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.

 

 

Fiscal FactChecker: 16 Budget Myths to Watch Out For in the 2016 Campaign

I have written several times that we need to do something about our debt crisis, as the problem is only going to get worse. I liken it to having a water problem in your house. If you don’t fix it now, it will get far worse later on.

In addition to The Concord Coalition who I have mentioned before, a sister nonpartisan group to their effort spawns from the Committee for Responsible Federal Budget called Fix the Debt. The Board of Directors of the Committee include some big names who served in various government, think-tank and business roles. The Fix the Debt group was founded by former Chief of Staff Erskine Bowles and former Senator Alan Simpson of the Simpson-Bowles Deficit Reduction Committee.

I will provide a link below, but wanted to summarize a piece called “Fiscal Fact Checker: 16 Budget Myths to Watch Out For in the 2016 Campaign” which is dated August 6, 2015. Those myths are:

Myths about the National Debt

  1. We can continue borrowing without consequences
  2. With Deficits falling, our debt problems are behind us (this is expected to reverse in 2015-16)
  3. There is no harm in waiting to solve our debt problems
  4. Deficit reduction is code for austerity, which will harm the economy

Myths about Taxes

  1. Tax cuts pay for themselves
  2. We can fix the debt solely by taxing the top 1%
  3. We can dramatically lower tax rates by closing a few egregious loopholes
  4. Any tax increases will cripple economic growth

Myths about Health Care and Social Security

  1. Medicare and Social Security are earned benefits and therefore should not be touched
  2. Repealing Obamacare will fix the debt
  3. The Health Care cost problem is solved
  4. Social Security’s shortfall can be closed simply by raising taxes on or means-testing benefits for the wealthy

Myths about easy fixes

  1. We can solve our debt situation by cutting waste, fraud, abuse, earmarks and /or foreign aid
  2. We can grow our way out of debt
  3. A Balanced Budget Amendment is all we need to fix the debt
  4. We can fix the debt solely by cutting welfare spending

In addition to the above, I wanted to reiterate two global trends that impact the US as well. First, per the World Health Organization, we are the most obese country in the world, as well as having the highest costing health care system in the world. The Affordable Care Act has helped, but we are over-tested, over-medicated and future train wrecks waiting to happen This will create continued cost pressures on Medicare, Medicaid and the subsidies under Obamacare.

Second, per the World Economic Forum, we are an aging population. We are not as bad off as places like Japan, Greece, Portugal, Spain, etc., but as we age cost pressures on Social Security and Medicare/ Medicaid will heighten. For people in their 60’s, the average cost of health care is roughly twice that of folks in their 30’s. The aging is actually hitting some of our states and municipalities with increased retirement liabilities relative to fewer workers being hired. Detroit, Stockton, and Birmingham have all filed for bankruptcy, with this being a contributing cause, plus states like Illinois, New Jersey, etc. are having significant retirement cost pressures.

Please check out these two websites and see who is involved in these nonpartisan efforts.

http://www.concordcoalition.org/

http://www.fixthedebt.org/

Also ask your Senators, Congressional representatives and Presidential candidates what they plan to do about this. Like climate change and the global water crisis, we can no longer wait on action.

That deficit thing is going to get worse

The Congressional Budget Office released its projections that say the decrease that has been occurring in the deficit is coming to an end. With the improving economy, sequestration cuts and not funding as many troops in the Middle East, the deficit has quietly been reduced to a less painful level, but we are still in a deficit position. The last time we had a surplus budget was when President Bill Clinton left office and before the President George W. Bush tax cuts that put us back into deficit.

The CBO anticipates the deficit to rise again this fiscal year and continue to rise. So, the debt will continue to climb and interest costs will become increasingly an important part of the budget. There is a group called The Concord Coalition (see link below) who advocates for addressing this ticking time bomb now. They have a bipartisan group of Board members and help frame a discussion balancing the spectrum of needed spending cuts and revenue increases.

The major parts of our budget that should get our attention are in five areas:

Expenditures: Social Security, Medicare/ Medicaid/ ACA, Defense

Revenues: Corporate Taxes and Individual Taxes

The other stuff is minor relative to these big items, but of course we need to address each and spend judiciously. There are ways to shave spending off each of these key expenditures, without being too detrimental to the underlying programs and needs. And, we could be more dramatic if we want to make significant cuts, but people need to know what they would be losing. We also need to recognize there are some areas, such as infrastructure investments, that need to be increased and funded.

