August 30, 2014

Posts on national debt

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Thursday, July 14, 2011 - 10:57 AM

The partisan vortex in Washington is now so strong that it threatens to swallow all rational thought.

As the nation rushes closer to default, politicians are rushing to their respective partisan corners. At times they truly seem more interested in blaming each other for causing a crisis than they are with preventing a crisis from happening. It is little wonder that credit ratings agencies such as Moody’s and Standard & Poor’s have repeatedly questioned whether U.S. Treasury bonds can maintain their AAA status.  The scenario they fear, which becomes more likely by the day, is not so much that the U.S. can’t pay its bills but that it will refuse to do so.

For a brief time last week, President Obama and House Speaker John Boehner appeared ready to challenge their respective political bases. Hopes were raised for a “big deal” that would include essential compromises on popular entitlement programs and tax breaks to reduce the deficit by roughly $4 trillion over 10 years. It was a good idea, but it didn’t last long.

Instead of looking at what the nation might gain in fiscal sustainability, politicians on both sides looked with horror at what they might lose in terms of partisan finger-pointing. A big deal would mean that Republicans could no longer accuse Democrats of trying to kill the economy with...

Monday, July 11, 2011 - 10:39 AM

The biggest sticking point in the debt-limit talks has been the disagreement over tax policy. President Obama has been encouraged by his fiscal commission to insist that higher revenues be part of any major deficit-reduction deal -- and to recommend that much of the revenue increase should come from broadening the tax base by reducing "tax expenditures." Although Republicans are coming around to the idea that tax expenditures are just subsidies run through the tax code, many of their leaders stand firm on the position that revenues as a share of the economy not rise from current policy.

While President Obama and other Democrats want revenue increases, they don’t want any changes that would raise taxes on middle class or lower-income households, arguing that such taxes would be overly burdensome and would harm the economic recovery. Meanwhile, Republicans only want reduced tax expenditures to pay for cuts in marginal tax rates, asserting that they would be the path to stronger economic growth and in turn higher revenues.

So both sides are reluctant to change their tax-cutting ways, and they continue to have their own great expectations for tax cuts. But tax cuts don’t always live up to such expectations,...

Thursday, July 7, 2011 - 12:00 AM

 

This originally appeared on The American Square at http://theamericansquare.org/profiles/blogs/go-long

President Obama says he wants to jettison the short-term focus that has guided recent budget negotiations in favor of a more comprehensive fiscal sustainability plan. This initiative could be the beginning of a major new phase in negotiations between the administration and congressional leaders. On the other hand, it could prove to be just another false start, designed for “positioning” rather than results. It will take more than one or two meetings to know the difference.
 
In any event, we seem to have come full cycle. This is where negotiations should have started several months ago when the President presented his original budget. But even if precious time has been wasted, the right goal is finally in view.
 
Our fiscal challenges demand an ambitious approach. Ratings agencies Moody’s, Standard and Poor’s, and Fitch have all warned the United States that its coveted Aaa credit rating will be reevaluated if swift and comprehensive action is not taken to get its fiscal house in order. Political gridlock featured prominently...
Friday, June 3, 2011 - 9:33 AM

The punch line of an old joke aptly describes the status of budget negotiations in Washington: you can’t get there from here. It’s not the “there” that is the problem; it’s the “here.”

Broad bipartisan consensus exists on two points. The first is that the debt limit must soon be raised to avoid a default in one form or another. The second is that current fiscal policy cannot be sustained. Missing from the equation is any solid evidence that political leaders are prepared to do what is necessary to solve either problem.

Republicans have chained themselves to a rigid negotiating position, insisting that there can be no tax increase regardless of the need or on whom the burden would fall. They argue that even a deficit reduction plan heavily tilted toward spending cuts, such as the framework recommended by the President’s bipartisan fiscal commission (Bowles-Simpson), must be rejected outright.

Democrats say they are more reasonable because they believe that everything -- spending cuts and tax increases -- should be “on the table.” However, they have unanimously rejected four budget plans in the Senate, including the President’s official budget, without proposing anything of their own. They are clearly content to let the House Republican budget twist slowly in the wind while maintaining the safety of silence...

Tuesday, May 17, 2011 - 8:48 AM

Anyone wondering why Social Security and Medicare should be “on the table” in budget negotiations need look no further than the 2011 Trustees’ Report issued on May 13.

As is usually the case, media accounts of the trustees’ report tended to focus on trust fund balances rather than on the cash balances and growing costs of the two programs. Viewed from a trust fund perspective, the financial condition of Social Security and Medicare may appear troubling but of no immediate concern. Social Security’s combined trust funds are projected to remain solvent until 2036 and the Medicare HI trust fund [Part A] is solvent until 2024. The Medicare SMI trust funds [Parts B and D] are permanently solvent, but only because they have an automatic draw on general revenues.

So why worry about these programs now? Why not wait another 10 years before making changes in Medicare and 20 years or more for Social Security?

One reason is that both programs are straining the federal budget now because they are paying out more than they are taking in from dedicated resources, including payroll taxes, taxation of...

