Congress – Please listen to the nonpartisan economic groups

Early this morning the Senate passed their Tax Bill, complete with hand written amendments and no public hearings. Senator McConnell declared it a victory for the American people. But, which people? From my reading the people doing a touchdown dance already have an awful lot of money. 52% of Americans disapprove of this bill, but only the opinion of the privileged few matters.

On NPR yesterday, I heard Congressman Kevin Brady, the Chair of the House Ways and Means Committee, smugly say we do not believe the projections of Congress nonpartisan Joint Committee on Taxation who measured the Senate bill as increasing the debt by $1 trillion and saying this bill is not as kind as portrayed to people in poverty and middle class. But, Congressman, why do the nonpartisan Committee for a Responsible Federal Budget, Fix the Debt and The Concord Coalition say pretty much the same thing?

Without public hearings, Republicans did not take the time to know this. What should be surprising is the two Senators from Kansas voted for this bill after a similar state bill had to be unwound last year after it decimated Kansas’ economy and budget.

Outside of Senator Corker, my former party seems to have forgotten what fiscal stewardship means. We are projected to have a debt of $31.5 trillion in 2027. I want to hear what Congress plans to do about that.

As a former Republican, this continues to support why I left the party. Passing a bill to get a win is no way to pass good legislation.

Please feel free to use a variation of this to let your Senators and Congressperson know of your concern. I added that they call me with a response to my concern and not send me a form letter.

Increasing the Debt is Malfeasance

If I may be permitted to be crass, let me offer a quote from an unknown source, “any dumb ass can get elected saying they will reduce taxes.” I will let you be the judge at how successful this campaign approach is.

In the United States, we have about $20.5 trillion in debt, which is roughly $63,000 per person and $170,000 per taxpayer. With an annual budget of about $4 trillion, we had a deficit in our most recent fiscal year ending September 30, of roughly $650 billion. The deficit is predicted to only go up, if we do nothing which will in turn increase the debt by an estimated $10 trillion.

With the President’s encouragement, Congress has proposed doing something. But, it is in the wrong direction. The Republican majority has passed a budget that will allow for net tax reductions in the Tax Bill being considered that will increase the debt by an additional $1.5 trillion over the next ten years.

Again, that is on top of an estimated $10 trillion increase. By my math, that puts us at $32 trillion of debt in ten years. There is no other way to say this. This is malfeasance. It certainly is not good stewardship.

The bipartisan Simpson-Bowles Deficit Reduction Committee completed their findings and recommendations in the fall of 2010. That earnest and diligent effort recommended $2 worth of expense cuts for every $1 of tax increases. We simply cannot cut our way out of the problem. But, this well done report was shelved.

I have heard several members of Congress over the years tout a balanced budget, but that is not enough. We actually need more revenue than expenses. That must include tax increases along with spending cuts. It is that simple. We cannot make the math work otherwise.

If we continue to hide from this problem, like climate change, it will become a major obstacle. We must act now and we certainly do not need to cut taxes and revenue. People will not like this answer, but someone needs to shoot straight with our citizens. We all need to pitch in before it is too late and we leave ourselves, kids and grandkids a mountain of debt.

There are several groups that have been raising this alarm for some time now. “Fix the Debt” and “The Concord Coalition” are just two. Please check them out and let your Congress representative and senators know this is too important a problem to make worse. If they say the taxes will pay for themselves, tell them it does not work that way and they should know that. Let’s fix the debt, not make it worse.

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.

Quick comparison of Trump and Clinton Tax Proposals

The Urban-Brookings Tax Center has provided two excellent comparative write-ups on the two proposed tax plans of Donald Trump and Hillary Clinton. I will provide the links below. They also used three tax experts, whose credentials are noted below, that grade the two proposals on four key factors. Those factors and the average of these grades is noted below:

Factor                          Trump      Clinton

Legislative Feasibility         D                C

Economic Growth             C-               D+

Fiscal Responsibility          D-               B-

Impact on Tax Payers        D+              B-

Overall Average*                D+             C+

*My composite calculation using a four point scale (A = 4, B = 3, etc.) with 0.3 modifier for +/ – like colleges do in grading. Note, the articles did the composites of each factor.

The Urban-Brookings Tax Center found that the Trump plan was disproportionately beneficial to the wealthy, and would greatly increase the national debt.

“His proposal would cut taxes at all income levels, although the largest benefits, in dollar and percentage terms, would go to the highest-income households,” the TPC analysis found. “The plan would reduce federal revenues by $9.5 trillion over its first decade before accounting for added interest costs or considering macroeconomic feedback effects. The plan would improve incentives to work, save, and invest. However, unless it is accompanied by very large spending cuts, it could increase the national debt by nearly 80 percent of gross domestic product by 2036, offsetting some or all of the incentive effects of the tax cuts.”

