Category Archives: Debt and deficits

Immigrants needed to pay for Social Security, Medicare

Immigrant, immigration, immigrants
New Americans take the Oath of Allegiance in Little Rock.

By Steve Brawner

Arkansas Sen. Tom Cotton’s proposed RAISE Act he’s co-sponsoring would limit legal immigrants. But without many more young people coming to America, how are we going to pay for Social Security and Medicare?

Cotton’s argument – and President Trump’s – is that the current laws let in the wrong people and depress wages. His RAISE (Reforming American Immigration for a Strong Economy) Act would award points based on education, English proficiency, high-paying job offers, age, achievement and entrepreneurial initiative. The current system instead gives preference to extended family members. The RAISE Act also would limit  the number of refugees offered permanent residency to 50,000.

An immigrant nation

Focusing on the world’s best and brightest kind of flies in the face of Emma Lazarus’ poem at the base of the Statue of Liberty. (“Give me your tired, your poor, your huddled masses yearning to breathe free. … I lift my lamp beside the golden door!”) That poem’s “wretched refuse” traveled across the ocean with nothing and then built America. As the Washington Post’s Philip Bump pointed out, Trump’s immigrant grandfather, Friedrich Trumpf, likely would not have qualified for entry under the RAISE Act.

Continue reading Immigrants needed to pay for Social Security, Medicare

Here’s what the world owes: $217 trillion

By Steve Brawner

© 2017 by Steve Brawner Communications, Inc.

If the $20 trillion national debt concerns you, what about $217 trillion?

That’s how much public and private debt now exists worldwide, says the Institute of International Finance, a worldwide financial industry association. That’s the equivalent of more than $29,000 for every human – and this despite 71 percent of Earth’s population living on $10 or less per day, according to the Pew Research Center.

The $217 trillion is a record, with the increase over last year driven by developing nations, including China, where the IIF says total debt now equals $33 trillion. Advanced economies actually reduced their debt in the past year by $2 trillion, but developing countries increased theirs by $3 trillion.

Not that Americans aren’t doing their part to add to the total. In the United States, the $20 trillion national debt equals almost $61,000 for every American – and that’s only what the federal government owes. Arkansas, whose Revenue Stabilization Act supposedly guarantees a “balanced budget,” still owes billions for bond repayments, retirement benefits and other expenses. Student loan debt in the United States now equals $1.3 trillion, meaning Americans owe more for their educations (or uncompleted ones) than they owe to their credit card companies – which, by the way, has risen to more than $1 trillion, the most since the recession in 2008. It seems that, as in parts of the developing world, debt not only creates wealth, but wealth also creates debt.

Global debt is a topic slightly above my pay grade, but I do understand Proverbs 22:7: “The borrower is slave to the lender.” I also understand gravity. What goes up must eventually come down. We should be wary when borrowers owe lenders and lenders owe other borrowers who owe other lenders – on a global scale. What happens to this house of cards when someone really important starts doubting they’ll get their money back, and acts in their own self-interest?

Here’s where conspiracy theorists might say this all has been orchestrated by some mysterious “they” bent on world domination. In reality, global systems and technologies are evolving so rapidly and so expansively that no one could have planned it all, no one can understand it all, and no one can control it. In many ways, the world has changed more in the past 150 years than it did in the previous 1,000. And yet we’re all walking around with brains the same size as our great-great-grandparents’, with the same basic needs and fears. Humans, whether American, Chinese or Bangladeshi, want what they don’t have, so systems are developing that will feed that need, the result being $217 trillion in worldwide debt, with consequences that can’t be prepared for.

You and I can’t do anything about China’s debt or even the $20 trillion the U.S. government owes except vote for fiscally responsible candidates, if we can find them. What we can do is limit our part of the $217 trillion by living off our bank accounts rather than our credit cards, by buying the homes we need instead of treating them as “investments,” by seeing cars as merely a necessary mode of transportation and not a status symbol, and by obtaining educations that pays dividends, not simply going off to college without a plan because it’s the next thing to do after high school.

Having less debt, or no debt, would be the best insurance policy in case this entire worldwide system eventually undergoes a correction.

It might even lead to more responsible policymaking by our elected officials. It’s not a coincidence that Americans owe, and so does our government. In a representative democracy, we not only get the government we deserve, but, ultimately, the government that we are.

Math beats myth, this time

By Steve Brawner
© 2017 by Steve Brawner Communications, Inc.

Wednesday saw the triumph of math over myth, in one state.

That would be Kansas, where the Legislature overrode Gov. Sam Brownback’s veto of tax increases made necessary by his previous tax cuts. We’ll see how this applies to Arkansas later in the column.

What happened in Kansas was in 2012, Brownback pushed through the Legislature huge tax cuts that weren’t accompanied by sufficient spending decreases. He said the tax cuts would spur big economic growth. They didn’t.

The state ever since has been a fiscal mess, and a cautionary tale for other governors. This year it faced a $900 million budget deficit along with an order by its state Supreme Court to increase funding for public schools.

Kansas’ previous policies were based on a commonly believed myth – that if you cut taxes, the economy will grow and the tax cuts will pay for themselves. Thus, you don’t really have to cut spending.

The math is quite different, as proven time and again. Tax cuts can spur economic growth, but not enough to make up for the lost revenue. A minus sign doesn’t become a plus sign just because a politician says it’s so. To make the equation work, it’s very simple – just cut spending too. If you don’t have the courage to do that, don’t cut taxes.

The easy decision is to cut taxes without cutting spending. That makes everyone happy until the bills come due, which can take a while. The easy decisions of the Kansas Legislature of 2012 left the Kansas Legislature of 2017 with hard choices – more taxes, less spending, more debt, and/or violating a court order. So after the 2012 Legislature played Santa Claus, today’s legislators had to be Scrooge.

