Tag Archives: cutting spending

Why Our National Debt Is a Very Serious Problem for All Americans, but Especially the Poor

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Congress has just postponed the debt ceiling until December 8 but at least they didn’t repeal it.  It is crucial to retain regular and explicit debt ceilings as a reminder of the urgency of putting our debt on a downward course (as a percentage of GDP).
As a reminder:

  • The debt now stands at 77% of GDP (for the public part on which we pay interest), the highest it has been since right after WWII. The $15 trillion public debt right now is essentially “free” money because interest rates are so low. But interest rates will inevitably return to more normal, and higher, historical levels and, when this happens, interest payments on the debt will skyrocket.
  • The entitlement programs of Social Security. Medicare and Medicaid are the drivers of our debt problem because their costs are increasing so rapidly. Medicaid costs the federal government almost $400 billion per year. Medicare costs the federal government $400 billion per year more than it receives in FICA taxes and premiums paid.

The attached chart demonstrates the scope and urgency of the problem.  By 2032, just fifteen years from now, all federal tax revenues will be required to pay for Social Security, Medicare, Medicaid and interest payments on the debt. This means that all of ordinary discretionary spending: on defense, various government operations and social welfare programs will be paid for entirely from new deficit spending and, in the process, will almost inevitably suffer huge cutbacks.  The lower-income and poor people, who are the most reliant on government programs to get by, will be the most adversely affected.

Conclusion. Such a dreary scenario of drastically tightened government spending does not have to occur. It can be avoided by immediately starting to make sensible curtailments, not actual spending cuts, all along the line.  Do our national leaders have the common sense and fortitude to do this?

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Why Can’t Democrats and Republicans Work Together?

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I am a non-ideological fiscal conservative and social moderate. I agree with Republicans on some issues and Democrats on others.  It seems to me that there is a lot of common ground between the two national parties and plenty of opportunity for working together.


For example:

  • The economy. Donald Trump was elected President with the support of blue-collar workers. He wants to help them out by speeding up economic growth.  But the Democrats also want to give a boost to the working class.  Why not lower the corporate tax rate to encourage multi-national companies to bring their profits back to the U.S.? Why not exempt small community banks from Dodd-Frank so they can lend more money to main street businesses?
  • Sustainable healthcare. After failing to repeal and replace the ACA, Republicans now have to accept that universal health insurance is here to stay even though it needs much better cost control. The popularity of employer provided health insurance makes single payer healthcare unacceptable to many. Two major changes are needed to lower healthcare costs.  The ACA Cadillac tax should be replaced by an upper limit on the tax exemption for employer provided insurance. The Medicare Part B premium covers only 25% of the cost of that program and should be increased on a means adjusted basis.
  • Immigration policy. With the unemployment rate now 4.4% and dropping, a huge labor shortage is beginning to develop which will retard economic growth. We now need more skilled and unskilled immigrants alike.  An expanded guest-worker program to meet the needs of employers should be created. Enhanced border security can be part of the mix.
  • Military spending. In a dangerous world we need a strong military defense. But there is a lot of waste in the Pentagon budget. Do we really need 800 foreign bases in over 70 different countries?  Nebraska’s own Chuck Hagel identified $25 billion a year in military waste while he was Secretary of Defense.

Conclusion. Here are just a few ways that the two parties can work together to address some of our biggest national problems. Faster economic growth and fiscal restraint just make common sense.

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Global Warming and Debt Are Both Creeping Catastrophes

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Three devastating hurricanes have struck the U.S. in recent years: Katrina (2005), Sandy (2012) and now Harvey (2017). Hurricanes and tropical storms are natural events which have occurred since the distant past, long before global warming became a problem.
What has changed is that the oceans are now steadily getting warmer by absorbing much of the heat reflected back to earth by greenhouse gases (see chart).  Warmer water has more latent energy and this makes hurricanes more severe. The warmer the oceans become, the more devastating future hurricanes will be.