Tuesday, May 3, 2011 - 10:46 AM

Making A Difference
   
My fellow student T.J Leach and I, Alex Hall, are students of George Nye’s Business and Economics class at Lake Region High School in Naples, Maine.  We both grew up in the area, which is about one hour north of Portland. The people who live year-round in Naples are generally of a lower to middle financial status, so we have grown up being aware of the importance of money in our day to day lives. We decided to create a video presentation to inform the public about the national debt. We went with our class out to local stores and interviewed random people. We had a specific set of questions that challenged them to think about what they know about our nation’s debt.  After compiling all of the information, we put it into a video to show to the entire school during an assembly.

The idea of making the video came up in our Economics class. We had to come up with something that would make people aware of the crisis we are in, while also making it possible for other people to look at the information we had collected. At first we thought about creating a simple presentation and then showing it to just our class. Once we looked at the numbers we were dealing with, we realized how much larger is the problem America faces today. So we wanted to do...

Monday, May 2, 2011 - 4:52 PM

Elected officials in both parties have made what I call “magical, mystery tax pledges” that are at odds with bipartisan approaches to serious deficit reduction:

  • Republicans: Don’t raise revenue above the 40-year historical average of around 18-19 percent of GDP.
  • Democrats, including President Obama: Don’t raise tax burdens on households making under $250,000 a year.

Some Republicans may not realize how their promise works against not only bipartisan compromise but against their own policy goals. As explained in a recent opinion piece I wrote for Bloomberg Government (subscription-only access here):

“To those on the right holding fast to an 18-19 percent of gross domestic product revenue ceiling, here’s the paradox: Raising more revenue by broadening and leveling the tax base is actually consistent with ‘supply-side’ economic goals. Raising revenue by reducing at least some of the $1 trillion a year in tax breaks and shelters — also known as tax expenditures — and adding on new, broadly defined tax bases would increase, not decrease, the supply of productive resources in our economy…”

Reducing tax expenditures would actually reduce the government’s role in the economy, a central goal...

Monday, April 25, 2011 - 10:25 AM

House Republicans have adopted a budget they say will make tough but necessary spending cuts to rein in our nation’s burgeoning budget deficits. President Obama says the Republican plan is too radical. He hit the road last week to sell his own deficit reduction plan, which he says is more balanced.

So, it’s “game on.”

But just what is the purpose of this game?

If the purpose is to gain advantage for the 2012 elections, then recent events make sense. If, however, the purpose is to build consensus around a fiscal sustainability plan, we’re off on the wrong track. Rather than seeking areas of common ground, which clearly exist, the President and Republican leaders seem more interested in sharpening their differences.

Consider two major issues: tax reform and health care.

In both instances there is the potential for compromise. Indeed, without compromise on health care and taxes, it is hard to see how a meaningful plan for fiscal sustainability can be enacted.

Two bipartisan groups that looked at these issues last year were each able to find consensus, at least around a broad approach.

On tax reform, the Bowles-Simpson and Domenici-Rivlin commissions both recommended that most tax expenditures – deductions, exclusions and credits – be eliminated or greatly scaled back in exchange...

Tuesday, April 12, 2011 - 11:57 AM

Here is a trivia question: Under which scenario would Social Security, Medicare and Medicaid make up the larger share of non-interest (i.e. “primary”) federal government spending?

A. President Obama’s budget

B. Rep. Paul Ryan’s budget (House Budget Committee)

The answer is B.

Under Ryan’s budget, these programs would grow from 46 percent of primary spending in 2011 to 62 percent in 2021. This compares with an increase to 56 percent under the President’s budget.

The divergence becomes even more pronounced after that. By 2040, Social Security, Medicare and Medicaid account for 74 percent of non-interest spending under Ryan’s budget compared to 62 percent under the President’s budget.

At first, this result may come as a surprise because it is clear that Ryan’s budget would do far more than the President’s budget to curtail the growth of federal health care spending. At...

Monday, March 28, 2011 - 12:00 AM

Updated April 3, 2012

The Government Accountability Office (GAO) recently updated its report on the federal government’s long-term fiscal outlook. The report underscores the serious problems our country faces if it continues on its current fiscal path.

Here are some of the projected milestones for the years ahead, based on one of the scenarios in the GAO's report (the "alternative simulation"* ):

  • 2023 -- Net interest costs would exceed Medicare
  • 2025 -- Federal debt held by the public would exceed the Gross Domestic Product (GDP)
  • 2025 -- Social Security, Medicare, Medicaid and net interest would consume all government revenues.
  • 2029 -- Net interest costs would exceed Social Security
  • 2037 -- Net interest would exceed both Medicare and Medicaid
  • 2038 -- Debt held by the public would exceed 200 percent of GDP
  • 2039 -- The federal deficit would exceed all government revenues.
  • 2046 -- The deficit would reach 22.6 percent of GDP, more than the entire federal budget in 2008 (22.4 percent of GDP).
  • 2047 -- Federal debt held by the public would equal 300 percent of GDP
  • ...