Status Quo on the Budget Is Not Good Enough

Posted on December 23, 2014 by jackheidel

I have now been writing this blog for just over two years. I usually write three posts per week and this one is #280. My top sources for background information are the New York Times and the Wall Street Journal. My own local newspaper, the Omaha World Herald, carries the Washington Post economics journalist, Robert Samuelson, whom I greatly respect.
A column of his discusses a recent report from the Senate Budget Committee prepared by its outgoing chair, Patty Murray (D-WA), entitled “The updated fiscal outlook and its implications for the budget debate next year.” To me this report clearly shows why there has been so little progress made in straightening out the budget over the past few years.
Here are some highlights of the report:

“Both our current fiscal situation and the outlook going forward have significantly improved, meaning we need a budget approach more focused on jobs and growth, not just on cuts.”
“Deficits have fallen dramatically over the last five years, and projected debt and deficits have also declined.”
“Revenue losses due to the recession and slow recovery were significant enough to counteract nearly half of the improvement in projected deficits, which highlights the need for new revenue from the wealthiest Americans and biggest corporations as part of any future deficit reduction effort.”
“It is clear that we need a federal budget approach more focused on jobs and growth, not on cuts for the sake of cutting. That leaves Republican leaders with a critical choice.”

In my opinion there are two basic problems with Senator Murray’s analysis:

Deficits have indeed fallen dramatically from their very high level in 2009, but not far enough! Deficits are projected to rise back to 3.9% in just ten years, as shown in the first chart. This means that debt will keep growing indefinitely, as shown in the second chart. This is unacceptable!
We do badly need to focus on jobs and growth but more deficit spending is not the way to do it. Although immigration reform and expanded trade would help, fundamental tax reform, individual and corporate, is what is really needed to grow the economy.

Hopefully a new Congress will be able to move in this direction next year!

Fix the Debt II. The National Debt and You

Posted on December 18, 2014 by jackheidel

As I reported earlier, I am a volunteer for Fix the Debt, the outreach arm for the Washington DC think tank, Committee for a Responsible Federal Budget. I recently attended a workshop in D.C. put on by Fix the Debt and, in return, I have agreed to make presentations about our debt problem to local organizations during the coming year. Today I gave my first such talk to a local Kiwanis Club.
The message is that a large debt means:

Lower Wages and Fewer Job Opportunities. The growing debt “crowds out” productive investments in people, machinery, technology and new ventures. For example, the Congressional Budget Office estimates that the average wage in 25 years will be $7000 lower if debt is on an upward path compared to a downward path (see above chart).
Increased Costs of Home, Auto, Student and Credit Card Loans. Although interest rates are currently low, they will almost certainly rise as the economy recovers, and they will rise much higher if debt continues to grow.
Less Room for Investment in Infrastructure, Research, and the Next Generation. The CBO projects that interest costs will nearly quadruple from $220 billion in 2013 to $800 billion in 2025. By 2030, 100% of all revenue will go towards interest payments and mandatory spending.
A Threatened Social Security Net. Both Social Security and Medicare are on a road to insolvency. By 2033 both Medicare’s hospital insurance trust fund and the Social Security trust fund will run out of money.
An Increased Likelihood of a New Fiscal Crisis. If investors lose confidence in our ability to service debt, there will be tanking markets, sharply rising interest rates, mass unemployment and rapid inflation.
A Missed Opportunity to Grow the Economy. Debt reduction, tax reform and modest entitlement reforms have the potential to increase economic growth by 9.5% by 2035. Think of all the new jobs this would create!

Do you belong to a club or other civic organization in metro Omaha which brings in outside speakers? If so I’d be happy to bring Fix the Debt’s message to your group. Shoot me an email at jackheidel@yahoo.com!

Fix the Debt

Posted on November 18, 2014 by jackheidel

Recently I have had several posts about our national debt, for example, “Why the National Debt Is Such a Threat to the U.S.,” showing graphically that our current public debt at 74% of GDP is very high by historical standards and rising rapidly under current fiscal policies.
Yesterday I attended a workshop in Washington D.C. put on by Fix the Debt. All expenses were paid and, in return, the attendees agree to make at least three presentations to local community groups during the following year. This means that I will soon be sending out a letter to such groups as Kiwanis and Rotary Clubs around the Omaha area where I live, offering my services as a speaker at one of their meetings. The purpose is to build more public awareness of the threat of a huge and growing national debt to the long-term welfare of our country. Here is a summary of talking points from the workshop:

The deficit for the 2013-2014 fiscal year is almost $500 billion.
Under current fiscal policies the debt will increase to 270% of GDP by 2080.
Reasons for our debt problem:

An aging population which means expanded Social Security spending
Healthcare costs are growing for both Medicare and Medicaid
Interest costs will grow rapidly as the economy recovers and interest rates rise

All bipartisan reform plans call for both spending cuts and revenue increases.
The benefits of taking action are:

Increased budget flexibility
Lower exposure to changes in interest rates
Reduced risk of another financial crisis

The longer we wait:

The older our population gets
The higher the debt will rise
The less time we have to phase in changes
The slower our economy will grow
The fewer tools we will have to fix it

How do we bring debt under control?

