Category Archives: Debt and deficits

Real Americans tackle ‘Big Bad Budget’ in film

By Steve Brawner
© 2014 by Steve Brawner Communications, Inc.

If you and seven other Americans with different backgrounds and beliefs were given a weekend to balance the federal budget together, could you do it?

That’s the premise behind “Big Bad Budget,” a film that producer and host Tom Carroll calls a “high-brow reality show.”

Carroll, who owns an Albuquerque, N.M.-based marketing and PR firm, rounded up four local Republicans, three Democrats, and a Democrat-leaning independent. They were given information about the federal budget to digest for a week and then were brought together over two days in June 2013. Their mission was to balance the budget by finding $750 billion in spending cuts and/or tax revenue increases. The negotiations were filmed and then edited down to an hour.

Like other reality shows, there’s some conflict, though there’s no yelling or tearful confessionals. The two tribes – I mean, parties – were separated at times to strategize, and Carroll pulled individuals aside for brief interviews.

The show gave differing viewpoints a chance to be aired. Republican Seth Heath said this about food stamps: “Poverty isn’t supposed to be comfortable. It’s supposed to be painful. Otherwise you have no desire to achieve and to become a successful person.” Wanda Small, a human resources consultant and a Democrat, said most people are trying to succeed. While arguing against cutting unemployment benefits, she said one temporary position she tried to fill paying $10 an hour drew more than 150 applicants. “Nobody wants to be in a situation where they have to get a handout,” she said.

I’ll spoil the ending: They balanced the budget by raising tax revenues by $250 billion and cutting spending by $500 billion, including $200 billion from defense, or about a third of the defense budget. The vote was 7-0, with one abstention. Heath accepted higher taxes along with smaller spending cuts than he preferred. Small agreed to reduce unemployment benefits from 99 weeks to 18 months and to cut Social Security by $75 billion.

It’s hard to miss the point.

“Congress needs to see that it needs to put its own personal interest behind the national interest, and if regular Americans can get together and over a short period of time with the information make the hard decisions, then why can’t Congress?” Carroll told me.

Granted, the comparison with Congress is imperfect. The participants had only one task – make the numbers add up. Members of Congress must balance many competing interests, and not just personal ones. Quickly cutting $200 billion from the defense budget would send shock waves through the economy, for example.

Still, the show demonstrates that, when Americans are given the facts and a reason to work with people with whom they disagree, a consensus can emerge. The first thing that happened was the Democrats proposed cutting $10 billion from the Department of Homeland Security. Republicans, annoyed at government intrusion in general, quickly agreed. Both sides proposed spending cuts and tax increases early in the process because they knew compromise would be required. There was some venting, and then it was just a matter of giving and taking and finding common ground.

“Big Bad Budget” has aired in Albuquerque and is being shopped around public television stations. AETN has recorded the show but hasn’t decided if it will run it. Carroll hopes it will be available on Netflix. It’s available on DVD at bigbadbudget.com.

Something like this needs to happen in cities across America and include more than eight Americans. Congress reflects the will of the people, and we the people don’t understand the national debt very well. According to the polls, we don’t want to cut spending or raise taxes. You can’t balance the budget without doing one, the other or both.

On the other hand, the show demonstrates the inadequacy of polling. Questions are usually asked over the phone and in isolation, such as, “Do you favor raising the such-and-such tax?” By itself? Of course not. In this case, Americans made difficult choices because they had an opportunity to make thoughtful decisions in the context of the big picture. They raised taxes, but they cut spending twice as much and balanced the budget.

Failure to compromise meant failure, period. They didn’t want to fail. So even though this wasn’t exactly like Congress, much applies. In Albuquerque and in Washington, people are more likely to succeed when given the right incentives. If it really had to, Congress could balance the budget. As Carroll said, “Right now they’re stuck in their positions, but if you told them that they had to do it or they’d all be thrown out of office, they’d do it in a weekend.”

Here’s the trailer.

Why did Rep. Crawford, a veteran, vote against VA funding? Here is his reasoning.

By Steve Brawner
© 2014 by Steve Brawner Communications, Inc.

In 1988, U.S. Rep. Rick Crawford was an Army bomb technician serving in Pakistan. It was his job to keep things from exploding. On July 30, he played with a little fire.

