Category Archives: Debt and deficits

We won the lottery, but who bought the ticket?

Debt and deficits, Legislature, Politics, State government, U.S. Congress

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

Should welfare recipients be required to pay back the state if they win the lottery? Maybe the better question is, should all of us?

Those questions came to mind after hearing a presentation by Rep. John Payton, R-Wilburn, of his House Bill 1825 before the House Rules Committee at the State Capitol Wednesday.

The bill would require lottery winners to reimburse the state for their last 10 years of Department of Human Services benefits, such as the Supplemental Nutrition Assistance Program, formerly the food stamp program.

Payton said the lottery is a bad deal for poor people, who gamble their sparse dollars with the odds stacked mightily against them. This arrangement would make them think twice about doing that and remind them that their benefits come from the taxpayers.

In addition to Payton, the bill has 26 co-sponsors in the House, but it’s likely not going far. One committee member requested a fiscal impact statement, which will delay the bill’s progress. Legislators are hoping to go home at the end of March, which is fast approaching.

Still, if part of the idea is to make welfare recipients consider the source of their government benefits, then let’s consider the bigger picture: As a nation, we are all receiving government freebies.

In 2017, the Congressional Budget Office projects the United States government will spend $4 trillion but collect only $3.4 trillion, producing a deficit of $559 billion. That means the government is spending about $1,700 more than it collects per American, or almost $7,000 for a family of four.

Think you don’t benefit from that? Of that $4 trillion, almost a fourth went to Social Security in 2016, which benefits all of us – recipients directly, future recipients because it offers a guaranteed retirement plan, and families because they expend fewer resources taking care of their elderly relatives. (Yes, there’s a trust fund – but not really. In effect, the tax dollars go into one pot.) Another $588 billion goes to Medicare, which offers the same benefits. About that same amount pays for the United States to maintain by far the largest military in the world, which we’re all generally glad we have even if some of us would be OK with it being a little smaller.

Need more examples? The interstates on which we drive are no longer funded entirely by the gas taxes we pay at the pump. They are now funded partly out of the indebted general fund. The public schools we attend at a cost of $9,400 per Arkansas student annually also are funded partly by federal dollars and therefore by federal debt. And contrary to popular belief, only 1 percent of the budget goes to foreign aid, which often directly benefits Americans (for example, by buying food produced in America).

Finally, and this is really important, deficit spending does more than just allow these popular programs to continue. It infuses the economy with extra cash borrowed from future generations without their permission – stolen, in other words. We all live better because the government is writing $559 billion in hot checks this year, and putting it into the economy. Modern American life is being propped up by our grandchildren’s labor.

The frustration that many Americans feel toward welfare recipients is based on their belief that they are receiving unearned benefits that trap them in a cycle of poverty. And yet as a nation we are all receiving unearned benefits that trap us in a cycle of debt. These habits enable us to buy prosperity and security we have not fully earned. We’re all welfare queens, which is why the national debt – the accumulation of all these annual deficits – has reached $19.9 trillion, or more than $61,000 for every American. Most of that has accumulated in the last 16 years, meaning we were the ones who benefitted most.

There will come a point when the nation either chooses a different path, or is forced to do so. At some point in the future, the bill will come due. It always does.

If you and I are not around, then congratulations to us. We lived in a rich country during a rich era, and we received a lot of government benefits we never had to pay for.

In other words, we already won the lottery.

Please, Congress, if you cut taxes, cut spending too

Debt and deficits, Politics, U.S. Congress

Uncle Sam hangs on for webBy Steve Brawner
© 2016 by Steve Brawner Communications, Inc.

Here’s a simple request of our elected officials when they gather in Washington next year with Republicans in charge of everything: If you’re going to cut taxes, please cut spending, too.

I make that request for the future because I am not reassured by the past – not the past year, or the last 35, or the last 200.

Since 1790, the United States has been in a continual state of debt. There was a brief period in the mid-1830s when the debt was very small – it even briefly was paid off in 1835. But it reached $1 billion in 1863 during the Civil War and has never looked back. It has grown smaller at times as a percentage of gross domestic product, but the overall trajectory has been ever higher. In fact, the last time the United States owed less one year than the previous one was 1957, according to the government’s own Treasury Department website.

It took almost 200 years for the national debt to reach $1 trillion – in other words, 1,000 billions. It crossed that point somewhere around late 1981. By 1990, it was $3.2 trillion; by 2000, it was $5.7 trillion; by 2009, $11.9 trillion; and today, it’s $19.9 trillion. That’s more than $61,000 for every American.

So that’s almost 200 years to reach $1 trillion and then 35 years to reach $20 trillion. This is beginning to look like a death spiral.