The result was the Legislature passed a $1.2 billion tax increase that Brownback, still determined to be Santa Claus, vetoed. On Wednesday, legislators overrode that veto knowing they’ll have to tell their primary voters that they voted for a tax increase.

It’s ironic this all happened in Kansas, the state that produced President Eisenhower, under whose administration the federal budget was balanced three times in eight years and almost balanced every other year.

If you’re wondering why this is relevant to Arkansas, it’s because your elected officials at the state and national levels will be spending a lot of time talking about taxes and tax cuts.

At the state level, taxes were cut in 2015 and 2017, and now Gov. Asa Hutchinson and other elected officials want to further reduce rates and simplify the tax code to make the state more competitive with its neighbors. A task force is meeting to craft legislation for 2019. For the math to work, the state must eliminate deductions, but each one will have its own constituency that will fight to protect it. On Wednesday, the task force hired a consultant to determine exactly what deductions are littered throughout the code.

Arkansas has a history of being fiscally responsible and has mechanisms in place through the Revenue Stabilization Act to produce a balanced budget. But mechanisms can be overridden or worked around. The Legislature is going to cut taxes. Hopefully, it will offset all of them by closing deductions and with spending cuts, lest Arkansas look like Kansas without the “Ar.”

More concerning is what’s happening at the federal level, where President Trump wants spending increases for the military and the border wall and has proposed spending cuts that largely won’t happen. He wants to leave untouched the government’s biggest programs, Social Security and Medicare.

Meanwhile, he and other Republican leaders have been promising tax cuts that they really, really want. Speaker of the House Paul Ryan was Brownback’s legislative director in the 1990s when Brownback was in Congress.

For a long time, Washington has behaved like Kansas, with much more disastrous results. Taxes have been cut under the theory that they would pay for themselves, spending has been increased, and the national debt has reached $20 trillion, or $62,000 for every American.

Arkansas’ six members of Congress could, as has happened so often, act like the 2012 Kansas Legislature and play Santa Claus, letting a future Congress somewhere down the line be Scrooge.

Let’s hope they instead base their decisions on math, not a myth. Santa Claus isn’t real, but the bills that come due after Christmas are.

Related: $23.33 less debt

Tax cuts and rosy scenarios

By Steve Brawner
© 2017 by Steve Brawner Communications, Inc.

Let’s say you’re planning next year’s family budget.

Should you (A) be honest about what you’ll probably spend and as realistic as possible about your likely income, taking into account there could be an unexpected downturn? Or (B) assure yourself you’ll get a big raise, tell yourself prices will fall, increase your spending, and obligate yourself based on a rosy scenario?

I hope you answered (A). Otherwise, I didn’t do a very good job writing that first paragraph. If you’re the architects of President Trump’s first budget outline, you instead chose (B).

The budget, released tellingly while Trump is out of the country, promises to transform the annual budget deficit that will be $559 billion this year into a $16 billion surplus by 2027. We’d still have the national debt – currently $20 trillion and growing – but at least we wouldn’t be adding to it.

Unfortunately, the budget relies on that aforementioned rosy scenario to get there.

On the spending side, it increasing money for defense while proposing cuts to spending programs, including popular ones such as Meals on Wheels, that are so deep that even conservative Republicans in Congress won’t support them. Meanwhile, it leaves untouched the primary drivers of the increasing national debt, Social Security and Medicare.

Meanwhile, Trump is promising tax cuts he says will spur so much growth they’ll pay for themselves – a promise that won’t come true, according to the nonpartisan Committee for a Responsible Federal Budget. Moreover, Trump’s budget relies on projections of 3 percent economic growth per year – an unrealistic number, considering the Congressional Budget Office expects the economy instead to grow 1.8 percent annually over the next decade.

I said “unrealistic,” not “impossible.” According to the Committee for a Responsible Federal Budget, the economy has averaged 3.2 percent growth since 1950, and there have been times when it grew even faster – 4.3 percent in the 1960s and 3.5 percent in the 1990s.

The difference between now and then is us, says the Committee. We’re now an older country, and certain to grow older. The baby boomers are now retiring, and retired people produce less than working people. Meanwhile, as the number of older Americans increases, so does the number of people accessing Medicare and Social Security, which, you’ll recall, President Trump’s budget doesn’t touch.

Given the fact that 70-year-olds don’t usually have children, the fastest way to reduce the age of the workforce is to import workers from the outside. But even that would be only a partial solution causing other problems. Besides, as you may have noticed, increasing immigration is not exactly a priority of the president’s, or of Arkansas’ Sen. Tom Cotton, for that matter, who argues that immigrants compete with Americans for lower-wage jobs.

It’s possible that some kind of private sector advance could spur the economy, much as the dot-com bubble helped make the 1990s boom possible. But remember, we call that a “bubble” for a reason. Anyway, we’re already in the middle of one of those advancements. Technological innovations have let the United States approach energy independence, and gasoline is cheap right now. Nevertheless, the economy’s been plodding along for years – not terrible, but not great.

Because of all these factors, the Committee for a Responsible Federal Budget says Trump’s plan will reduce revenues by $5.5 trillion. This would occur at a time when government expenditures for Social Security and Medicare are destined to increase, as will interest payments on the debt. And let’s face it, Congress isn’t going to cut spending drastically for Meals on Wheels.

Instead, the U.S. government should do what a prudent family does: Base its budgeting on what’s likely to happen – actually, worse than that – and on the basic math principle that subtracting from your income does not add to it. It doesn’t have to expect the worst-case scenario, but at least it shouldn’t depend on a rosy one.

Related: $23.33 less debt