Crawford, a Republican who represents eastern Arkansas’ 1st District, was one of only five U.S. House members voting against a bill providing $10 billion for private providers to serve veterans when the VA system is overloaded. The bill also will provide money to the VA to hire additional medical staff and lease 27 new medical centers, and it made it possible for senior executives to be fired at will by the secretary of veterans affairs. Because some of the spending is offset by cuts elsewhere in the department, it will add $10 billion to the national debt over 10 years. Only three in the Senate voted no.

The bill was passed remarkably quickly for a Congress that doesn’t accomplish much even slowly. No one wanted to be seen as voting against veterans, especially not amidst the current scandal over long wait times, poor care, and records manipulation. The department reported in July that about 636,000 veterans have been waiting at least a month for medical appointments. Crawford’s Democratic opponent, Heber Springs Mayor Jackie McPherson, quickly held a press conference with veterans denouncing the vote.

Why did Crawford, a veteran and the son and grandson of veterans, vote no? In a phone interview, he said he opposed adding $10 billion to the national debt by giving it to a bureaucracy that has misused what it had. He said management, not money, is the big issue at the VA, where funding has increased 57 percent since 2008 at the same time the patient load has increased 14 percent. He said the VA already had the statutory authority to send patients to private providers when it’s backlogged.

Crawford said Congress should have given incoming Secretary of Veterans Affairs Robert McDonald time to assess the situation at the agency and then make recommendations. Instead, he said, Congress reacted to the problem by writing a blank check.

“These veterans have sacrificed a heck of a lot more than to have to go on borrowed money to get their health care,” he said.

The rest of Arkansas’ congressional delegation voted for the bill, including its three House members who also are veterans.

Was Crawford’s vote the right one? Your answer to that probably depends on whether you think it addressed the problem or merely threw money at it. If there’s any area where the government should deficit spend – even be willing to waste a little – it’s this one.

Whether or not it was the right vote, it certainly was a courageous one, especially during an election year. Of course, Crawford did once defuse bombs for a living.

***

It wasn’t Congress’ best week from a fiscal responsibility standpoint. Congress voted to replenish the Highway Trust Fund so that it will remain solvent through May. Had it not acted, the fund, which pays for 70 percent of Arkansas highway construction, would have been empty, and states would have been reimbursed only as money became available. It’s hard to plan mutli-year highway projects that way.

The main additional funding mechanism is pension smoothing, which lets companies delay contributing to their employees’ retirement plans. Doing so increases the companies’ taxable incomes in the short term, though they will have to make up the difference later, which will lower their taxable incomes then. The measure will increase highway revenues for six years and then start reducing them as companies replenish their pension funds. So once again, Congress has borrowed from the future to pay for present needs.

There were options. The Senate voted for a bill that would have funded highways into December without the pension smoothing provision. The House didn’t budge.

Arkansas’ four House members voted for the pension smoothing bill. Its senators voted for the gimmick-free Senate version and then voted for the final version. Sen. John Boozman also voted for an amendment that would make states responsible for most highway funding. It did not pass.

Some say Congress should stop the games and just raise the gas tax, which hasn’t changed since 1993. Of course, there’s a reason for that. According to an Associated Press-GfK poll released Tuesday, only 14 percent of Americans support a gas tax increase, while 58 percent oppose it. Other proposals that would increase revenues drew little support. So Congress is reflecting the will of the people.

Something has to give. The country’s infrastructure is decaying and congested. Congress isn’t willing to buck popular opinion or create a different set of funding priorities. Maybe it’s time to rethink our transportation system, but into what?

I don’t know, but this governing by crisis while relying on accounting gimmicks is no way to run a railroad. Or fund highways.

Welcome to America, kids – eventually

By Steve Brawner
© 2014 by Steve Brawner Communications, Inc.

The question of what to do with these 50,000 Central American children sent to America alone by their parents to escape violence and poverty in their homelands – that’s a tough one. What do we do? Let some of them stay? Send them all home?

Eventually, we’ll be asking young immigrants to come.

We will do that because the decisions we have made, politically and personally, will leave us with no better choice. Let’s look at some statistics to see why.

In 1946, the World War II generation returned home from overseas and made a bunch of babies. From that year until 1964, 80 million baby boomers were born, and now they are beginning to retire in massive numbers and living longer than previous generations. Social Security’s framers did not plan for this influx of long-living beneficiaries when it was created. Life expectancy was 64 for a program that started paying benefits at age 65. There was one beneficiary for every 16 workers paying into the system.

Now there are three workers supporting each beneficiary. By 2025, the ratio will be 2.3 to one. The baby boomers themselves did not make enough babies, and then Congress messed it all up by raiding Social Security to pay for other programs.

