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.

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.

 

What are we voting for?

So, much of the focus has rightfully been on countering the most divisive US President this Independent voter has witnessed. He has bullied, denigrated, lied and made himself the center of attention on far too many issues.

Yet, let’s look at this record he touts as his reason to give him free rein. His followers say he has done what he promised. To me, therein lie the problems.

While the economy is going well, the economic growth has lasted 9 1/2 years, the second longest in US history. We have also had over 8 years of job growth. The tax law and deregulation have helped make it a little better, but we are doing so on borrowed time with increasing debt and less governance.

We have announced the pull out of the Paris Cilmate Change accord and are an outlier in the world. The President lied to people about climate change being a hoax and has added insult by damaging our environment through enabling industrial polluters. He is borrowing time the world does not have.

The ill-conceived tariffs are bad enough, but bullying and lying to our allies far exceed the damage tariffs will do. We are harming our relationships, which are a key strength of America. We are also less trustworthy. As Trump’s former economic advisor said after telling him he lied to the Australian PM, Trump is a “professional liar.”

We have focused on immigration as a major problem, but it has been sold on fear and is not as big a problem as advertised. We have made immigrants the bogeymen and have lost sight of the impact of domestic terrorists already here. Yes, we should fix immigration, but three promising bills before this President were waylaid for political reasons.

We have allowed a President to build off Republican leadership efforts to sabatoge the Affordable Care Act making premiums higher than they otherwise would be. His party has screwed Americans to win a political argument. And, now the GOP has the unmitigated gall to say they want to protect pre-existing conditions.

We have put in place two very conservative justices, but the President forced the Senate to move away from a super majority to a simple majority. This has made it easier to get a less moderate Justice on the court. I want well-tempered jurisprudence, not partisanship. The most recent Justice lied to the Senate.

We have allowed a President to make money off the Presidency, which he has been sued over. The trial is permitted to move ahead. We have not criticized a President enough for denigrating rhe media. Trump is on record  as lying more than any other politician. Our democracy is at stake because of these two issues. He is President, not King.

Finally, civil rights are under attack with this President. His hate speech and bullying have greased the skids for white supremacists. The President is a racist and misogynist.

This is his record. And, I have not even discussed the Russian issue. I would give him kudos on discussions with North Korea and some deregulation. The tax cut helped some, but went too far and is hurting our debt. And, we have done little to better govern guns or invest in our infrastructure.

That is what I think as an Independent voter, who left the GOP over ten years ago. We need to better govern this President. He certainly is not up to the task.

 

The sugar high is beginning to wane

The volatile and recent downward trend in the stock market is an indicator.The slowing of global growth, uncertainty over trade, increasing business costs due to tariffs and increasing interest rates are causing a dampening effect.

While the US economy had 3.5% annualized growth in the 3Q2018 following 4.2% in 2Q2018 (it was 2.2% in 1Q2018), imbedded therein are two numbers that should give pause. Business investment was much higher in 2Q2018 at 8.7%, partly due to getting stuff in the hopper before the tariffs started. Yet, business investment fell to 0.8% in 3Q2018. That is an ominous sign. This concern is also apparent in several third quarter earnings announcements by major corporations.

While we should finish 2018 with annual growth north of 3%, economists have predicted that 2019 will have 2.4% annual growth, falling to 2.0% growth in 2020. I should add they feel the impact of the tax cut for corporations is waning (which is sad because it is an imbedded profit margin increase). In other words, the companies view this tax reduction as a “sugar high” that won’t last.

When the tax bill was passed, the White House and Congress touted that it would take GDP growth to 4% and pay for itself. Tax cuts have never paid for themselves and the best they have done is abet the economy enough to save maybe 20% to 30% of the foregone tax revenue. But, the tax bill was estimated by the Congressional Budget Office to increase the already $21 trillion in debt by $1.5 trillion over ten years. And, the tax bill did nothing to address the projection the debt would increase by $10 trillion by 2027. Absent any change, we are looking at debt of $33 trillion by 2027.

It should be noted the annual deficit increased in the government fiscal year just ended to $779 billion from $665 billion, partly due to foregone $166 billion in tax revenue. The deficit is budgeted to be $985 billion in the 2018-19 fiscal year, on projected expenses of $4.407 trillion and revenue of $3.422 trillion. The deficit is expected to grow past $1 trillion in fiscal year 2019-20.

