[image_credit]REUTERS/Brenna Norman[/image_credit][image_caption]One important issue that has largely been ignored is the management of the U.S. budget deficit and long-term debt.[/image_caption]
One important issue that has largely been ignored is the management of the U.S. budget deficit and long-term debt.
Over the first four months of the current budget year — October-January — the annual deficit has increased 19 percent from a year ago. After eight years, America is once again on the fiscal path to record a $1 trillion annual deficit and will be borrowing money to meet expenditures.
Long-term debt now $23.25 trillion
The Congressional Budget Office (CBO) projects the annual deficit will remain above $1 trillion through the next decade unless current plans are changed. Meanwhile, the long-term debt is now $23.25 trillion. That’s 23 followed by 12 zeros or more than $65,000 for each American.
President Donald Trump’s budget plan, announced on Feb. 10, for the 2021 fiscal year proposes spending $4.8 trillion. He calls for holding down the deficit by making cuts to domestic programs like food stamps and Medicaid. The plan projects that if Congress goes along with the president’s spending cuts — which is highly unlikely — the budget would return to balance in 15 years.
[image_caption]Chuck Slocum[/image_caption]
Spending grows faster than revenue
According to the Committee for a Responsible Federal Budget, “rising long-term deficits are driven by a disconnect between spending and revenue. In particular, spending on Social Security, the major health programs, and interest payments on the debt will grow faster than revenues over the long term.”
Over the next three decades, CBO projects spending will grow from 20.7 percent of GDP to 28.2 percent by 2049 – well above the post World War II record of 24.4 percent of GDP and even farther above the 50-year average of 20.3 percent of GDP.
Revenue will also rise, though not nearly as quickly. CBO projects receipts will grow from 16.5 percent of GDP in 2019 to 18.3 percent by 2029 and will further climb to 19.5 percent of GDP by 2049. The 50-year average for revenue is 17.4 percent of GDP and the post-World War II record of 20 percent set in 2000.
What to do?
Americans deserve to know about the views of national policymakers, especially from presidential candidates and those seeking election to the U.S. Congress, regarding our nation’s fiscal solvency.
Here is a checklist of five factors shaping how to approach the key debt/deficit issues, prepared by economists at George Mason University.
- Tax hikes of various kinds must be on the table.
- Mandatory spending (mostly Social Security, Medicare, and Medicaid) is 70 percent of federal spending.
- Defense is the largest discretionary spending program.
- Mandatory spending, already built into budget building by law, is growing faster than discretionary spending.
- There are about $6 trillion in potential options for savings over the next decade, according to the CBO, which deserve consideration to help our nation turn the fiscal corner.
Minnesota comedian Louie Anderson once famously said in a stand-up routine, “We all think we’re going to get out of debt.” He got a good laugh. The audience, I suspect, was not based in Washington, D.C.
Chuck Slocum is president of The Williston Group, a management consulting firm. He has long been active in a national initiative to “Fix the Debt” and can be reached at Chuck@WillistonGroup.Com
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By 2024 Medicare runs out of special treasuries to redeem. That puts an immediate 800+ billion on the annual deficit (that 800 billion will also rise). The proper way to fix the debt and spending problem starts with fixing healthcare by enforcing the Sherman Anti Trust Act (Among others). That would drop all spending on healthcare by at least 80% immediately. It would put us back to the 3-4% of GDP that Healthcare used to be. That would cut over 1 trillion in annual spending from the federal budget and pretty much eliminate the current deficit. A few more tweaks and we could run a permanent surplus that could be used to pay down the debt and further reduce overall spending (by paying less interest).
I think you are looking in the right location. Spending on healthcare is the largest deficit driver and the spending is growing the fastest. It is also driving bankruptcies for people who do not have access to Medicare. Single payer healthcare, if implemented as it is in many other countries, would dramatically decrease health care costs in the United States. This would improve both the federal and family budgets.
The other half of the coin is that it is clear that tax receipts, especially during an economic expansion, need to be at least near the 50 year average of 20% of GDP and probably closer to 25%.
