from President Donald Trump’s tariffs on imported merchandise.

The shortfall was 38.8% more than the same period a year ago, the Treasury Department said in its monthly budget review released on Wednesday. So far in the fiscal year that began Oct. 1, a revenue increase of 2.3% hasn’t kept pace with a 9.3% rise in spending.”

Right now, our US debt tallies more than $22 trillion and was expected to increase by $10 trillion over the next ten years, before the tax cuts in December, 2017. Our fiscal year runs October through September, so this is the first fiscal year with full benefit of the tax cuts. The Congressional Budget Office forewarned the tax cuts would increase the debt by $1.5 trillion over the next ten years over the already projected $10 trillion. That will put us closer to $34 trillion at that time.

Yet, Americans were told by the president and favorable politicians that the CBO was wrong and growth would accelerate enough to pay for the debt using the assertion “the tax cuts will pay for themselves.” Per the Committee for a Responsible Federal Budget, tax cuts do not pay for themselves, with the best historical result being in the neighborhood of 30%, but usually much less. That leaves 70% of the revenue reduction adding to the deficit in the best of times.

The reasons for the increase in deficit are increases in military, healthcare and interest cost spending, which have overshadowed the revenue increases due to the longest running economic growth period in the US. Even the worst budgeter amongst us knows, we should be paying down debt when times are good, not increasing it. Sadly, the economy has begun to slow some, so the tax cutter’s rosy projections of 4% and above growth have not materialized (except in an isloated quarter) and economists are expected  lower growth rates than the current 3% per annum the rest of the year.

Per The Concord Coalition, the above Committee for a Responsible Federal Budget and the Simpson-Bowles Deficit Reduction plan from December, 2010, we must solve our deficit and debt problem through spending cuts and revenue increases (tax increases) both. The math will not otherwise work. If any politician, no matter how smugly, tells you otherwise, they are not be honest with you or are misinformed themselves.

To be brutally frank, I said so then, but the tax cuts passed in December, 2017 were malfeasance in my mind. We borrowed from our future to make a pretty good economy a little better. It was also hypocritical. Former Freedom Caucus members got elected saying the previous $5 trillion, then $8 trillion, then $13 trillion debts were abhorrent. Now, when it is just below $22 trillion, they pass a bill that increases it even more.

When I raised this with a Freedom Caucus staff member, he curtly told me the CBO is often wrong and they are wrong on this. My push back was simple. These folks do their homework to try and get it right. And, what I have found in my 40 years of adult life, is politicians hail the CBO when their number agree with their decision and call them on the carpet, when they don’t. Yes, it is a projection, but these folks try to be apolitical.

Folks, we have a problem that is not getting talked about enough. We must cut spending and raise revenue. My GOP friends have ceded their fiscal stewardship mantra – that is highly unfortunate. My Democrat friends need to question every candidate on how they plan to pay for their ideas and what they plan to do about the debt. We cannot have Medicare for all if we cannot pay for it.

So, let’s get real and ask politicians some pointed questions. If we don’t, John Lee Hooker will sing even more loudly. “Boom, boom, boom, boom.”

 

That nagging math problem

Dwarfed by other news yesterday, the Congressional Budget Office (CBO) updated their budget projections reflecting the new tax law and spending plan. Over the next ten years, the just over $21 trillion debt is expected to increase by $11.7 trillion bringing it to about $33 trillion. Before these two changes, it was expected to increase to about $31 trillion.

The CBO also said the deficit should rise to $804 billion by 2018 fiscal year end. Last year it was $665 billion. Further, the annual deficit should pass $1 trillion by 2020 and stay there.

There are many in Congress today who have screamed bloody murder in the past over rising debt and got elected under the banner of the Tea Party. I have seen footage of members who called this a crisis when it was only $8 trillion and then $13 trillion. They were right then, but now debt and deficit don’t seem to matter as many voted for a law to increase it.

I have seen some recent discussion about the need for a balanced budget amendment. To be frank, that won’t do. We need more revenue than expenses. The tax law passed in December is projected to increase the debt by $1.5 trillion, but Congress knew that then and still passed it, even many of these Tea Partiers.

I said this before, but I believe the tax law passing is extremely poor stewardship, even malfeasance. We are borrowing from our future to try to make an economy, that was in a 103 consecutive month growth period with seven consecutive years of 2 million plus job growth, even better.

To be frank, we cannot cut our way out of this problem. The math will not work. We must also have more revenue than we had before the tax cut. At some point, a future Congress and President will get all the flak for abruptly addressing this problem. Yet, they will be the better stewards, far better than the current President, Congress and their predecessors have been.

Bill Clinton takes a lot of heat for his womanizing, rightfully so, but he handed a surplus budget and smaller debt to George W. Bush. Bush went against the advice of his Treasury Secretary and passed a tax cut and then we invaded two countries draining our budget. And, my biggest criticism of Barack Obama is he shelved the Simpson-Bowles Deficit Reduction Committee report failing to use it as very good starting point for change.

Folks, like climate change, this math problem is not going away. We must address our debt now or it will be much more severe later. And, if people think it does not matter, that country we are imposing tariffs on owns a lot of our treasury bonds, bills and notes. They have floated the idea of stop buying them even before the tariff war. That also makes it a security risk as well.

Tick, tick, tick – young folks please raise some holy hell on this

Tick, tick tick…the US debt of $20.7 trillion is expected to increase by $10 trillion by 2027 even before the December Tax Bill and last night’s Budget Bill were passed.

Tick, tick, tick…per the nonpartisan Congressional Budget Office and Committee for a Responsible Federal Budget, the Tax Bill is projected to increase the US debt by $1.5 trillion or so by 2027.