Enact policies that grow the economy
Health care cost containment
Spending cuts
Tax reform and tax expenditure cuts

Let me know if you’d like a speaker on this topic at your club!

How to Shrink the Deficit: Control Entitlement Spending by Fixing Obamacare

Posted on November 13, 2014 by jackheidel

Our country faces two major fiscal and economic problems:

How to boost the economy in order to put more people back to work.
How to either increase tax revenue or better control spending in order to shrink the deficit.

My last post, “The Great Wage Slowdown and How to Fix It” makes a specific tax reform proposal to cut tax rates for all by shrinking tax deductions for the wealthy. This would put tax savings in the hands of millions of wage earners with stagnant incomes, who would likely spend it, thereby boosting the economy.
As the above chart clearly shows, there is only one realistic way to shrink the deficit. We have to do a better job of controlling entitlement spending (Social Security, Medicare and Medicaid.) As a practical matter, this means we have to cut back the cost of American healthcare in general, both public and private.
The Manhattan Institute’s Avik Roy has come up with an attractive Plan for doing just this, “Transcending Obamacare.” Mr. Roy’s proposal is to:

Repeal the individual mandate. Insurers are encouraged to design policies of high quality tailored to individual need. By lowering the cost of insurance for younger and healthier individuals, the Plan will expand coverage without a mandate.
Repeal the employer mandate, thereby offering employers a wider range of options for subsidizing employees insurance.
Keep the exchanges to provide broad access as well as subsidies for those with low incomes.
Migrate the Medicaid population onto the exchanges.
Raise the Medicare eligibility age by 4 months per year indefinitely. Over time this will maintain future retirees on exchange-based or employer sponsored health plans.

By gradually moving the Medicaid and Medicare recipients onto the exchanges, both of these very large populations will receive equal quality coverage to everyone else, delivered in a cost effective manner. Mr. Roy estimates that the Plan will expand coverage by 12 million above Obamacare levels by 2025 and reduce the deficit by $8 trillion over 30 years.
This is the sort of major healthcare reform which we need to get entitlement spending under control!

Which Nebraska Senate Candidate Is Most Serious about the National Debt?

Posted on October 30, 2014 by jackheidel

“The single biggest threat to our national security is our debt”
Admiral Mike Mullen, former Chairman of the Joint Chiefs of Staff

My last blog, “Why the National Debt Is Such a Threat to the U.S.” observes that our debt is very large by historical standards and will just keep getting worse under current policies now in effect. This has many severe consequences for the well-being of our country.
What do we do about it? We have to shrink the size of our annual deficits which are continuing to make the debt bigger and bigger. The deficit for the 2014-2015 budget year just ended is $483 billion which is 2.8% of GDP. Since our economy has been growing at a rate of only 2.2% for the past five years, this means that the debt is still growing faster than the economy. We have to do better than this.
The above chart from the Congressional Budget Office shows that the main contributors to the deficit, and therefore also the debt, over the next 20 years, will be entitlements (Social Security, Medicare and Medicaid) and interest payments on the debt. All other programs, i.e. almost all of traditional federal spending, will decrease as a percentage of GDP.
This means that there are just two basic ways to solve our debt problem: trim entitlement spending and/or increase government revenue. We’ll need to do both. Furthermore, it is unrealistic to expect middle-income and lower-income people to pay higher taxes when their wages have been stagnant for many years. New tax revenue will have to come from the wealthy including upper-income wage earners. The best way to do this is by cutting back on the annual $1.2 trillion in loopholes and deductions built into the tax code.
Only one Senate candidate from Nebraska is willing to both trim entitlement spending and raise additional tax revenue: Jim Jenkins, a registered independent from Calloway. The Democratic candidate, David Domina, will not support any significant reining in of entitlement spending. The Republican candidate, Ben Sasse, is too beholden to wealthy contributors to be willing to raise their taxes by cutting back on their tax deductions.
We badly need elected representatives in Washington who will make it their top priority to “fix the debt.” Jim Jenkins is such a person. I hope you will vote for him!