“Looking at economic growth, Wiiliam Gale (see below) said that the Clinton plan “will probably be close to a wash in terms of economic growth over the medium term.” Gale also said that the increase in tax rates might hurt growth in the short-term. But he said that a reduction in debt under the plan “should help growth in the long-term.” However, the Tax Policy Center analysis of Clinton’s plan used by Gale doesn’t address Clinton’s long-term spending proposals and the effect they might have in raising the long-term debt.”

This is consistent with the measurement of the nonpartisan Tax Foundation that showed Trump’s plan would increase the $19 Trillion debt over the next ten years by approximately $12 Trillion. Clinton’s plan would reduce the debt over the next ten years by about $500 Billion. In my view, neither of these numbers is enough to reduce the debt, but at least Clinton’s is in the right direction.

Truth be told, there are not enough spending cuts to make up for Trump’s increase in debt and we need serious discussion on reducing the debt from both. And, per the Simpson-Bowles Deficit Reduction Plan and ideas shared by Fix the Debt and The Concord Coalition, we will need both revenue increases and spending cuts. To say otherwise, is misleading the American people.

 

http://www.msn.com/en-us/money/taxes/experts-weigh-donald-trumps-tax-plan-and-find-it-wanting/ar-BBtatQD?ocid=spartandhp

http://www.msn.com/en-us/money/taxes/grading-hillary-clintons-tax-plan/ar-BBtatQL

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The Fiscal Times convened a panel of experts in tax and fiscal policy to analyze the Clinton and Trump tax plans. Details of each plan were reviewed by three well-respected policy experts: William G. Gale, the Arjay and Francis Miller Chair in Federal Economic Policy at the Brookings Institution and co-director of the Tax Policy Center; Doug Holtz-Eakin, President of the American Action Forum and a former Congressional Budget Office Director; and G. William Hoagland, a vice president of the Bipartisan Policy Center and a former Republican Senate budget official.

Wednesday’s child is full of woe

I think most of us are familiar with the poem regarding the attributes of children born on each day of the week. Here is the poem for those who have not.

Monday’s child is fair of face,
Tuesday’s child is full of grace,
Wednesday’s child is full of woe,
Thursday’s child has far to go,
Friday’s child is loving and giving,
Saturday’s child must work for a living,
But the child that’s born on the Sabbath day,
Is fair and wise and good and gay.

As I sit here on a beautiful Wednesday afternoon, I am reminded how shortsighted we are, but especially our leaders. The trouble is we need leaders and wanna-be leaders to think longer term as very few problems can be solved short-term and some are growing in magnitude as we are doing precious little about them. So, by failing to do our job, we are creating more Wednesday’s children.

My greatest concern relates to how we are slow to fully address the impact of climate change on our planet. The World Economic Forum noted in their 2015 Global Risks Report that inaction on climate change is one of the two greatest risks to the planet over the next ten years.

Yet, we look to countries like Denmark who are now 100% powered by wind energy. Why? Their leaders understood it would take years to do this and needed buy-in from everyone, as the plan needed to be executed after some would leave office. Coupling that with the sense of urgency of a country beneath sea level, can spur folks to action.

In the US, we have made great strides, but we still have the heavy hand of the fossil fuel industry who has too great an influence on too many elected officials. This prevents them from looking at the real problems facing us. I wrote last time about the alleged misleading of shareholders by ExxonMobil on the impact of climate change on its business being investigated by the New York Attorney General. If found guilty, this would be a fraudulent crime.

Yet, the sister environmental issue is the declining availability of fresh water, which is the top issue of concern by the World Economic Forum. This concern predates and is beyond the Flint Water crisis, although that is important. We have increasing areas of drought which are exacerbated by climate change around the globe and in the US. In one of the great ironies, the Middle East is oil rich, but water poor. And, one of the greatest symbolisms of this concern is the religious leaders in Saudi Arabia allow their people to pray with sand and not waste water.

Another concern that will impact our children is leaving them with our debts. In the US, we have a $19 Trillion debt problem that seems to get forgotten about. This debt will increase even more with our aging population with fewer workers for each retiree. This is a key reason the labor participation rate has declined as we are aging with fewer workers. Yet, this is happening in other places at a greater pace causing problems in Greece, Spain, Japan, etc.