Tick, tick, tick…last night’s Budget Bill which has now been signed into law is expected to increase the debt by $400 billion over the next two years.

Tick, tick, tick…unless something is done about it, the debt will be close to $33 trillion in 2027. The scarier thought is that might be low.

Tick, tick, tick…the added dilemma we are facing is the interest rates are increasing, since we may have overheated a good economy. That will add further to the annual interest cost on the debt.

If I were in my twenties, I would be raising holy hell about this. I just called several members of the Freedom Caucus, telling them I am an Independent and former Republican voter. While they were right to raise issue with the $400 billion, I said it was hypocritical to vote for a Tax Bill that increases the debt by $1.5 trillion.

Invariably when I called I spoke with a nice young staffer in their twenties, because I asked them if they were. During our conversations I asked them “you do realize we are leaving this problem for you?”

In December, 2010, the US debt was over $13 trillion. The reason this date is important is the bipartisan Simpson-Bowles Deficit Reduction Committee presented their findings and recommendations in that month. In essence, they recommended a series of changes that followed a ratio of $2 of spending cuts to every $1 of revenue increases. Since Democrats did not like the former and Republicans the latter, the Committee’s good work was shelved.

Fast forward to today and not only have we not done much about it, we have made the problem worse with these two bills. In Congress, it is both parties’ fault. It is President Obama’s fault for shelving the Simpson-Bowles study and it is President Trump’s fault for not making this an issue and promoting tax cuts. It is President Bush’s fault for passing tax cuts against the advice of his Secretary of the Treasury after being handed the baton on a balanced budget.

Our deficit was $666 billion in the last fiscal year. It will be over $1 trillion at the end of this one. This is not good. Please let your Congressional representatives, Senators and the President know we need to do something about this. We need revenue increases and spending cuts. The math will not work otherwise. Please check out the websites for the nonpartisan Committee for a Responsible Federal Budget, Fix the Debt and The Concord Coalition for more information.

 

 

Big Issue #1 – Dealing with our Debt

A topic that was discussed very little during the campaign and debates is our ticking time bomb problem of US debt. At almost $20 trillion and growing, it deserves its ranking as Big Issue #1 as it will impact everything we do as interest cost becomes an even greater part of our annual budget.

Let’s start with a few quick numbers in our 2015-16 fiscal year for context:

Current Debt = $19.8 trillion
Annual Revenue = $3.267 trillion
Annual Expenses = $3.854 trillion
Annual Deficit = $0.587 trillion
Annual Interest Cost = $0.284 trillion

Note, the annual interest cost is included in the expenses. If we did not spend one cent outside of paying the interest cost, it would take almost seven years to pay down the debt. But, we do have major and minor expenses, so it will take a concerted effort that will need to include some revenue increases, as cost cutting will not get us there unless we are prepared to make significant cuts to defense and major programs like Social Security and Medicare, the top three cost items.

What is troubling is our President Elect’s economic and tax plan has been measured by two non-partisan groups – The Committee for a Responsible Federal Budget and The Tax Foundation – to increase our debt by $5.3 trillion over the next ten years. Quite simply, we cannot afford to do that.

So, we must be smart about what we do it or we will make the problem much worse. The President Elect has said we will make it up in an expanded economy, but several  economic modeling firms, such as UK based Oxford Economics and US based Moody Analytics, project his plans as creating from malaise to recession in our economy.

We are at the point where we must set campaign rhetoric aside and govern off real data and analytics. There are things we can do to decrease the debt. Two non-partisan organizations – The Concord Coalition (www.concordcoalition.org) and Fix the Debt (www.fixthedebt.org) – have good exercises where you can value the impact of certain changes on the expense side and revenue side.

It should be noted, like Corporations, there are areas where we need to increase spending such as on infrastructure investment, while we make cuts in others. Also, as we are an aging country that is the most obese country in the world per the World Health Organization, there will be upward cost pressures on health related programs.

This is not an easy exercise, but one we must do. Cutting revenue through less taxes is an easy thing to promise during the campaign season, but we are at the point where we must make tough decisions and decreasing revenue is one we probably should avoid. And, the longer we wait, it will become even tougher to solve this problem.

Economists weigh in

A famous quote from President Ronald Reagan advising his Vice President George H.W. Bush about the focus for presidential elections is “it is the economy, stupid.” From the outset of this election, Donald Trump has touted his business skills making him the best person suited to lead our economy. Yet, what is funny is he forgot to convince the economists, who support Hillary Clinton as the best guide for our economy.

In short, the economists have modeled that Trump’s economic plan would create a malaise or recession. It will also increase the debt significantly. Clinton’s economic plan has been rated neutral to positive on its economic impact and its impact on the debt is much smaller.

Per the analysis (see link below) of the non-partisan Committee for a Responsible Federal Budget, this organization estimates Trump’s economic plan would increase our $19 trillion debt by $5.3 trillion, while Clinton’s would increase it by only $200 billion. Note, both are in the wrong direction, but the business man’s proposal would increase the debt by 27x more than his opponent’s plan.

It should also be noted that the National Association for Business Economics rates Clinton at 55% as the best candidate for the economy, with Trump placing third at 14%, behind Gary Johnson at 15%. This group represents working economists and not think tank economists.

Please refer to the attached article for more on the subject. As an aside, there are several investigative news pieces which note that Trump’s sales skills greatly exceed his business management skills as evidenced by six bankruptcies, 3,500 lawsuits and a host of other ill-timed ventures here and abroad. The key is we should not buy the story he is selling.

http://crfb.org/papers/promises-and-price-tags-preliminary-update