The next likely alternative to dealing with the deficit through taxing and shrinking the medical sector of the economy is to shrink it through inflation.
Single payer solves nothing. The costs end up being nearly the same as we have now (go look up how broke most of the EU is now and it’s mainly from healthcare) and you get worse care due to rationing to control costs.
The free market is the only system that can drive costs down and quality up. We don’t have that due to all the monopolistic practices throughout the system. What boggles my mind is how people refuse to address the fact that they are being ripped off daily but they sure got mad when Standard Oil did the same things back in the 19th century. Every person in America is being robbed of 25 dollars a day via the rigged medical system. Why do people not complain about it yet if Wal-Mart or Target has the same practices they’d be picketing with torches and pitchforks?
As for revenue. You will never get 25% of GDP in revenue. People will simply stop paying or avoid the taxes. There is a limit as to how much you can tax people before they find ways to avoid it (like lowering their taxable income). We don’t need any more revenue. We need massive spending cuts. You have a much better economy when people get to keep what they earn.
“Single payer solves nothing. The costs end up being nearly the same as we have now (go look up how broke most of the EU is now and it’s mainly from healthcare) and you get worse care due to rationing to control costs.”
This is all untrue. False. A lie if you will.
Those “broke” European countries spend half of what we do and have similar to remarkably better (infant mortality) results.
You keep ignoring they don’t have to pay for a lot of what we pay for.. like all the R&D for drugs. If they did, their costs would skyrocket as well. You also keep forgetting that most of the EU is NOT bordered by a bunch of 3rd world nations that keep sending us their poorest/sickest/most violent people. Rating a healthcare system solely on infant mortality rates without accounting for all of the variables is a joke. (don’t forget all the birth tourism that happens here as well).
Our spending on Healthcare per capita would be less than Mexico’s if we simply enforced the anti trust laws and stopped all the monopolistic behavior. Btw, that’s less than half of what the UK is spending right now and would put us about 38th or lower in the world in spending. You want to argue costs? My solution costs a fraction of what single payer would cost and outcomes would be the best in the world.
The EU doesn’t pay for R&D? Baloney! What are some of those “lots of other things” they don’t pay for?
The EU takes in far more refugees and immigrants from third world countries than America does.
Your “solution” doesn’t hold water because you use bogus numbers and made up “facts”.
Yup, if you want to see Europeans rolling on the floor with laughter, try telling them that their countries “don’t take in refugees and immigrants from Third World countries.”
I saw Chinese and Indian immigrants running businesses in *Iceland,* for heaven’s sake.
Yes they should ignore them.
The Federal deficit will top 1 trillion dollars this year, having caused it with his ill-advised tax cut fo the wealthy you can bet Donald will be ignoring it.
The tax cuts did no increase the deficit. Revenue is up for both consumer and Corp taxes. The deficit is caused by too much spending and the 8+% annual increase in healthcare spending leads the way.
“The tax cuts did no increase the deficit. Revenue is up for both consumer and Corp taxes.”
This is false. Untrue. A lie if you will.
From the Wall Street Journal five days ago: “Federal tax revenue declined 0.4% in 2018, the first full calendar year under the new tax law, despite robust economic growth and the lowest unemployment rate in nearly five decades.”
Bonus paragraph!:
“A senior Treasury official attributed the weaker revenue collection in 2018 to the sweeping changes to U.S. tax code that took effect last year, including lower corporate and individual income-tax rates.”
You’re forgetting what tax revenue SHOULD have been, absent Trump’s (reckless and wholly unnecessary) across the board tax cuts–plus corporate, plus estate. Obviously, reducing (potential) federal revenue while running a (debt-fueled) spending expansion explodes the deficit and national debt, while giving the illusion of a “sound” economy.
Pretty basic stuff. Quite the CEO we’ve got, eh? And please spare me the “What about Obama!”, thank you.