Yet, we also need to reform our tax system to make it simpler for all and make it easier to repatriate some offshore corporate income which goes untaxed here. In my view, we also need to garner more revenue as we are one of the least taxed (relative to GDP) countries of the 33 member countries of the Paris based Organisation for Economic Cooperation and Development. So, we need to base our decisions off comparative information to other countries, as no one wants a tax increase, but that is something that should be considered.

Regardless of what we need to do to accomplish the task at hand, we need to move forward before the interest costs get too burdensome. Also, as we age as a country, our costs pressures will increase with healthcare and retirement costs. If we wait too long, the cuts will need to be more severe and more of us will be impacted. Learn what each candidate will do about these issues. They seem to be silent on these issues and that is not a good thing.

http://www.concordcoalition.org/

Simpson-Bowles still gets the conversation started

In honor of November 8 being Deficit Day, meaning our US revenue for the year has run out in covering our expenses, I think it is important to revisit some of the saner voices on these issues. Former Republican Senator Alan Simpson who partnered with former Chief of Staff (for Bill Clinton) Erskine Bowles to lead a committee to address the deficit, has penned an interesting editorial. In essence, he is critical of the various tax plans submitted by GOP candidates for president all of which would materially increase the deficit. He notes they are so poorly conceived, that there are not enough legitimate cuts to overcome the loss of revenue.

Simpson knows of what he speaks. The Simpson-Bowles Deficit Reduction Plan combined strategic spending cuts with revenue increases to reduce the deficit. It was well conceived, but not perfect, as nothing is. People found faults with elements of it, which is a reason it did not move forward. Yet, it was a terrific conversation starter. It was something to work with and modify, as needed. And, it spoke to the need to increase revenue along with spending cuts.

One of the issues conservative folks have with the plan is the revenue increases, but let me state three truisms, two of which are universal, and one that applies to the United States.

  • Of course, people don’t want to pay higher taxes, but they do realize a need to pay for expenses.
  • Any politician can get elected saying they will reduce taxes. But, that promise should not be confused with good stewardship.
  • Per the Paris based Organisation of Economic Cooperation and Development (OECD), the US is one of the least taxed countries of 33 countries who have participated in analyses dating back over forty years. In fact, the US is well beneath the median tax rate of the recurring OECD surveys.

The deficit is important and we need to be smart with what we cut and actually increase spending in some areas. Yet, we must garner more revenue or we will never get there. There is a reason President George W. Bush fired his Treasury secretary as he argued against the Bush tax cuts. It should be noted the budget was balanced by President Clinton the last several years of his presidency, which was handed over to Bush.

While President Obama has done many good things, he is an imperfect president, like they all are. One of my biggest criticisms of the president is not embracing the Simpson-Bowles Deficit Reduction Plan and say let’s start with this. It would have been a great conversation starter and still could be.

 

But, how could you let this happen?

“But, how could you let this happen?” is a phrase often uttered after an event has made the headlines. People are incredulous and leaders, in response, will look at others to blame for the recent turn of events. Yet, oftentimes, the leaders omit their role in the event which occurred by their failure to act. Or, the event was going to happen, and no proactive action was taken to lessen the impact.

I have written before about how social workers are sometimes thrown under the bus for a family treating a child poorly or rampant substance abuse exposing children to things they should not see at their ages. Invariably, the social worker is handling far too many clients due to budget cuts over the years, so that families do not get the attention needed. Depending on travel, capabilities, types of family challenges, and numbers of family members, a social worker should ideally have less than twenty clients. The ratio of 16 to 1 is often mentioned as ideal. Yet, when something goes wrong, we often see social workers with 150 or 200 clients, which means no family gets the attention they need. I have the greatest admiration for social workers, but even Mother Teresa would have a problem with the caseload.