It is (past) time to get serious about global warming.  As the world’s strongest country, it is up to the U.S. to provide leadership on this very serious problem.  The best way we can respond is by adopting a (revenue neutral) carbon tax to discourage future carbon emissions as much as possible.  This problem is not going to disappear but it is within our power to limit the damage it causes before it gets a lot worse.
The exact same thing is true about our national debt.  At 77% of GDP (for the public part on which we pay interest), it is the highest it has been since the end of WWII. Right now interest rates are so low that our debt is almost “free money.”  But interest rates will eventually return to more historically normal levels.  When this happens, interest payments on the debt will rise by hundreds of billions of dollars per year.  At that point a severe Fiscal Crisis will not be far behind.
Again, debt is a solvable problem if only our national leaders will take it seriously.  All it requires (so to speak, because it won’t be easy!) is to limit future federal spending in sensible ways.

Conclusion. Both global warming and national debt are serious, urgent problems. The sooner we get started on addressing them, the better off we will be.

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What Do I Mean When I Say I’m a Fiscal Conservative?

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Americans are a very fortunate people. We are protected by two oceans and friendly neighbors to our north and south.  We are the strongest country in the world, both economically and militarily.  We provide the world with cutting edge leadership in many areas such as technology, finance, energy production, scientific research and university education.
In short we live in a very successful, prosperous and complex society.  We do have serious problems but they are being addressed by our elaborate legal and governmental processes and structures. Slowly but surely life in America is getting better and better all the time.
Given our country’s size, complexity and dominance in the world, it is inevitable that government will also grow in size and structure in order to take on new responsibilities. It is completely unrealistic to think that we can return to a more limited form of government that existed in the past.
When I say, then, that I’m a fiscal conservative, I am not advocating for less government but merely that we pay for the government that we have, in other words, act in a fiscally responsible manner.


And we are not doing this at the present time:

  • Our national debt, now 77% of GDP (for the public debt on which we pay interest), is the highest since right after WWII. It is predicted by the Congressional Budget Office that it will keep steadily getting 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 it is almost “free” money. But interest rates will inevitably return to more normal historical levels and, when this happens, interest payments on the debt will skyrocket. Eventually this will lead to a 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 growing by 3% per year. If we would just hold spending increases down to 2.5% per year, the federal budget would be balanced in a few years and our debt would start shrinking as a percentage of GDP.

Conclusion. Spending restraint, with very few actual spending cuts, is all that it will take to put our debt problem on a path to solution. Surely we are capable of acting in a fiscally responsible manner like this!

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Should I Run for the U.S. Senate?

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For the past almost five years, beginning in November 2012, I have been blogging about fiscal and economic issues facing the United States. With the unemployment rate now down to 4.3%, and the economy growing at 2% annually and likely to pick up speed, our biggest problem by far is an exploding national debt, currently 77% of GDP (for the public debt on which we pay interest), the highest since the end of WWII.
There are two announced candidates so far for the Nebraska Senate seat which becomes open in January 2019:

  • The incumbent, Senator Deb Fischer, a Republican
  • Jane Raybould, Lincoln City Councilwoman, a Democrat.

There is always enormous pressure on members of Congress to maintain or increase spending for popular projects and little pressure to cut anything. In general, Republicans deplore large deficits and debt but are ineffective in implementing fiscal restraint while Democrats simply don’t want to talk about the debt problem at all. I am a non-ideological (registered independent) fiscal conservative and social moderate, highly focused on substantially shrinking our annual deficits over a short time period.


Here are my options for the Senate race:

  • Enter the Republican Primary. I would get almost no traction running against the incumbent Republican in the Primary, even though she is a big spender, and I am antiabortion and support a national 20 week cutoff for most abortions.
  • Run as an independent. This is futile without huge name recognition or financial resources, of which I have neither.
  • Enter the Democratic Primary. The announced candidate has a strong party affiliation which I lack. But she has little chance of defeating Senator Fischer in the general election whereas I could by credibly hammering Fischer as a big spender.

Please respond! Please give me you input on this matter one way or another. My email address is jackheidel@yahoo.com.  Would you support me as a Senate candidate?  Congress badly needs more members who are serious about shrinking our debt and I am such a person.  More later!

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Getting Started on Fiscal Responsibility

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This blog is devoted to fiscal and economic issues facing the U.S. Both the Trump Administration and the Democrats are working to speed up economic growth and I believe there is a good chance that this will happen.
However there is not nearly enough interest in addressing an even bigger problem:  our national debt, is now larger, in relative terms, than at any time since the end of WWII.


