Don’t believe your eyes

Yesterday, Secretary of the Treasury Steve Mnuchin testified in front of Congress that the tax cut of December, 2017 would pay for itself before ten years. Really?

This is after the nonpartisan Congressional Budget Office said the tax cut would increase the national debt by $1.5 trillion before it was signed.

This is after we have witnessed the deficit increasing over previous projections the past two fiscal years.

This is after the president said the tax cut would increase GDP growth to 4%. It rose from 2.3% in 2017 to 2.9% in 2018, but softened to 2.1% in 2019.

This is after previous studies that said no tax cut has ever paid for itself. In fact, it is quite nervy to say it would – think of that statement. “It will pay for itself.”

It takes even more nerve to sit in front of Congress and say that it still will, now that the sugar rush has died off. Companies tended to buy back shares with the tax gain rather than invest the gain.

In short, the tax cut borrowed from our future to make a pretty good economy a little better for a little while. For Mnuchin to follow his boss’ lead and ignore facts is troubling. We have a debt and deficit problem that is being downplayed. To solve a problem, it requires admitting we have one.

Annual US Deficit projected to pass $1.5 trillion on 2028

One of two nonpartisan organizations that have been ringing alarm bells about US debt and deficits is The Concord Coalition (TCC). The other is the Committee for a Responsible Federal Budget. We should be listening to these folks and urging politicians to do the same.

In a press release, Bob Bixby of the TCC notes the Congressional Budget Office (CBO) projects the US deficit will pass $1 trillion this fiscal year ending 9/30/2020. In eight years, the CBO projects the deficit to pass $1.5 trillion. My guess is it will be sooner, given politicians being too infatuated with adding expenses and cutting taxes.

It should be noted we are now passed $23 trillion in US debt. Sans change we look to soar passed $35 trillion by the end of the decade. This means our annual interest cost will be a much larger chunk of our budgeted annual revenue which is around $3.65 trillion.

Two key points need to be made. With our pretty good economy going on 128 consecutive months of economic growth, we should be decreasing our deficit, not increasing it. Sadly, we were sold a tax break that helped a pretty good economy get a little better for a little while, but will add over $1.5 trillion to the debt.

The other key point needs to be said loudly. Our debt cannot be solved by only expense cuts or tax increases. The math will not work. It will need both. Do not let politicians tell you otherwise. It matters not how fervent or well they speak, the math will not work. We need politicians with thick skins and lots of courage.

Gumpish questions

I have written a few posts on asking more why questions, but let me define a few dumb questions, in the spirit of a fictitious chatacter, Forrest, Forrest Gump. It is amazing how these questions don’t leap off the news pages or out of cyberspace.

In know particular order…

Help me understand how the president can cause a problem, then get kudos (or claim such), when he solves (or lessens) his own problem?

Forrest Gump answered his drill sergeant’s question of his purpose? “To do exactly what you tell me to do, drill sergeant!” The drill sergeant called Gump a “genius” for his answer.

Help me understand how one of the largest US Christian denominations cannot resolve conflict and will be splitting in two? What message does that send?

Forrest Gump’s girl Jenny gave Forrest the best answer to danger. What should he do? “Run, Forrest, run.”

Help me understand how legislators, presidential candidates and current president don’t seem to care that our annual deficit and debt are exploding?

Forrest’s mama answered her son’s question of what is his destiny? “Life is like a box of chocolates; you never know what you are going to get.”

How can people not see the intense and elongated forest fires in Australia, Brazil and California and not think we have a new paradigm with our heating planet?

Forrest got a Purple Heart. When asked where he was shot, he said “I got shot in the buttocks. They said it was a million dollar wound, but I haven’t seen any of that money.”

How can people feel that putting a face on an opposing argument, then beating on that person can pass for reasoned counter argument (think Al Gore and Greta Thunberg)?

Lieutenant Dan showed up at dockside to honor his promise that he would be Forrest’s first mate if he got a shrimp boat. He told Forrest he wanted to get his “sea legs.” Forrest said, “But, you don’t have no legs.” “Yes, I know this,” Lt. Dan replied.

Help me understand why important people are so cavalier with their reputations by spending time with Jeffrey Epstein and underage girls (think Prince Andrew, Donald Trump, Bill Clinton)?

Forrest answered Bubba’s mother when she asked “if he was crazy or just plain stupid?” Forrest uttered his classic line, “Stupid is as stupid does.” That is a profound statement.

We cannot solve US debt by charging more on our national VISA

The math problem is large. We have $23 trillion plus in US debt today, per the US debt clock. It is projected to increase by $10 trillion by 2027 FYE (September 30, 2027) before the tax cut in December, 2017. The tax cut added $1.5 trillion to the debt projection over ten years. A later budget change added $500 billion over ten years.

The budget bill just signed last week will add $500 billion over ten years per the Committee for a Responsible Federal Budget, yet they note all laws passed in 2019 have added $2.2 trillion over ten years. That would make it at least $37 trillion. So, a good working number is $37 trillion sans any action by the end of 2029 FYE.