Deficits and debt at current levels are not a problem. National debt is nothing like normal family debt. A country, borrowing in it’s own currency, is like an unusual family that only borrows from itself. The uncle’s debt payments, is the mom’s investment income, for example.
For the US, the vast majority of the debt is owned by US citizens and businesses. A substantial pay down of the debt would cause huge liquidity problems. A huge drop in the deficit would likely cause a recession.
The current problem is that the deficit is being used to give the wealthy tax reductions, rather than being used for the massive investments needed to switch to a nonfossil fuel economy and rebuild our neglected infrastructure.
It seems that deficits only get talked about when the Democrats are in power or about to take power. That’s because this talk is a Trojan horse, used to claim we cannot make needed investment is social services, education, and healthcare.
That entire comment is just wrong on a math and economic level. Debt and deficits do matter because they are sapping the wealth and purchasing power of the people. Every time debt is created by deficit spending its unbacked and thus expands the money supply (inflation). That harms everyone that isn’t making at least 10% annual gains which would be the bottom 99%. Eventually the credit rating of the nation will be junk status and they won’t be able to sell their bonds to anyone but the FED. That leads to hyperinflation. The only reason the FED would still buy is because they are required to by law via the primary dealers.
Reducing the debt and deficit would bankrupt those who should have gone bankrupt long ago. That’s a good thing esp If it’s many of the big banks. It would return us to an economy where 1 income families would be viable again (and the norm). People would see wealth gains even if they weren’t getting big raises because real inflation Would be zero if not deflation.
Deflation?? That is far more dangerous to the economy than the modest level of inflation we have experienced for a long time now.
Slocum’s take on our deficit problem is disingenuous, to say the least. He puts all the onus on Democrats, knowing that Trump’s tax cuts are a huge factor in the national debt today and into the future, and that Trump will only make it worse if he continues in office beyond his first term and Republicans continue to control the Senate.
Let’s calm down. Republicans are almost always the source of gigantic national debt and Democrats, when they get into office, almost always find ways to pare it down.
All one needs to do to see that happening is to look at what the Obama administration was able to do to reduce the debt after it got a handle on the Republican-caused Great Recession and reversed that damage. The Clinton administration was also able to reverse Republican debt problems.
What we have to do is elect a Democrat to the Presidency. Any Democrat. And try to elect Democratic majorities in the House and Senate as well.
What we don’t need is more suggestions that we cut, cut, cut social benefits, as Trump has already been doing–while he robs the military of many tens of millions of dollars for his “wall” on our border with Mexico and de-funds most federal scientific endeavors and research departments throughout the executive branch.
Tax revenues are up yoy for both consumer and corporate. Corp tax revenue is up over 26% yoy. So you may want to go look at the facts before you use talking points that have long been debunked. The tax cuts did not add to the deficit, the spending did.
Healthcare spending is up 12.7% yoy when it’s normally been between 8 and 9% growth annually since 1980. That is where the deficits are coming from.
FYI, Presidents don’t create the spending, Congress does. The 2008 crash was due to Democrats in Congress refusing to fix Fannie and Freddie or do anything on spending. You also might want to look at what Pelosi and Schumer did in 2007 when they added 700 billion to the budget in new spending (Bush should have vetoed it but he wanted all that money for his wars).
From the Wall Street Journal five days ago: “Federal tax revenue declined 0.4% in 2018, the first full calendar year under the new tax law, despite robust economic growth and the lowest unemployment rate in nearly five decades.”
Yoy. You might want to look at the facts yoy.
Tax cuts add to deficits yoy.
Still wrong. WSJ must be playing with numbers. Here is the data from the CBO as of 1/19/20
FY 2020 $3.71 trillion (estimated)
FY 2019 $3.46 trillion (actual)
FY 2018 $3.33 trillion
FY 2017 $3.32 trillion
FY 2016 $3.27 trillion
FY 2015 $3.25 trillion
FY 2014 $3.02 trillion
3.33 is bigger than 3.32 in my book. Seems to depend on the source of the data.
The numbers are from the Treasury Department. The people who actually collect the money.
