I am a candidate for the U.S. Senate in the May 15 Republican Primary against the incumbent Deb Fischer because she is ignoring our enormous and out-of-control national debt. In fact she has voted twice recently to make our debt even worse than it already is. I am referring to both the new tax law which, in spite of its good individual features, raises our debt by $1 trillion over the next decade and also the 2018 budget agreement which increases the debt by a similar amount.
The nonpartisan Congressional Budget Office estimates that this year’s budget deficit will be over $800 billion and next year’s at $981 billion, almost back to the trillion dollar level seen for four years after the Great Recession.
The likewise nonpartisan think tank, the Committee for a Responsible Federal Budget, concludes that over half of next year’s huge deficit is the direct result of legislation passed since 2015 and signed by President’s Obama and Trump, as shown in the chart.
In more detail:
The largest contribution to next year’s deficit, $230 billion, is from the December 2017 tax bill.
The next largest contribution is $190 billion from the 2018 Bipartisan Budget Act.
But the 2015 doc fix and tax extender bills also add $100 billion to the 2019 deficit.
As CRFB says, “It is no longer enough for Congress to ‘do no harm’ in the near term and ensure solvency of entitlement programs over the long term. Fixing our debt will now require reversing the harm which has already been done with tax cuts and spending increases.”
Conclusion. Historically the Republicans have been the party of fiscal responsibility. But now the GOP is completely in charge and annual deficits are increasing rapidly. Is it not very clear that big changes are needed in who represents us in Washington?
I am a candidate in the May 15 Nebraska Republican Primary for the U.S. Senate against the incumbent Deb Fischer because she is ignoring our enormous and out-of-control national debt. In fact, she is doing much worse than just ignoring it; she is actively making it much worse. For example:
Fischer voted for the new tax law which increases our debt by $1 trillion over ten years even after new growth is taken into account. The main features of the new law are excellent but need offsets to avoid losing tax revenue.
The budget just approved by Congress and signed by President Trump, for this year and next, will increase the debt by $300 billion. It means that the deficit for FY 2018 will be $800 billion followed by $1.2 trillion for FY 2019 (see first chart). In FY 2027, just ten years away, the annual deficit is projected to increase to $2.1 trillion (see second chart).
On Senator Fischer’s watch, for the six Fiscal Years 2014 – 2019, the new debt is likely going to be $4.5 trillion (just add up the totals for these years in the chart above). This means that by the end of her six year term in office, 20% of our entire debt of $22.5 trillion, will have been accumulated while she was in office!
Conclusion. The national debt now $20.5 trillion and growing rapidly, is by far our biggest long term problem. We badly need representatives in Congress who will stop ignoring this awful problem and start doing something about it. That is why I am a candidate for the U.S. Senate.
Congress has just voted to postpone the debt ceiling by three months until December 8. That’s okay; it’s just a tactic which also provides quick federal help for the damage caused by Hurricane Harvey. The important thing is not to repeal the debt ceiling entirely.
As I have said before, global warming and national debt are both creeping catastrophes. We ignore them at our great peril. Right now hurricanes Harvey and Irma are reminding us of the huge devastation which can be caused by extreme weather events (which are made more likely by global warming).
In the same way, having an explicit debt ceiling reminds us at regular intervals that we have a very serious problem which will eventually catch up with us if we don’t take strong action to address it.
The National Debt, now 77% of GDP (for the public part on which we pay interest), is the highest it has been since right after WWII. It is predicted by the non-partisan Congressional Budget Office that it will keep getting steadily worse without major changes in current policy.
The urgency of the debt problem is based on the fact that interest rates are now so low that our debt is almost “free” money. But interest rates will inevitably return to more normal, and higher, historical levels and, when this happens, interest payments on the debt will increase dramatically. This will eventually lead to a new Fiscal Crisis, much worse than the Financial Crisis of 2008.
The solution to this problem need not be drastic. Federal spending is growing by 5% per year while tax revenues are increasing by 3% per year. All we need to do, so to speak (because it will take some restraint!), is to hold spending increases to about 2.5% per year and then the federal budget would be balanced in a few years and debt would start shrinking as a percentage of GDP.
Conclusion. Congress, the President and the American people need to be reminded often and loudly how serious the debt problem is. Hopefully the message will eventually sink in. The sooner the better!
Most of the controversy generated by the healthcare bill passed by the House, and the one now being considered by the Senate, concerns the way Medicaid is funded. The current system whereby states are reimbursed by the federal government for a percentage (national average 53%) of their Medicaid expenses would be replaced by putting the federal contribution on a strict per-capita basis, indexed to the annual rate of inflation.
Medicaid is a vast program now serving 73 million low-income and disabled Americans and is doing a good job especially for the elderly and the disabled with special needs. But it costs the federal government nearly $400 billion per year and the cost is growing rapidly. It is essential to get open-ended Medicaid spending under much better control and one good way to do this is to put the federal contribution on a fixed budget.
The Congressional Budget Office has just issued its latest Budget and Economic Outlook report. It shows the ever-worsening fiscal condition for the U.S., unless current policy is changed.
The deficit for 2017 is predicted to be $693 billion or 3.6% of GDP.