This is a very difficult political problem because elected representatives would much rather say yes than say no to new programs and more spending.  It is even more difficult to try to restrain the growth of, let alone cut, existing programs.
The Congressional Budget Office has recently published a long list of possible ways to decrease federal spending (or increase federal revenues) over the next ten years. It is interesting to pull out several of these suggestions to see what can be accomplished:

Program                                                                                              10 year savings

  • Eliminate concurrent receipt of retirement pay and disability              $139 billion for veterans.
  • Use an alternative measure of inflation to index mandatory               $182 billion
    programs.
  • Reduce funding for International Affairs Programs.                            $117 billion
  • Limit highway funding to expected highway revenues.                          $40 billion
  • Reduce the size of the federal workforce through attrition                     $50 billion
  • Reduce funding for grants to state and local governments                    $56 billion
  • Impose caps on federal spending for Medicaid                                    $680 billion
  • Increase premiums for Medicare Parts B and D from 25% to              $331 billion 35% of cost.
    Total     $1595 billion

Conclusion. This brief list of budget restraints would reduce deficit spending by about $160 billion per year.   This is significant but not nearly enough compared to the projected deficit of $685 billion for just the 2017 fiscal year alone.  About 2/3 of the savings come from the two entitlement programs of Medicare and Medicaid. The idea here is to give specific examples of the sort of changes which will be necessary to seriously confront our debt problem.

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Why Fiscal Responsibility at the Federal Level Is So Difficult

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The United States faces many challenging problems but the biggest one of all is our national debt, right now 77% of GDP, the largest since right after WWII, and predicted by the Congressional Budget Office to keep getting steadily worse without major changes in current policy.
The only practical way to reduce the debt is to start shrinking our annual deficits, $680 billion for the current 2017, down to a much lower level, ideally close to zero, over a limited time period, perhaps ten years or so. This urgent need will, of course, be very difficult to accomplish.
For example:

  • Military spending. The military analyst, Mark Helprin, makes a cogent argument  that the most effective way to defuse the North Korean nuclear threat is for President Trump to ask Congress “for an emergency increase in funding to correct the longstanding degradation of American military power.” This would, among other things, provide for “a vigorous acceleration of every aspect of ballistic-missile defense.”

  • Omaha Rapid Bus Transit. Omaha NE (where I live) is spending $15 million in local funds for a $30 million bus system upgrade, subsidized by the Federal Transit Authority, which has an annual budget of $8.6 billion. The new ORBT will have sleek 60 foot-long buses as well as 27 individual modern bus stop shelters at a cost of $260,000 each. The system will be operational in 2018 and Mayor Jean Stothert says, “I’m looking forward to being one of the first riders.”

Conclusion. Who can argue with upgrading ballistic-missile defense at a time when we are threatened by a madman in North Korea?  And, it is nice for Omaha to have a sleek modern rapid  transit bus system on Dodge Street but should it be 50% subsidized by the federal government at a time when the U.S. is drowning in debt?  There will always be enormous pressure on Congress to increase funding for popular projects.
Who is going to stand up and say no?

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The Major Challenges Facing the U. S. II. National Debt

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My last post, “The Major Challenges Facing the United States,” came to the conclusion that, while the U.S. has many big problems to address, our national debt is the biggest problem of all, because it will be so hard to deal with through the political process.
Our total national debt is now $19.9 trillion. The so-called public debt, on which we pay interest, is $15 trillion, or 77% of GDP, the highest it has been since right after WWII.  Furthermore it is predicted by the Congressional Budget Office to keep getting steadily worse, reaching 90% of GDP by 2025 and 150% of GDP by 2047 unless current policy is substantially changed.
Right now our debt is almost “free” money since interest rates are so low.  But when interest rates return to more normal levels, interest payments on the debt will skyrocket by hundreds of billions of dollars per year, likely leading to a new fiscal crisis, much worse than the Financial Crisis of 2008.
The only sane solution to this humongous problem is to start shrinking our annual deficits, this year at about $685 billion, down close to zero over a period of several years.  This will require a painful combination of spending curtailments and perhaps some tax increases as well.