That’s a discouraging couple of centuries. Then came this year. President-elect Donald Trump campaigned on large tax cuts while barely mentioning spending cuts. He said he wants to spend more on the military, spend $1 trillion on infrastructure, build a wall along the Mexican border, and leave the growing Social Security and Medicare programs alone.

When he comes into office next year, he will be working with a Republican Congress that will want to act quickly to enact some of its long-suppressed priorities while it controls both the executive and legislative branches. They will want to do big things fast while they still can. In 2001, when Republicans controlled both the White House and Congress, they passed a tax cut and then went on an extended spending spree along with their Democratic counterparts. In 2009, Democrats controlled both the White House and Congress, so they quickly passed their big thing, the Affordable Care Act, also known as Obamacare.

If Republicans want to cut taxes, that’s fine, but that big thing also must be accompanied by another big thing, which is cutting spending by at least an equal amount.

History suggests they won’t do that – that they will focus on the tax cuts and spend more on defense without really cutting spending elsewhere, because Americans like tax cuts and more spending, and elected officials’ jobs depend on being liked.

If tax cuts come first without spending cuts, elected officials will justify it by arguing that the tax cuts will spur so much economic growth that they will pay for the same old spending. And it’s true that tax cuts do spur growth, as does deficit spending. When you have more money, your standard of living improves. It makes no difference, for a time, if that money is borrowed from someone else. But someone eventually has to pay the bill.

So I have this simple request of Arkansas’ congressional delegation: Don’t let history repeat itself. Please, Sens. John Boozman and Tom Cotton, and Reps. Rick Crawford, French Hill, Steve Womack and Bruce Westerman – don’t make the assumption that tax cuts will spur so much growth that corresponding spending cuts can be put off for another time. Have the political will to do both at the same time, and if you don’t possess that will, at least do neither. If your tax cuts more than pay for themselves, then apply the new revenues to paying down the debt, which has not been done since the Eisenhower administration. And if they don’t, then you will have cut taxes and cut spending, which is what you’ve said you wanted to accomplish all along, without adding to the debt.

I make this request on behalf of myself, but also because I have two daughters and eventually expect to have grandchildren too. I’d like to give them an inheritance, not hand them a bill.

If Trump or Clinton succeed? More debt

Debt and deficits, Elections, Politics

Uncle Sam hangs on for webBy Steve Brawner
© 2016 by Steve Brawner Communications, Inc.

Presidential candidates can’t possibly fulfill all their campaign proposals, and few would even want to try. But what would happen if Hillary Clinton and Donald Trump actually did what they said they want to do? Clinton would grow government and do nothing to reduce the growth of the national debt. Trump would explode the debt.

Those are the findings of the Committee for a Responsible Federal Budget, a nonpartisan group that advocates for deficit reduction. It scored the two candidates’ campaign proposals to find out how much they would increase the debt, determined maximum and minimum amounts based on various factors, and then came up with midrange amounts.

The CRFB found that Clinton’s proposals would increase spending by $1.4 trillion over 10 years, but she has proposed $1.2 trillion in tax increases over that time period. That’s $200 billion in new debt, plus another $50 billion in additional interest costs her policies would cause.

So Clinton’s not doing too badly, right? Not exactly. She has no plans for the $19 trillion in debt that already exists, nor does she propose anything that would reduce the additional annual deficits that already are baked into the system and are projected to add $10 trillion over 10 years if nothing is done.

Clinton gets a few points for this: While proposing to grow government, she also at least proposes to pay for most of that growth. Because of that, the CRFB says the national debt would not increase much as a share of gross domestic product if Clinton does what she says she wants to do. Without Clinton’s policies, the debt held by the public – the national debt minus what the government has borrowed from itself – will increase from its current 75 percent to 86 percent of GDP in 2026. With her policies, it would increase to 87 percent.

But I’m not reassured. Elected officials in Washington tend to keep their happy promises but not their take-your-medicine ones. If history is a guide, she along with Congress will more likely increase spending while letting her less popular tax increases slide.

Trump, meanwhile, proposes spending cuts of $650 billion, which is not much when you consider it covers an entire decade. Meanwhile, he’s proposing an estimated $10.5 trillion in tax cuts. Counting higher interest payments, Trump’s policies would increase the national debt by a midrange estimate of $11.5 trillion, the CRFB says. While tax cuts do have a stimulative effect, the economy would have to grow more than 10 percent a year for a decade for the budget to balance – more than twice the best it’s previously done over that time period. Moreover, like Clinton, he does little to address the current $19 trillion debt or the $10 trillion in new debt that’s already projected to occur. If Trump keeps his promises, then in a decade the debt held by the public could equal 127 percent of the gross domestic product – numbers not seen since World War II.

At this point, a lot of people might ask, so what? Since presidential candidates often don’t even try to enact their campaign proposals, then maybe we should just ignore them and vote with our guts.