We cannot pay this debt down by ignoring it. And, we cannot cut expenditures enough, so we will need to look to higher taxes. With that said, the two leading GOP candidates tax plans will increase the debt by $12 Trillion and $3.7 Trillion over the next ten years. And, the leading GOP candidate said he will get rid of the debt in eight years, but we should be asking how when you will be increasing it by over 60%? The leading Democrat candidate’s tax plan will slightly decrease it by about $500 Billion over ten years, while the second place candidate will also increase taxes, but offer more benefits and services  (such as national healthcare) which will increase the debt as well. This is in the wrong direction – each candidate should have plan to significantly pay down the debt.

I recognize fully we have poverty issues, income inequality issues, terrorist issues and corruption issues. These must be dealt with. But, at least we are talking about these issues. We must address these other issues or our children will be screwed. It is that simple. And, they will be more than full of woe. They should be angry that we did not address our problems and left them holding the bag.

 

 

A few ideas on the US deficit and debt

I have written in the past few years (and weeks) about the US deficit and building debt as it is a ticking time bomb. We failed to reach a grand bargain early in the Obama presidency after the marvelous efforts of the Simpson-Bowles Deficit Reduction Committee. And, that is unfortunate as it was a terrific model to start legislative conversations. While I think the President has done a pretty good job, I see shelving the Simpson-Bowles work as his biggest failure.

Recently, I cited the sixteen myths about our deficit and debt problem in the US, that I gleaned from a bipartisan organization called Fix the Debt which can be found at http://www.fixthedebt.org. As with the efforts of Simpson-Bowles, reducing the debt cannot be done by panacea and will require bipartisan trade-offs that include a mix of revenue increases and spending cuts. The Simpson-Bowles recommendations blended about 1/3 tax increases with 2/3 spending cuts to make huge strides in reducing the debt.

It will definitely not be accomplished by tax cuts as proposed by the two leading GOP candidates for president, who former GOP Senator Alan Simpson said would so significantly increase the deficit, that there are not enough spending cuts to bring the deficit down. Both leading candidates tax proposals have been scored unfavorably by The Concord Coalition, another bipartisan deficit and debt reduction group in this regard, which is a concern, especially with one of the candidates touting how much of a deficit hawk he is.

Solving this problem will require trade-offs and both political parties will need to check their baggage at the door. From an exercise called “Debt Busters, An Interactive Budget Education Exercise by The Concord Coalition” which can be found at http://www.concordcoalition.org, here are few examples of what can be done. This is not a complete list, but is indicative of the kinds of options that could be considered. Note, the numbers reflect the impact on the deficit over the next ten years as measured by the Congressional Budget Office.

Spending Cuts

It should be noted the three largest areas of spending are Medicare/ Medicaid, Social Security and Defense.
  • Reduce healthcare spending by adding a public option to the Affordable Care Act (ACA), limiting the subsidies to people making 3 x the poverty limit or less (it is currently 4 x)  and limiting malpractice suits = $327 Billion deficit decrease
  • Reform Medicare Part B premiums to be 35% of the cost (closer to the initial intent of 50%) and convert federal share of Medicaid payments to a fixed annual block grant = $749 Billion deficit decrease
  • Reduce specified defense spending deferring development of a long-range bomber and number of ballistic submarines = $41 Billion deficit decrease
  • Reduce domestic spending by reducing the size of the federal workforce through attrition = $49 Billion deficit decrease
  • Increase Social Security retirement age gradually to age 70 and calculate cost of living adjustments based on consumer good price changes = $217 Billion deficit decrease

Revenue Increases

Increasing revenue is something that has to be considered. Strong opinions flavor this discussion, but this is where the exercise earns its keep, as it let’s folks consider the trade-offs and priorities.

  • Increase the Social Security Taxable Wage Base to $177,500 from its current limit of $118,500 which would draw in more FICA taxes = $672 Billion deficit decrease
  • Increase gas tax to 35 cents per gallon (or something equivalent in mileage tax) earmarked for Highway Trust Funding = $469 Billion deficit decrease

I purposefully stayed away from more tax increases, but reconfiguring our tax code to get more corporations to keep revenue taxed here and simplifying our individual tax code should be considered. Those ideas could be deficit neutral or deficit reducing, but we should think very hard about lowering tax revenue as we cannot afford it in my view and the view of the above bipartisan sources.

Please check out these websites and speak with your congressional representatives and senators. And, ask candidates pointed questions about their plans. Their failure to do something about an obvious problem, telling us what we want to hear via promised tax reductions, does not help us and is a reason our younger adults are frustrated. They will be the ones who have to bear the burden of our poor stewardship.

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.