Why the National Debt Is Such a Threat to the U.S.

Posted on October 28, 2014 by jackheidel

In my last post I discussed several commonly held myths about the national debt, along the line that it is a fairly minor problem that can easily be solved sometime in the future if we decide that it is important enough to do so.
The above chart shows that the debt is already very large by historical standards and that it is projected (by the Congressional Budget Office) to just keep getting worse if we continue on our current path of excessive borrowing to pay our bills.
The national organization, “Fix the Debt” lays out very clearly the reasons why our ever-growing debt level is so harmful:

It causes lower wages and fewer job opportunities. The debt will “crowd out” productive investments in people, technology and new ventures. The CBO estimates that wages will grow more slowly if debt is on an upward path compared to a downward path. This will amount to an average $7000 wage cut 25 years from now in the year 2040.

It leaves less room for investment in infrastructure, research and the next generation. A growing debt means higher interest payments. The CBO projects that interest payments could nearly quadruple from $220 billion in 2013 to about $800 billion in 2024. That leaves far less for investments in education, infrastructure, research, etc.

It increases the likelihood of a fiscal crisis. Failure to get the national debt under control could precipitate a crisis where investors are no longer willing to loan money to the government at affordable rates. This could mean large investment losses, tanking markets, mass unemployment, rapid inflation, etc.

It means a missed opportunity to grow the economy. Deficit reduction legislation presents an opportunity to enact pro-growth tax reform, improve programs to reward work, re-orient spending to important investments, and capture the economic benefits of putting the debt on a sustainable path.

Let’s hope and pray that our national leaders appreciate the urgent nature of the debt problem and have the political courage to do something serious about it!

Straight Talk about the National Debt

Posted on October 26, 2014 by jackheidel

The deficit for fiscal year 2014-2015 just ended is “only” $483 billion, about 2.7% of current GDP, and some observers are saying this means that our deficit and debt problems are now under control and we should stop fretting so much about them.
There is a nonpartisan outfit in Washington DC, “Fix the Debt,” which focuses on this very problem and they’re saying not so fast. In their document, “Common Myths about the Debt,” they debunk several false impressions about the national debt:

Myth: Deficit levels are falling and therefore debt is no longer a concern.
Fact: Over the next decade our debt is on track to grow about $8 trillion (see above chart). Its growth will accelerate after 2018 and will exceed the size of the entire economy by 2035.
Myth: Deficit reduction is just code for austerity which will ultimately hurt the economy.
Fact: A comprehensive and gradual deficit reduction plan can replace austerity with targeted and pro-growth reforms which promote economic recovery and accelerate long-term wage growth.
Myth: Deficit reduction will harm low-income and vulnerable populations.
Fact: Every recent bipartisan deficit reduction plan has included progressive reforms that ask more from those who can afford it and protect low-income programs.
Myth: The debt can be solved with faster economic growth.
Fact: Economic growth must be part of the solution, but it can’t solve the debt problem alone. Productivity growth would have to be 50% higher over the next quarter century just to hold debt to its current record-high levels.
Myth: Taxing the wealthy more will solve the debt problem.
Fact: Our debt problems are too large, and the top 1% too few, to solve the entire problem by raising taxes on the wealthy.

Conclusion: Our debt problem is so large that it can only be solved by stern measures, such as tax reform, including reducing tax breaks, and also spending reform to slow the growth of entitlement programs. Stay tuned for further discussion of this critical problem!

“Nebraska Is Not a Tea Party State”

Posted on October 9, 2014 by jackheidel

So declares Jim Jenkins, an independent candidate for the U.S. Senate from Callaway in western Nebraska. Several weeks ago I endorsed Jim based on his common-sense centrist views on many important issues such as fixing the debt, tax reform, Obamacare, and immigration reform. Check out his campaign website for the details.
Now Jim has come out with additional common-sense reform ideas:

My 5-Point Bipartisan Reform Agenda

Nebraska doesn’t belong to a political party; Nebraska belongs to our people. Unless you can develop a framework in Congress by which you actually debate, discuss and negotiate, we’re not going to be able to move forward. Here’s my 5-point, bipartisan reform agenda to end gridlock in Washington.