Deficits will grow dramatically over the next decade with trillion dollar deficits returning by 2022.
Debt held by the public (on which interest is paid) will grow by $11.2 trillion between now and 2027, from $14.3 trillion today.
Spending will grow from 20.9 percent of GDP in 2016 to 23.6 percent in 2027, while revenues will rise from 17.8 percent in 2016 to 18.4 percent by 2027.
The vast majority of spending growth over the next decade (83%) is the result of rising costs for health care, Social Security, and interest on the debt.
Conclusion. The national debt is growing much too fast. The only way to turn this dangerous situation around is to reform all entitlement programs, including Medicaid, to get their costs under much better control.
President Trump’s budget for 2018 presents a plan to achieve a balanced federal budget in ten years, by 2027. This is a highly desirable goal but there is much skepticism about whether or not his budget is realistic, see here and here.
My thoughts on this important matter are:
Fiscal restraint is a common sense necessity, and is not austerity. Our public debt (on which we pay interest) now stands at 77% of GDP, the highest since WWII, and will continue to increase without major changes in public policy. Right now the debt is almost “free” money because interest rates are so low. As interest rates inevitably go up in the near future, interest payments on the debt will skyrocket and become a huge drain on our federal budget and make annual deficits even worse than they already are.
3% annual GDP growth, as assumed in the Trump budget, is almost certainly too optimistic. However the Trump Administration is on track to achieve significant deregulation and averaging 2.5% growth over the next ten years is doable.
Insufficient entitlement reform is a big drawback for the budget. It will be very difficult, essentially impossible, to achieve and sustain a balanced budget without modifying Social Security and Medicare to make them self-financing. Turning Medicaid into a block grant program to the states would finally put Medicaid on a sensible budget.
Requiring able-bodied welfare recipients to work is a good idea and is the basis for cutbacks in social welfare programs.
The Departments of State, Interior, Education and Justice should be able to absorb cutbacks and operate more efficiently.
Conclusion. There are many good initiatives built into the Trump budget. Unfortunately there are also some invalid assumptions and glaring omissions. It does not represent a bona fide plan to balance the budget in ten years but at least it recognizes the importance of doing so.
Both President Trump and the Republican Congress want the economy to grow faster than the slow 2% growth which we have experienced since the Great Recession ended in June 2009. The Congressional Budget Office predicts (see chart below) that growth will average just 1.8% over the next ten years under current policy.
Immigration reform, .3%, by increasing the number of workers.
Tax reform, .18%, if well designed. However, deficit-financed tax reform would ultimately harm growth.
Increase the Social Security retirement age by two years, .15%, by keeping people in the workforce longer.
Reduce deficits by $4 trillion over ten years, .1%. This is enough deficit reduction to put our debt on a sustainable, downward path.
Continue expanding energy production at the shale boom level, .09%.
Repeal of the Affordable Care Act, .08%, will keep more people in the workforce.
Ratifying the Trans Pacific Partnership, .01%, by increasing foreign trade.
Increasing public investment in infrastructure, education and research by $40 billion per year, .1%.
Note that all of these changes would increase growth by an estimated .83% of GDP per year. Added to the 1.8% base this yields a growth rate of 2.63%. Unfortunately, many of these reforms are unlikely to occur. On the other hand, various deregulatory actions being taken by the Trump administration are likely to increase growth by an unknown amount.
Conclusion. It is reasonable to anticipate that growth can and will be speeded up to about 2.5% of GDP per year under the Trump administration. Along with the tight labor market now developing (current unemployment rate of 4.4%), blue-collar and other middle class workers should continue to receive decent pay increases for the foreseeable future.
Responsible tax reform will be highly beneficial for the U.S. economy because:
Economic growth will be speeded up by lowering tax rates on businesses, thereby encouraging more investment.
National debt will shrink because faster growth will produce more tax revenue. But this only works if the revised tax plan is revenue neutral to begin with.
The Trump tax plan, described here and here, has the following features:
three tax brackets, reduced from seven. Simplification like this is a good idea.
double the standard deduction. This puts more money in the pockets of the average tax payer who does not itemize deductions and is therefore a good idea.
repeal of the alternative minimum tax. This only affects wealthy people and should be retained, if necessary, to make sure that overall reform does not increase the deficit.
lower capital gains tax. This will encourage more investment but should not be included unless the overall plan is revenue neutral.
repeal of inheritance tax. This tax feature should be retained until our annual budget deficits are eliminated, i.e. until we achieve balanced budgets on an annual basis.
preserving deductions for mortgage interest and charitable contributions. The mortgage interest deduction should be greatly reduced from its current level of $1 million per residence. Wealthy taxpayers don’t need that much help. Raising the standard deduction will already help middle income taxpayers.
cutting the corporate tax rate. This is an excellent idea as long as its revenue loss is made up elsewhere. It will encourage multinational corporations to bring their overseas profits back home for reinvestment in the U.S.
Conclusion. The Trump tax plan has some good features as well as some poor ones. Reducing tax rates is a good idea. But adding to annual deficits is a very bad idea. With some effort it is possible to reduce tax rates in a revenue neutral way.