One possible way to accomplish this herculean task has been laid out by Barron’s economic journalist Gene Epstein, see here and here.  Mr. Epstein’s plan would balance the budget in ten years by decreasing projected spending by $8.6 trillion, with 60% of spending curtailments coming from the entitlement programs of Social Security, Medicare and Medicaid and the rest from both military and domestic discretionary programs.
It needs to be strongly emphasized that under the Epstein plan spending would not actually decrease from one year to the next, but would rather grow at a slower rate, from $3.9 trillion in 2016 to $4.7 trillion in 2026.  His plan would decrease the public debt from 77% of GDP today to 58% in 2026.

Conclusion. The U.S. faces the very unpleasant problem of excessive debt which will just keep getting worse and worse without making some relatively unpleasant adjustments in the way that the federal government spends money. The sooner we get started in this process the better off we will be.

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The Major Challenges Facing the United States

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As I frequently remind my readers I am a fiscal conservative and a social moderate. I usually write about particular economic and fiscal problems facing our country.  But every now and then I like to step back and view our overall situation at one time.  The last time I did this was here.
Let’s take another look:

  • The economy is puttering along at 2% annual growth with a relatively low unemployment rate of 4.3% and a good indication that faster growth, up to 2.5% annually, is right around the corner, see here and here.  The economy, at least, is headed in the right direction.
  • Foreign policy. Long term our biggest problem is China, which has four times as many people as we do and is growing economically three times as fast. China will soon surpass us in both economic and military strength. Our best insurance for this inevitable day is to have lots of democratic friends around the world.
  • Global warming is real and getting worse. Our best strategy for dealing with it is a revenue neutral carbon tax, rather than depending on ad hoc regulations like the Clean Power Plan and ever increasing auto emission standards. If the U.S. demonstrates its seriousness with a carbon tax, it is likely that the U.S. and China (which is highly polluted) could work together to establish world-wide carbon emission standards.
  • National debt, currently 77% of GDP (for the public debt on which we pay interest), is predicted by the CBO to keep getting steadily worse (see chart)  without major changes in current policy. Right now our approximately $14.3 trillion public debt is almost “free” money because interest rates are so low. But sooner or later interest rates will return to more normal levels and, when this happens, interest payments on the debt will rise by hundreds of billions of dollars per year. This will inevitably lead to a severe fiscal crisis, far worse than the Financial Crisis of 2008.

Conclusion. I am relatively optimistic that we can maintain good relations with China and will have the good sense to better control carbon emissions. But our debt problem is politically very difficult to address because it will require spending curtailments.  How do we successfully address such a huge problem?

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America’s Most Serious Problem: Excessive and Growing Debt

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I know that I repeat myself a lot. I am a fiscal conservative and social moderate.  This puts me in the middle of the political spectrum from left to right.  I support social welfare programs if they are legitimately helping the less fortunate among us.  I am especially supportive of programs for African-Americans because of the racial bias they experience.


Unfortunately our national leaders have collectively lost a sense of fiscal responsibility in recent years.  Looking at the standard debt chart (above) produced by the Congressional Budget Office, it is clear that indifference to debt commenced under President Reagan and has waxed and waned ever since.  The debt has been growing especially fast ever since the Great Recession in 2008 and now stands at 77% of GDP, the highest since the end of WWII.  Shrinking the debt (as a percentage of GDP) is now America’s most urgent problem.


As I have discussed before, it is the entitlement programs of Social Security, Medicare and Medicaid, as well as interest payments on our increasing debt which will continue to worsen the debt problem in the coming years  without strong corrective action.
All entitlement programs need to be reformed to impose cost control. Right now the two healthcare bills in Congress propose that the funding mechanism for Medicaid be changed so that it will be on a fixed (federal) budget from now on, rather than be continued in its current open-ended form.
Medicare is an even more expensive program than Medicaid.  It would be better to fix both of these programs at the same time, but it is better to fix Medicaid alone than to do nothing at all.
It would be even better to replace our employer provided healthcare system with a uniform, but limited, health insurance tax credit for all (including for the self-employed) and to make all of these major changes at the same time.  This would be the fairest way to proceed.

Conclusion. The current GOP plan to curtail healthcare costs could be much improved.  It is only a small step in the right direction.

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