Tax increases will not solve this problem, nor will spending cuts. Both are needed. Once the interest cost approaches the defense cost, we have a serious problem. At $37 trillion in debt, the interest cost to maintain it inches closer. So, it truly matters not what Democrats or Republicans like, some poor souls in charge will take the heat for trying to solve a problem passed along by poor financial stewards. It will be akin to the Greek people not liking the EU or responsible Greek leaders when they said Greece was in debt trouble.

What frustrates me is the GOP Freedom Caucus who got elected on debt reduction is the biggest bunch of hypocrites. They screamed bloody murder when the debt was $8 trillion, then $13 trillion, but are passing debt increases misleading the public that the tax reduction would pay for itself – no tax bill has ever done that and this one did not. But, Dems are not without fault. What should scare us all, we should be reducing the deficit with a pretty good economy, yet the deficit is growing and will exceed $1 trillion next FYE. What happens when the economic growth softens even more than it has over the past year.

So, my plea to all is dust off the Simpson-Bowles Deficit Reduction Plan and do even more. I am trying to tell folks what they need to hear, not what they want to hear. If I was a young person, I would be screaming bloody murder at inaction on climate change, guns and debt. Debt is not as frightening as guns and climate change, but it is a huge problem.

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.

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.

 

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.

 

The Good and Bad

Several stories crossed my screen, so I decided to pair good and bad news items on related topics.

Good: Ford and Volkswagen are co-investing in developing electric vehicles sharing development costs.

Bad: In spite of the significant decline in bee populations, the Trump administration has approved a bee-harmlng pesticide.

Good: The American economy is now into its 121st consecutive month of growth with nine straight years of 2 million plus jobs created.

Bad: The 2019 economy has softened some from 2018 due to trade/ tariff concerns, slowing global markets, waning impact of the 2017 tax law, growing US debt, and increased uncertainty which impedes investment and it should slow even more as predicted by economists.

Good: The interest in space travel and exploration involves an increasing number of countries – Japan and China have gone to the moon, eg. That spawns more interest in science which is terrific.

Bad: With the heavy cost of space travel, why don’t countries share the burden as Ford and Volkswagen are doing above? There is a lot of dupication of effort requiring money that could be invested here on earth to address water, food and climate issues.

Good: In spite of the US announcing a withdrawal from the Paris Climate Change Accord, other countries, states, cities, investment groups, companies and innovators continue to execute ideas that are addressing the issue.

Bad: The US federal governmenf needs to do more, not less to abet these efforts. Yet, another concern is getting little notoriety – the global water crisis, which is made even worse by climate change. Another city in India of 5 million people is in dire straights as its reservoir has almost dried up.

We should celebrate the good, but address the bad. We seem to be ignoring too many signals. It is hard to move forward, if we only look in the rearview. mirror. Food, water, climate, debt are signaling needs that must be addressed.

 

 

 

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.”

 

Call me crazy

I hope everyone had a great weekend. We are living in interesting times, some would even use the word “crazy.” Here are a few random thoughts to match the times.

– A real hero is someone like Lori Gilbert Kaye, a 60 year-old woman who lost her life in this weekend’s synagogue shooting. She lost her life because she threw her body in front of the Rabbi. Please share her story rather than the name of the cold-blooded killer, who not only killed her, but shot two others, including an eight year old girl.

– I agreed with the President when he said people need to get vaccinated for measles.. Then, as I read on, he said during the campaign the measles vaccine is linked to autism. When will this man understand that words matter and people do not realize that the significant majority of the words this man says are untruthful ones?

– Speaking of lies, The Washington Post has recorded 10,000 lies by Trump as President. Former Speaker Newt Gingrich defended the President saying he is a businessman and is allowed to exaggerate. Mr. Gingrich, I am a businessman and if someone in business lied like the President, people would not do business with him very long. Further, why did an independent contractor who dealt with Trump companies say “Word on the street is if you do work for Trump, get paid in advance.”

– A recent poll conducted by Opinium said 55% of Brits now feel the 2016 Brexit vote was a bad idea. They have time for another vote, but not if they wait. A fact based process would help, but it would also help here in the states.

– With the advent of market segmentation in all things, including the pseudo-news and now data, we seem to be moving closer to another Robber Baron period. Now, it is so easy to obfuscate voters, they do not know that elected officials are making changes that help the wealthy. What is also unsurprising is how easily more strident groups can be fooled to go along, provided you play to their fears.  Immigration is being sold as the problem, but the main problems are technology and CEOs chasing cheaper labor costs. In Western countries the haves and have-nots are even more divided. Unless something is tangibly done, this bifurcation is unsustainable.

– Finally, it is amazing how little the US leaders talk about our ticking time bomb problems – job retraining as technology kills more jobs, increasing debt, environmental degradation, global water crisis, stabilizing healthcare costs, crumbling infrastructure and climate change. The GOP is running on building a wall, proliferating gun ownerships, restraining abortions and how bad socialization is. Make all candidates answer questions about these ticking time bomb problems. If they cannot, do not vote for them.

Call me crazy, but maybe, just maybe, the ones who are crazy are the ones not addressing real issues and telling real truths. You be the judge.