Unfortunately, CNN, like all other networks, thrive on controversy and hype.
These debates have been disgusting.
Scripted questions with reply times limited to as little as 30 seconds are not debate. They’re compressed so networks can air ever increasing commercial time.
Deficits and long term debt are considered boring by networks, therefore the scripted questions don’t address such, but ‘who said what’ about other candidates is red meat to networks.
I would submit that the ‘limited attention span’ of the American voters is the main driver of an election outcome that allowed Trump to become POTUS.
My thanks, as is often the case, to Connie Sullivan, and especially, in this case, to Tim McCarthy, for bringing some truthful information to counter Mr. Barnes’ right wing propaganda.
Propaganda huh? Hardly. I’ve only listed factual data here on this story and you can look up the numbers for yourself, they are publicly available from the government itself.
Here is the Jan 2020 treasury statement: https://fiscal.treasury.gov/files/reports-statements/mts/mts0120.pdf
Look at table 3 for revenue figures compared to last year. The bigger problem is the drastic increase in healthcare spending
It’s convenient that your numbers do not account for inflation nor economic growth.
Come now, deficit scolds are SO 2010. But hey, austerity sadists are gonna run out of places to opine soon enough (not much of a market when everyone’s life is involuntary austerity under autocrat) best get while the gettin’s good.
Take in more, spend less, or both? Whose Ox gets gored? Bottom line, if these are the best of the best of the best of times, why are we running $T+ and climbing deficits, with additional economic stimulus in low interest rates and the Fed Bond purchasing program? Actually looks like an economy on crutches or drugs. Pretty clear to see Economics is not many folks strong suit.
Associated Press 2-13-2020:
“Through the first four months of this budget year, government spending has totaled a record $1.57 trillion, up 10.3% from the same period last year. Revenue also set a record for the first four months of a budget year, increasing by 6.1% to $1.18 trillion.”
Revenue is up despite the tax giveaways, but spending (which originates in the House of Representatives) is up way more. Thank your congressional representatives who voted for the increased spending.
From the Wall Street Journal five days ago: “Federal tax revenue declined 0.4% in 2018, the first full calendar year under the new tax law, despite robust economic growth and the lowest unemployment rate in nearly five decades.”
Don’t recall the big guy demonstrating any fiscal responsibility by vetoing anything! Credit were credit is do, (lower deficits under Obama) and they weren’t the best of the best of the best of the best ever of times! Remember, Trump can do everthign and anything, just ask him, including putting $1.5T off tax cuts for the wealthy on the credit card.
Very interesting comments and data.
On the larger point, whether the nation should “care” about the fiscal position of the federal government, I have to say that conventional macroeconomic policy supports Mr Barnes, at least in theory: the running of perpetual deficits, with concomitant substantial increases in national debt, paid for by the issuance of debt (treasury bonds) denominated in the national currency, should at some point begin to reduce the value of the currency.
This is not to say that the federal budget must always “balance” (it need never perfectly “balance”), but it is to say that complete and utter fiscal mismanagement (as practiced by the “conservative” movement with its endless fiscal lies) will ultimately have very unfortunate economic effects, if the history of (deficit-spending) empires is any guide.
To say otherwise is to say that the perpetual mismanagement of the nation’s finances by the reckless “conservative” movement is not a significant problem, and that the Dems persistent efforts over the course of 40+ years to right the mismanagement (when they are called in after the inevitable crash caused by conservative misrule) is not admirable or necessary.
In 2017, our conservatives committed the most unpardonable macroeconomic sin—they significantly cut taxes during an economic expansion. This is the very worst time to cut taxes, and is when revenues should be significantly increasing and restoring the government’s fiscal position. Instead, Trump’s debt policies caused us to go in the opposite direction, as we can see by the massive Trump Deficits.
Obviously, there are no natural laws that determine when reckless fiscal policies run by a government will result in a debt-induced financial calamity. Once an inflation starts, then interest rates must begin to rise, which contracts investment and consumption and leads to recession. Then the interest on the (huge) national debt begins to rise, and it must be paid, creating even larger deficits, and a death spiral can come about.