This isn’t just a problem for the Social Security system. Entire sectors of the economy will be looking for workers. For example, the trucking industry, which pays pretty well, is expecting a deficit of 300,000 drivers over the next decade.

Could we just wait for people to make more babies who will grow up and fill the void? Not really. According to the Census Bureau, the median age for American females in 2013 was 39. That means a lot of us are too old to make babies. We’d have a real problem if it weren’t for the Hispanics already here (average age: 27).

Let’s review. We’ve promised benefits to an entire generation of retiring senior citizens, but we don’t have enough young people working to pay for those benefits, fill jobs in certain sectors, or make babies themselves.

We need an influx of young people – fast. Where could we find them? Obviously, south of the border and across the ocean.

At some point, regardless of all the political yelling, the United States will loosen its immigration laws. Those already here will be given a path to citizenship, or at least a path to something. The door into America will open wider. It might be attached to a wall, but the door will be open.

Is this the right thing to do? It won’t matter, because no one will have a better idea.

We ultimately will do this because we will have no better alternative as a result of the choices we have already made. Politically, we could have raised the retirement age enough to compensate for our increased lifespans. We have chosen not to do that. Our society could have fostered the expectation that the care of the elderly would be primarily the responsibility of their children. We decided, for many good reasons, to also rely quite a bit on Social Security, Medicare and Medicaid. We could have had a sensible immigration policy. We chose to squabble about it. As individuals, we could have had more kids. We, including my wife and I, decided that two were enough.

The choices we have made over the past 50 years, when we have had lots of alternatives, will dictate the choices we will make in the future, when we will have far fewer alternatives. So welcome to America, kids – if not now, then eventually.

How to fund highways? Not this way.

By Steve Brawner
© 2014 by Steve Brawner Communications, Inc.

How long could your family pay for today’s needs with tomorrow’s dollars before it would start to catch up to you? Congress is doing something like that, again.

The Highway and Transportation Funding Act of 2014 would provide extra highway funding for 10 months by pulling money from future revenues through a tactic known as “pension smoothing.” This allows employers to delay contributing to their employees’ pension plans, thus raising the employers’ taxable incomes now. Under a formula, they’ll make up the difference later, reducing their taxable incomes then, and at that point a future Congress will have to budget for that lost revenue. But that’s a problem for the future Congress.

The House of Representatives passed the $10.8 billion bill this past week, with all four Arkansas House members voting yes – which I guess they had to do, because the alternative was a train wreck. The Senate is expected to vote on the matter as early as this coming week.

This is happening because we’ve reached yet another unnecessary fiscal crisis. The Highway Trust Fund, which reimburses states for highway costs, will be dry within a couple of weeks – the result of too few dollars funding too many projects. The Arkansas Highway and Transportation Department (AHTD) has already delayed some contracts in case that happens.

Money flows into the fund as a result of federal highway laws passed periodically by Congress. In the past, these have been five- or six-year deals so states could make long-term planning decisions. It takes, after all, a long time to build a highway. The most recent, MAP-21, lasted only two years, and now it’s expiring. The Highway and Transportation Funding Act would extend MAP-21 only to May.

Highways are funded mostly through fuel taxes. These are easy to collect, they don’t require that much bureaucracy, and they are considered to be fair because they are user fees. The person using the government service, the highway, is the one who pays for it.

But the federal fuel tax has not been increased since 1993, which means inflation has eaten away at it. Meanwhile, cars have become more fuel efficient, so we’re buying fewer gallons to drive the same distance, thereby paying even less in fuel taxes. At the same time, construction costs have risen.

There’s waste in the highway system, of course, but even if all of that were eliminated, the country still would be investing far too little in its aging and decaying infrastructure. According to the American Society of Civil Engineers, the average bridge in America is 42 years old.

For now, the easiest, quickest, most efficient way of increasing highway funding is raising the gas tax, but politically that’s a tough sell. Even the Connecting Arkansas Program passed by voters in 2012 exempted fuel as part of its half-cent sales tax. Meanwhile, the fuel tax faces an uncertain future. As Scott Bennett, AHTD director, points out, reducing fuel consumption is a national priority, so how can consumption continue to be the primary way we fund highways? The Obama administration is suggesting letting states put toll booths on interstates – an inefficient way of collecting money that is inconvenient for drivers. Oregon is testing a vehicle miles traveled tax, where drivers’ mileage would be tracked, and they would be taxed accordingly.