However, this line of questioning is much broader than making sure we staff sufficient numbers of social workers to meet a community’s needs. It gets into most areas of politics and governance. Last week, I was watching a leader of the US border guards on the news describing the problems with the influx of child refugees. He defined and demonstrated how difficult the job is and noted we are already understaffed due to the sequestration budget from last fall. So, to state the obvious, we have people in Congress who, in addition to not passing an Immigration Bill, have not funded the open positions in the border patrol making it harder for them to secure the border. Please reread that last statement, as we have some Congressmen and women who are insisting we secure the border, yet they won’t fund staff to secure the border, in general. This is before the latest request for funds to handle the refugees.

Yesterday, I was encouraged that a bi-partisan bill was agreed upon between the House and Senate committees on handling veterans’ affairs. Senator Bernie Sanders (I) and Representative Jeff Miller (R) are the key proponents (kudos to both). Yet, when the VA Hospital problems hit the fan earlier this year on wait times and veterans not getting served, the echo from Congress was loud, “how could you let this happen?” A veteran leader noted this is the same Congress who would not sign off on Senator Sanders bill earlier this year to address known concerns saying it was too much money, but offered no compromise solution. Yet, they did not do a mea culpa and say we screwed up earlier. Our leaders talk a big game about taking care of veterans,  but we are much more prone to fund tanks and planes we don’t need, than take care of wounded soldiers. Soldiers who have fought much longer and, since fighting among civilians, have been exposed to more PTSD need our help and not just our “atta-boys and girls.” Words are cheap, very cheap. Thank you Senator Sanders and Representative Miller for your actions to support our troops.

Finally, I will drift back to another favorite topic of some and that is Benghazi. “How could you let Americans get killed?” is asked. This issue has been put to bed for eighteen months in a non-partisan review led by Admiral Mullens and Ambassador Pickering, neither of whom were asked before Congressional Committees to speak on their report from December, 2012 until the committees were apprised of this oversight. The report went through all of the areas where we could have done better, but one area was interesting. Security of all embassies had been shortchanged by budget cuts in funding from Congress. So, we cared less about securing our embassies and then cried foul when something happened. And,this is not the first time our embassies and foreign service personnel have been attacked. “How could you let this happen?” the same folks asked.

The two common themes from the above are budget cuts impact service and it is hypocritical to totally blame someone else for something you, as a group, had a hand in causing. As a business person and volunteer board member of non-profit groups, I recognize fully that budgets are not infinite and require trade-offs. I do think we need serious discussions about where we spend our money. Yet, I am also mindful there are some that want to axe everything without noting what services are being performed. And, I also am aware there are those who say cut this or cut that, but when reminded that people back home or funders’ businesses are impacted, change their mind. There are so many military weapons that are not needed and are stockpiling, yet because of funders and lobbyist efforts, we cannot stop making them, e.g.

We have a deficit and debt problem in this country. The answer that the Simpson-Bowles Deficit Reduction Commission came to in December, 2010 is both spending cuts and revenue increases are needed. Before we have other “what-ifs” happen, we need to take a look at that report as a plan to start from.

 

 

 

Who is Paul O’Neill and why should his opinions matter?

I am in the middle of a fascinating book by Charles Duhigg called “The Power of Habit – Why We Do What We Do In Life and Business” and a very useful example appears involving Paul O’Neill. The name rang a bell for another reason, but more on that later. Who is Paul O’Neill? O’Neill was the CEO who turned Alcoa around during his tenure from 1987 – 2000. He joined a company in turmoil, and under his leadership, the value of the company doubled and the annual revenue went from $1.5 Billion in 1987 to $23 Billion. How did he help Alcoa achieve these results?

Ironically, when he made his first speech to investors and stock analysts, they came away unimpressed. He was not a well-known quantity having served as a in the VA Administration, Office of Management and Budget and as a Vice President and President of International Paper. Yet, what he said in that speech gave everyone pause. He said “I want to talk about worker safety.” He went on to discuss how Alcoa had a horrible safety record and his goal was “to go for zero injuries.” Many stock analysts were stunned by this focus as he did not use any of the typical words around synergy or rightsizing, etc. Several told their clients to divest of Alcoa stock after that meeting. One analyst later said “It was the worst piece of advice I gave in my entire career.”

Why the focus? The purpose of the book is to understand the role habits play in everything we do. If you can find a keystone habit and get someone to change it, then other better habits will follow. Companies were no different. O’Neill recognized before he took the job, he needed to help Alcoa change, but the unions did not trust management, communication was poor and processes needed changing. So, he decided to focus on the one thing everyone could agree on – worker safety. By focusing on worker safety, he would help change that habit and watch it spillover.