Fix the Debt. Debate recommendations from the bipartisan National Commission on Fiscal Responsibility and Reform, more commonly known as the Simpson-Bowles Commission that presented Congress and the President with a comprehensive plan to reduce the deficit.
Biennial Budget. Congress should adopt a biennial budget process, an approach to budgeting utilized by many states, including Nebraska that allows for a more thorough evaluation of budget proposals in year one and a review of budget effectiveness in year two.
No Budget, No Pay. Unless Congress passes a budget by the end of its fiscal year members of Congress will not receive pay. I also support legislation that suspends Congressional recesses until it has passed a budget. Failure to pass budgets undermines the greater economy and undermines the credibility of Congress with its citizens.
Immigration Reform. President George W. Bush presented a bipartisan plan on immigration that had the backing of a significant number of Democrats. The passage of immigration reform will require a meeting in the messy middle. Both Democrats and Republicans are going to have to yield.
Leadership Council. Congress should adopt a bipartisan leadership group each session that would identify the top legislative priorities.

We need leaders in Washington who will work together to find common-sense solutions to our very challenging national problems. Jim Jenkins is such a person and I hope you will consider voting for him on November 4!

Why I Support Jim Jenkins for the U.S. Senate from Nebraska

Posted on September 14, 2014 by jackheidel

I have been writing this blog for almost two years because of my great concern about the direction our country is headed on fundamental fiscal and economic issues. Federal spending has been out of control for over thirty years and the situation is getting progressively worse. Our national debt is over $17 trillion and growing at a rate of $500 billion per year. And it will soon be growing much faster than this if we don’t make big changes. Economic growth has been stuck at the anemic rate of 2.2% of GDP ever since the end of the Great Recession over five years ago.
Our national leaders are simply not doing the job they were elected for. Democrats blame the Republicans and Republicans blame the Democrats but excuses are not good enough. We need people in Washington who can figure out how to navigate within the system and actually find solutions to our very serious problems.
I believe that Jim Jenkins, a registered independent from Callaway, is the best qualified candidate to do what needs to be done. Check out his website, Jenkins for Senate, and decide for yourself. Here are a few of his views on important issues:

Fixing the Debt. Jim supports the recommendations of the Simpson-Bowles Commission which calls for dramatically cutting federal spending especially for entitlements and also raising taxes if necessary in order to drastically shrink our annual deficits.
Tax Reform. Jim supports lower tax rates achieved by eliminating many of the tax expenditures (credits, deductions and exclusions) embedded in the code. This is what is needed to boost economic growth.
Affordable Care Act. Jim believes that the ACA has many rough edges but that it is possible to fix them rather than repealing it and starting over.
Immigration Reform. Jim supports comprehensive immigration reform which includes securing our borders but at the same time expanding the number of guest worker visas to meet the needs of business and agriculture.
Veterans Administration. Jim supports setting up a plan to enable veterans to obtain medical care from health professionals within their own communities.

Compare these common sense views with the far more ideological positions of the other candidates in this race. I think that you will agree with me that Jim Jenkins is the person we want representing us in Washington!

Barack Obama vs Paul Ryan: Who Is Moving Us in the Right Direction?

Posted on August 18, 2014 by jackheidel

“If you give a man a fish you feed him for a day. If you teach a man to fish you feed him for a lifetime.”
Chinese Proverb

Several weeks ago my post, “How to Improve America’s Welfare System,” described a new proposal from the House Budget Committee (Chair, Paul Ryan) to let selected states experiment in consolidating separate federal programs such as SNAP, TANF, child-care and housing assistance programs, into a new composite Opportunity Grant Program. The idea is to let participating states choose qualified providers who would then be held accountable for moving people off of assistance, out of poverty and into productive employment.
A recent report from the Tax Foundation compares what families pay in taxes with what they receive in government benefits. In 2010, 60% of American families (with incomes up to $86,000) received more in federal benefits than they paid in federal taxes. However in 2012, this percentage grew to 70% (those families with incomes up to $109,000). In other words, the trend under Obama is for more people to be net receivers of benefits than net payers of taxes. There are two basic problems with this trend towards more and more benefits for more and more people:

As it stands right now, we’re making people more dependent on government programs. Instead we should be helping them become more independent and more capable of supporting themselves on their own. This would improve their quality of life.
Our federal government is spending way too much money and not collecting enough tax revenue to pay the bills. According to report after report from the Congressional Budget Office, the trajectory of growing debt is getting much worse and the problem will become harder and harder to rectify as we continue down this path.

My natural inclination is to be optimistic that our political process will respond to this bleak current path we’re on and that things will be turned around before we have another financial crisis. But it is easy to imagine a course of events where this does not happen.
It’s clear what we need to do but how will this get done?

It Does Not Add Up

Jack Heidel's blog on fiscal responsibility

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