The problem with that thinking is that it removes accountability. If voters don’t care what candidates tell us during the campaign, then they are free to say anything to get elected and do anything afterwards.

Moreover, a presidential campaign isn’t just a time to pick winners and losers. It’s also a time for voters to educate themselves about the issues. In 1992, third party presidential candidate Ross Perot broadcast 30-minute infomercials in which he explained the national debt. Because of him, it became a front-and-center issue, and after he won 19 percent of the vote, President Clinton and Congress moved to balance the budget. If the national debt is mostly ignored in this campaign, it probably will be mostly ignored after the election.

The CRFB says it will continue to track the candidates’ proposals as the campaign moves forward. Unfortunately, it has not scored any of the third party candidates, but hopefully that will change. Every candidate should be held to high standards – particularly Trump and Clinton. One of those two will succeed at becoming president. Let’s hope the winner doesn’t succeed at increasing the debt.

Related: Fiddling around, ignoring problems

Fiddling around, ignoring problems

Debt and deficits, Politics, U.S. Congress

Uncle Sam hangs on for webBy Steve Brawner
© 2016 by Steve Brawner Communications, Inc.

You know the story about Nero fiddling while Rome burned? It didn’t actually happen, but it illustrates a point about leaders crazily ignoring a problem.

These days, no illustration is needed. The government’s largest programs, Social Security and Medicare, are not burning up, but their problems are being ignored.

On Wednesday, the Social Security trustees and Medicare trustees each released their annual reports.

Social Security’s trustees wrote that the trust fund that supposedly finances the program – but actually has been raided to pay for other programs and then filled with IOUs – will be empty by 2034. That’s when today’s 49-year-olds (I’m 47) reach the normal retirement age. When that happens, benefits for all recipients, including 85-year-olds, theoretically would be cut 21 percent.

But of course that probably wouldn’t happen. The American people wouldn’t stand for it, and too many seniors vote. If tomorrow’s elected officials play the fiddle as well as today’s do (and they will probably be some of the same people), they’ll transfer money from the rest of the budget to Social Security and add to the national debt. As of June 21, that debt is $19,265,744,770,778.65, or more than $59,000 for every American.

Medicare’s due date is approaching faster. The trustees say the trust fund that pays for hospitals will be depleted by 2028, which is two years sooner than was projected last year. When the assets are depleted, revenues would cover 87 percent of the costs. Today, the program covers 55.3 million people.

All of this is occurring in the context of huge budget challenges. The government will already spend $534 billion more this year than it will collect, according to the Congressional Budget Office. Social Security, Medicare and interest on the debt already comprise 45 percent of the federal budget. Social Security and Medicare are growing, and the CBO says interest costs will rise from 6 percent of the budget this year to 13 percent by 2026.

In other words, if you neither touch Social Security and Medicare nor raise taxes, everything else, including defense, has to be cut quite a bit.

The American democratic experiment has faced bigger challenges than this one: creating a Constitution, ending slavery, reconstructing the union, winning World War II. Social Security and Medicare previously have faced insolvency, but at various times policymakers have figured out ways to push the due dates into the future. Social Security doesn’t require some Einsteinian policy fix – just spend less and/or collect more tax revenues. Medicare is harder because it’s based on paying into a health care system that keeps getting more costly, but it can be done.

Still, solving these problems is difficult because of changing demographics – we’re getting older and living longer – and because Americans now expect expensive government services for which they’re unwilling to pay the full cost. They believe the money can be found elsewhere, and some can be found, but not enough.

So elected officials not only must put down their fiddles, but they must also come down into the city and convince a majority of people to help put out a fire that, for now, is hard to see. All the while, they must overcome the many special interests who want to feed the fire.

Somebody must lead. Unfortunately, that probably won’t happen this election year. Sen. Bernie Sanders has led the Democratic Party, including President Obama and Hillary Clinton, to calling for increasing Social Security benefits. Clinton says she’ll pay for her increases by raising taxes on the wealthy – but remember, she gets a lot of money from wealthy people. The Republican nominee, Donald Trump, says there will be no need for changing the programs because America will be so rich because of his better trade deals and Mexico-built wall.

If it were up to me, we’d raise Social Security’s retirement age, reduce or end benefits for the wealthy, increase payments to older and infirm recipients, and increase the payroll tax. I’m not sure what to do about Medicare. I’d also cut other things and slowly pay back the money we’ve already spent.

But for now, I’ve lost that debate in every direction. Americans don’t want to cut spending, and they don’t want to raise any taxes.

So at this point, I really don’t care which direction we go. Just stop increasing the debt we’re passing on to my kids. They’re going to have enough on their hands taking care of me someday.

Related: Red ink rising.