O’Neill instituted a policy that his managers had to notify him of an accident in the company within 24 hours along with a plan on how we learned from it and how we could avoid it happening again. Many thought it was just window dressing, but two weeks into his tenure, a young man acted rashly to fix a machine and was killed. O’Neill took this to heart and said “I killed this man. All of us in this room killed this man.” Everyone saw this was meaningful and things started to change. But, it was more than safety improving. To receive a report within 24 hours with a plan, a leader needed to know about the accident, what happened and how it could be avoided. Communication up and down the ranks improved, so the safety improvements could be conveyed and understood.

To improve safety, though, you had to improve processes. You had to make things easier to work with and provide the equipment to be safe. Not only did safety improve, but so did productivity. And, with these better communications, ideas from the manufacturing floor started to flow up. Some of the ideas had been bottled up for years, but now people felt empowered to share them. And, before the internet got up and running, they were using an intranet to communicate these ideas which kept them ahead of the competition and let information pass quickly. So, the company took off, because of O’Neill’s purposeful focus on one keystone habit – let’s make our jobs safer.

Where the name sounded familiar is O’Neill became President George W. Bush’s first Secretary of the Treasury in January, 2001. However, with all of his success and track record, he was fired by December 31, 2002. Why? O’Neill was very outspoken in his criticism over the now famous “Bush Tax Cuts” and our going to war with Iraq. As Secretary of the Treasury, he had seen a report that said the US had a looming deficit problem that would require tax increases and spending cuts. That report was suppressed by Bush and we went ahead with the Bush Tax Cuts that unbalanced our surplus budget left by President Bill Clinton aided by his Chief of Staff, Erskine Bowles.

Quoting a footnote in the book, Duhigg notes “However, O’Neill’s politics did not line up with those of the President Bush, and he launched an internal fight opposing Bush’s proposed tax cuts. He was asked to resign at the end of 2002. ‘What I thought was the right thing for economic policy was the opposite of what the White House wanted,’ O’Neill told me. ‘That’s not good for a treasury secretary, so I got fired.'”

I put O’Neill’s quotes in bold for effect. I would add that Warren Buffett, another pretty smart cookie, largely said the same thing at the time. Buffett said “You are giving me a tax cut I do not need.” So, just to state the obvious:

– we had a balanced budget, even a small surplus;

– President Bush wanted to push tax cuts to stimulate the economy;

– his Secretary of Treasury, a pretty competent leader, reads a report that forewarns of deficits down the road and tells the President and Vice President Dick Cheney (by the way, he recommended Cheney to Bush’s father for Secretary of Defense), that tax cuts are not the right answer for the economy and we need increases and spending cuts;

– the President and Vice President (who wielded more power than many VPs) ignores his advice and asks him to resign;

– we now have budget deficits heightened by the Bush Tax Cuts and two unfunded wars; and

– we continue to fight over these Bush Tax Cuts and need to raise revenue as well as cut spending to address the deficit, two ideas the suppressed report and fired Secretary of the Treasury espoused in 2002, eleven years ago.

Hindsight is usually 20/20, but the last bullet is very important. We have leaders who refuse to see that we must increase tax revenue and cut spending. No greater authorities than Alan Simpson and Erskine Bowles reached that same conclusion in the Simpson-Bowles Deficit Reduction Commission report. O’Neill, a very successful and competent CEO told his bosses, Bush and Cheney, this very thing and got fired. He also told them this before it would happen and before Bush actually threw gasoline in the fire and made it worse. Not to beat a dead horse, but Presidential historians have also noted President Bush as one of the worst presidents we have ever had and contrary to what his brother Jeb said last week, history will not judge him any better looking back from a future date.

So, to recap. Paul O’Neill, Warren Buffett, Alan Simpson and Erskine Bowles, all pretty capable people, said we need tax increases and spending cuts to address our deficits.However, O’Neill said it in official capacity as Secretary of Treasury and got fired. And, now we are living with not only the failure to act, but actions taken by Bush that are perpetuated today. I think O’Neill and these other people’s opinions matter and we should listen to them.