Letter to my Republican Senators on Debt Ceiling

I posted the following letter on my two Republican Senators’ websites. If you agree with its theme, please feel free to modify and use.

Dear Senator, as a retired business consultant and manager, I am disappointed in the Republican Party stance on the debt ceiling. I am glad eleven Republicans did the right thing and passed a measure to allow it to be raised for several months, yet I was disappointed you were not one of the eleven.

I have long been concerned with our building debt and annual deficit that has gotten worse. We need to address this issue when we discuss spending and revenue, not with the debt ceiling. Our reputation to our creditors is essential. To be frank, as an independent and former Republican, my former party is only concerned with debt ceiling when they are not in the White House. It did not seem to bother the party when it increased under Trump.

Yet, what also concerns me is the hypocrisy of both parties. The GOP passed a tax reduction in December 2017 that raised the debt by $2 trillion, approximately. And, we passed two pandemic aid bills that to me should have been directed at employers to keep people employed and not furlough them, as well as helping folks not working. We missed opportunity and spent poorly.

We need the infrastructure improvements which are ten years overdue. Yet, we must figure out ways to start bringing the debt down before the interest cost approaches the military spend in our budget.

Solving this problem requires data and effort, not sound bites. I have seen the Committee for a Responsible Federal Budget do an exercise in Rotary or college groups that ask tables of people to solve the Social Security deficit. Armed with about two dozen ideas and price tags, these tables can solve the Social Security deficit in 90 minutes.

Solving the bigger problem can be done and will take time, but not if we never start to do so.

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.

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.

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.


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.

A few painful truths

We are overlooking some very painful truths primarily for short term gain. As I chatted with staff members for several US Senators, I found myself saying “you sound like a young person; you do realize we are leaving this problem for you?” I hope they start thinking more about what I said because of what we are ignoring.

The reason for my question is Congress has passed one Tax bill and is debating another that will increase our $20.5 trillion debt by at least $1.5 trillion. Yet, not only are we ignoring the $20.5 trillion debt, we are ignoring that the Congressional Budget Office projects that figure to grow by $10 trillion without the Tax bill impact. So, in 2027, the debt could be $32 trillion if the Tax bill is signed into law. This is beyond poor stewardship – it is malfeasance. We would be screwing those young staffers I spoke with.

Unfortunately, there is more. Our leadership has decided to make the US the only country in the world to not support the Paris Climate Change Accord. Not only are we denying hard truths and overwhelming scientific evidence, we are shooting ourselves and planet in the foot. Renewable energy is passed the tipping point and we risk getting left behind as other nations invest in Innovation for the new economy. Fortunately, cities, states and businesses are carrying the banner dropped by our leadership, who is being relegated to the kids table at Thanksgiving. At the next post-Paris event, the US may not be invited at all. If we don’t deal more decisively with climate change, we will be screwing those young staffers and their children.

A final issue to mention, but not the final problem we are ignoring, is the US is retrenching from our global leadership role to the delight of China and Russia and chagrin of our western allies. The President gave a speech in Vietnam this month similar to the one made in Davos earlier in the year. America will retrench to a nationalistic country seeking bilateral agreements. On each occasion, his speech was followed by Xi Jingping who gave the global leadership speech the US normally gives. What our President fails to understand is globalization lifts all boats and our economy benefits more than if we look to maximize only our share. This concept has been called the “Nash Equilibrium” in honor of the Nobel Economics prize winner who developed it, John Nash. If we retrench, we will be harming our future growth and screwing those young staffers.

As I mention, these are not the only things we are ignoring – poverty, job losses due to technology advances, healthcare costs, environmental degradation, infrastructure, better gun control, etc. Yet, should we not alter our path set by these leaders, this path will be defined in the future as the period when the US gave up its global leadership role. And, the world will be a lesser place because of it. Sadly, I have witnessed these words spoken by more than a few global financial and security experts.