So what to do? The most sensible thing to do is look for additional revenue sources and expenses to cut. But raising taxes is extremely difficult; this is what the insidious “conservative” movement relies upon. They (always!) cut all taxes more and more, knowing that raising them is just about the most unpopular thing a party can advocate.
Since it is simply irrefutable that conservative tax policies over the past 40 years have resulted in astronomical increases in the wealth of the richest 1-5%, it is reasonable to now look to them to begin paying a fair share in order to right the Treasury. Thus the wealth tax proposed by Warren is salutary: the billionaire (and 1/10 billionaire) class need to pay some back. Further, as Bernie maintains, taxes can be levied on financial transactions, as well as on the financial fund managers, who currently enjoy some ridiculous loopholes. And of course there should be a minimum corporate tax, so these “zero tax”[!] multinationals cough up some dough. There are plenty of targets for additional revenue.
But the real target of a sane federal budget of course has to be the trillions of national wealth that we are pouring down the “defense” rat-hole, year after year after year, for no good reason whatsoever. Unless America can rid itself of its insane militarism and “national defense” addiction, it is very difficult to see how the government’s finances can be put on a sound footing, because we certainly are not going to sacrifice social programs like social security and Medicare, nor abandon efforts to reform health insurance.
We simply cannot as a nation afford our mindless militarism any longer. That’s the reality.
“But the real target of a sane federal budget of course has to be the trillions of national wealth that we are pouring down the “defense” rat-hole, year after year after year, for no good reason whatsoever. Unless America can rid itself of its insane militarism and “national defense” addiction,”
It is true that our national defense spending is the same as Medicare spending. One ensures the safety of the free world (since other nations are reluctant to pony up as the President suggests) and the other pays for the health insurance of maybe 20% (I hope it’s not that high) of Americans. Bang for the buck? You decide.
Our defense spending has little if anything to with defending the “free”world. It’s about projecting our power and policy, and bolstering defense contract profiteering. You’re “choice” between freedom or health care is fiction pretending to be fiscal reality.
Apparently we are not providing the bulk of military protection for the free world. Please list the countries that are, and the sums of money that they spend every year to keep US safe.
I only point out that our defense spending equals the Medicare spending, and not more.
The military/industrial establishment, which is not even audited, has massive fraud, waste, and abuse, and results in more debt than any of the social programs that benefit average Americans, but the corporate press rarely, if every, mentions it. Never do we hear, “How are we going to pay for it?” when it comes to military spending.
For right wingers who often lament “politically correct” talk, perhaps we should return to calling it the War Department rather than Defense, since most of our incursions are offensive, not defensive.
If your worried about debt and deficits you have to pay them off or down, it’s that simple. Magic doesn’t pay the bills and decades of magical thinking has given us this crises to the extent that it’s a crises. You spend decades voting for candidates who promise to “fix” it by tweaking taxes and attacking “entitlements” what do you expect?
Fiscal irresponsibility and concentrated wealth has become a standard feature our failed bipartisan regime, and all but two of our candidates are promising more of the same. Whatever.
As every Conservative’s favorite VP, Dick Cheney, told us:
“Deficits don’t matter, Reagan proved that”
The stagnation of working class wages from the 80’s to today offered only one small silver lining to those folks: Upon retirement your healthcare costs and SS pension benefits will be there for you.
To now say:
“Whoa there fellas, we got big deficit problems and to unravel them we’re going to need to trim back those things a little”
Is disingenuous horse crap.
The working class folks paid at the office and asking those on the plus side of wage separation to step up is perfectly fair. Beginning with lifting the yearly cap on FICA contributions along with any other manner of progressive taxation that protects and grows SS and Medicare.
Trump told his buddies at Mara Lago:
“I just put a bunch of money in your pocket!”
And the “clean coal” saps and their like who believe in Trump fairy tales and voted for him got screwed again.