It may be that the only solution now is for states to bear greater responsibility for maintaining and constructing the nation’s roadways. According to Bennett, 70 percent of Arkansas highway construction funding comes from the federal government, but other states pay more of their own way.

Arkansas voters have shown a willingness to pay for highways. In addition to the Connecting Arkansas Program, they also voted in 2011 for the Interstate Rehabilitation Program, which funds interstate improvements through a bond issue. Those two programs are funding $3 billion worth of work. On the other hand, they only apply to 4 percent of the state’s highway miles.

What do you think? Raise fuel taxes? Build toll booths? Track how far (and maybe where) we drive? Let the states take care of it?

Something has to happen. There are only so many times future dollars can pay for current work.

One-sided approaches won’t stabilize the debt

By Steve Brawner
© 2014 by Steve Brawner Communications, Inc.

Is it possible to bring the government’s debt under control by focusing only on one area – raising taxes, for example, or cutting defense spending? Let’s return to the Debt Stabilizer to find out.

I wrote last week about the Debt Stabilizer, an online tool created by the Committee for a Responsible Federal Budget that lets average citizens make tax and spending choices – hopefully better ones than Congress has made – in order to reduce the public debt.

Currently $12.6 trillion, the public debt is the portion of the $17.6 trillion national debt that doesn’t include what the government has borrowed from itself, such as from Social Security. It’s currently 78 percent of the size of the economy and headed to nearly 150 percent by 2050. Historically, it’s been 40 percent.

The goal of the Debt Stabilizer exercise is to reduce the public debt to 60 percent of the economy by 2024. Doing so requires improving the government’s balance sheet by $4.84 trillion over 10 years – equal to $1.54 million for every American.

I managed to reduce the public debt to 59 percent of the economy, mostly by cutting spending while raising the gas tax and closing tax deductions, and then wrote about it in my last column. After I emailed the link to the CRFB, communications director Jack Deutsch replied with an observation: Try playing various roles – the defense cutter, the tax raiser, etc. You’ll see how one-sided approaches don’t work well.

Let’s see if he’s right.

I started by trying sort of a House Republican approach: Oppose most defense cuts, support most spending cuts, and support most tax cuts. That approach left me at 69 percent of gross domestic product by 2024 and at 60 percent by 2028. However, some of those spending cuts, including the steeper ones for Social Security and Medicare, are unlikely to materialize.

I next was more of a congressional Democrat – cut defense, increase social spending, tax the rich, etc. That option reduced the debt to 73 percent of the economy but did not put the country on a path to 60 percent. “Uh oh! You failed to reduce the debt to a sustainable level,” the Debt Stabilizer said.

Other imbalanced approaches were unsuccessful. I tried one that would be popular with many Americans – cut taxes and spending without touching Social Security and Medicare. That got me to 73 percent, same as the congressional Democrats. The same percentage was reached when I cut defense spending and pulled us out of Afghanistan but left everything else alone. Doing almost nothing but cutting foreign aid left the debt at 78 percent of the economy. Foreign aid is 1 percent of the budget.

There were several imbalanced approaches that reached 60 percent. Raising every tax on the list and ending every deduction reduced the debt to 57 percent of gross domestic product. Cutting spending wherever I could and leaving taxes alone reduced the debt to 56 percent. Cutting all the taxes and all the spending reduced the debt to 60 percent.

However, those spending cuts included politically unpopular reductions for Medicare, Social Security – even $30 billion less for school breakfasts. Realistically, they wouldn’t happen. My tax increases included similarly unlikely scenarios such as ending deductions for the powerful oil industry and reducing the amount that average Americans can deduct for charitable gifts.

When I started this exercise, I hoped to play the parts of Rep. Tom Cotton and Sen. Mark Pryor, but I soon decided I couldn’t do their positions justice – particularly Pryor, who can be hard to pin down. Safe to say that Cotton takes pretty much the congressional Republican approach, which requires a number of unlikely spending cuts. Pryor – at least based on how he’s campaigning – is somewhere in the neighborhood of congressional Democrats, who, as the Debt Stabilizer makes clear, “fail to reduce the debt to a sustainable level.”

If a family’s debt needed stabilizing or a small business were in trouble, everyone would gather around the table to consider what to cut and where extra income could be found. Probably no one would get everything they wanted, and if one tried to dictate, the rest would not buy in.

At some point, Americans and their elected officials hopefully will realize that the government is no different – that choices and compromises must be made. If that happens, the debt will be reduced to a sustainable level.

And if that never happens? Uh oh.