The US President has tended to be a short-term thinker. He is too focused on doing things that look good now. This is one reason he has had six bankruptcies. The problem is the sugar high is going to end. And, we spent $1.5 trillion to add more sugar to a pretty good economy. We are now beyond 9 years in economic growth (the second longest in US history) and 8 years in job growth, with a bull stock market dating back to March, 2009. Plus, we took one of our levers off the table with an unneeded tax cut. I was all for lower corporate tax rates, but we went well beyond deficit neutral.

This is not a new concern of mine, as I have been actively writing about our debt and deficit for several years, well before the current President took his oath. One of my concerns over Obama was his not doing anything with the Simpson-Bowles Deficit Reduction plan. Both he and Congress just put a very good working draft on the shelf. Our building debt is a ticking time bomb that will cause a huge day of reckoning. And, one things politicians don’t talk about it, is it will take tax increases and spending cuts to get there. The math will not otherwise work. That is the conclusion of the Committee for a Responsible Federal Budget and the Simpson-Bowles effort.

Debt and more debt

The following is a brief sample letter to the editor on the US debt problem that is being unwisely ignored. Please feel free to adapt and use if you agree.

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The last time we had a balanced budget was when Bill Clinton left office, but we still had debt. Now that debt is about $21.5 trillion and is expected to grow by almost $12 trillion by 2027. The tax reduction law passed last December will increase the debt by $1.5 trillion and the spending bill from the spring will add to it as well.

The annual deficit is once again approaching $1 trillion, which is about 30% of our annual tax revenue. I believe it was poor stewardship to increase the debt with the tax change and now I understand another tax bill is in the works. We cannot cut our way out of this problem – we need both spending cuts and more tax revenue.

A day of reckoning will come and future legislators will have to address this poor financial stewardship by three Presidents and their Congresses.

Media – focus more on the problems needing solving and less on who wins

The main stream media is doing a better job on focusing on the issues, but they still have a bias toward conflict. Who wins and loses based on the airing of an issue or problem is covered way too much for my taste. The end result is problems and their many causes do not get addressed or are oversimplified, so they go unsolved.

The dilemma is we citizens lose. The focus must be on the issues rather than who benefits from whatever hits a news cycle. Substance matters more than image. Here are a few examples to digest.

We have a poverty problem in the US. It is not just a declining middle class. Too many are living beneath paycheck to paycheck or are one paycheck away from being in trouble. The United Nations just released a report that confirms the US has a poverty problem citing numerous examples and numbers. Instead of asking lawmakers what are we doing about it, the media focused on the Trump administration admonishing the UN for the report. The problem exists whether or not it makes Trump look bad, as it took decades to decline to this point. Addressing poverty is more important.

We have a significant and growing debt problem that has been made worse by the Tax law passed in December. The economy was already doing pretty good with a long growth period. Yet, rather than address our debt, we borrowed more from our future. This malfeasance must be highlighted. Yet, most of the focus is on the economy doing well and its impact on the midterm election. Note the economy would have done well without the tax change, but we have a day of reckoning coming that will require more revenue and less spending. What are we going to do about it now, especially with a good economy?

The Affordable Care Act has needed improvements and stabilization for some time. The American public favors this as do lawmakers from both parties. Yet, the media focuses too much on the political  impact of an ACA that could be doing better. Not only has the party in power not helped the ACA, they have sabotaged it making premiums go up even more. As I see it, the President and GOP own the ACA. Letting premiums go up hurts Americans. If the ACA fails, our poverty problem will get even worse and the economy will suffer.

Issues like immigration, climate change, water shortages, tariffs, exiting international agreements, eg, all need to be focused on. We need to drill down on what makes sense in a data driven and reasonable manner. Attempting to resolve issues based on optics of winning or losing won’t solve anything. And, that is what our President and legislators seem to be more interested in.

So, media please start asking our leaders what they plan on doing about these problems and asking them to explain why certain measures don’t seem to be helpful.  And, leaders stop worrying about keeping your job and start doing your job.

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.