The Bush Deficits vs the Obama Deficits

Posted on February 10, 2015 by jackheidel

As I like to remind readers, I am a fiscal conservative and a social moderate. I started writing this blog in November 2012, after running unsuccessfully in a Republican congressional primary in May of that year. I am appalled by our reckless fiscal policies in recent years. We simply have to get federal spending in much better alignment with tax revenue and do this in a relatively short period of time.
Both political parties are responsible for our current predicament. Nevertheless, we need to have the best factual information available to help us get back on track. Today I compare the Bush deficits with the Obama deficits. The most objective way to do this, in my opinion, is to divide the transition budget years, 2001 and 2009, between the incoming and outgoing presidents. In other words, October, November and December of the year 2000 are assigned to President Clinton and the last nine months of the 2001 budget year, i.e. January 2001 – September 2001, are assigned to President Bush. Likewise for the 2009 budget year, when Bush was leaving office and President Obama was coming in.
A good source for such detailed budget information is the website of David Manuel, “an online repository of financial and political information that is often searched for but is generally hard to find.”
Here is what I’ve come up with:

President Bush

2001 budget year (last 9 months) $129.6 (billion) surplus
2002 budget year $157.8 (billion) deficit
2003 budget year $377.6 (billion) deficit
2004 budget year $413 (billion) deficit
2005 budget year $318 (billion) deficit
2006 budget year $248 (billion) deficit
2007 budget year $161 (billion) deficit
2008 budget year $459 (billion) deficit
2009 budget year (first 3 months) $332.5 (billion) deficit
$2,337.3 (billion) deficit TOTAL

President Obama

2009 budget year (last 9 months) $1080.5 (billion) deficit
2010 budget year $1294 (billion) deficit
2011 budget year $1299 (billion) deficit
2012 budget year $1100 (billion) deficit
2013 budget year $ 683 (billion) deficit
2014 budget year $ 483 (billion) deficit
2015 budget year (CBO estimate) $ 468 (billion) deficit
2016 budget year (CBO estimate) $ 467 (billion) deficit
2017 budget year (first 3 months, CBO) $ 163 (billion) deficit
$7,037.5 (billion) deficit TOTAL

These totals represent, of course, the amounts that were added (Bush) or will be added (Obama) to the national debt during their terms of office. George Bush made little, if any, effort to control deficit spending. But the Obama debt is three times as bad as the Bush debt. Getting the debt under control is by far our biggest and most urgent national problem. By failing to take our debt seriously, both Bush and Obama have been huge failures as president!

What Will It Take to ‘Fix the Debt’?

Posted on January 22, 2015 by jackheidel

I have recently become a volunteer for the national bipartisan organization, Fix the Debt. It is the outreach arm for the Washington think tank, Committee for a Responsible Federal Budget, which is an offshoot of the Simpson-Bowles Commission from several years ago.
As such, I give presentations to local civic organizations about our national debt and what needs to be done to get it under control. Typically the audience will readily appreciate the seriousness of our debt problem. What they want to talk about are practical ways to address it. They have their own ideas and want to know what I think as well. My first message is that we don’t have to pay off the debt or even balance the budget going forward. Realistically we need to shrink our annual deficits in order to put the debt on a downward course as a percent of our growing economy, as shown in the chart just below.

It will be a huge challenge to accomplish even this! Here are my ideas, in very general outline, on how to get this done:

Entitlements (Social Security, Medicare and Medicaid) are the biggest single problem because our population is aging so fast. Furthermore, in order to control the growth of Medicare and Medicaid, we have to do a much better job of controlling the overall cost of healthcare in the U.S. For example, even though healthcare costs slowed down to an increase of only 4.1% in 2014, this is still more than twice the rate of inflation!
The second thing we need to do is to make our economy grow faster than the roughly 2.3% growth we have achieved since the end of the Great Recession. The main way to get this done is through broad-based (and revenue neutral) tax reform at both the individual and corporate levels, by reducing tax rates, paid for by closing loopholes and limiting deductions.
Finally, there is enormous waste and inefficiency in the federal budget, with huge redundancy and overlap of programs between different federal departments. Responsibility for such programs as education, community development, transportation and social welfare, for example, should be returned to the states with block-grant funding to replace rigid federal control.

I have discussed each of these major reform ideas in much detail in previous blog posts and will continue to do so. As large as our fiscal problems are, I remain optimistic that they can and will be successfully addressed.

Where Should the New 114th Congress Focus Its Attention?

Posted on January 6, 2015 by jackheidel

The two main themes of this website are how to boost economic growth and how to get our national debt under control. Faster economic growth will put more people back to work by creating more jobs. Faster growth will also bring in more tax revenue and therefore potentially reduce deficit spending.
The latest monthly unemployment rate, 5.8% for November 2014, is much higher than it should be almost six years after the end of the Great Recession in June 2009. The best thing that Congress could do to boost economic growth is to adopt broad-based tax reform, lowering tax rates in a revenue neutral way by closing loopholes and limiting deductions. I’m still in favor of doing this but I no longer consider it to be the top priority for the following reason.
The huge drop in the price of gasoline is already providing a big economic stimulus. At the current price of $2 per gallon, the average American family will save about $750 per year in driving expenses. This is even more relief than a tax cut would provide. The economy has already picked up steam in 2014 and is predicted to grow at the rate of 3% in 2015. This will keep the unemployment rate decreasing steadily throughout 2015 and beyond, which represents much progress.
It’s now time for Congress to focus more strongly on putting the debt on a downward path. This can only be done by shrinking our annual budget deficits well below the $483 billion deficit for the last (2014) budget year. As the above chart from Fix the Debt shows, our current fiscal path leads inexorably to a growing debt which is completely unsustainable in the long run. Annual deficits will have to be at least cut in half to be able to turn the debt trajectory downwards.
Getting this done will require much dedication and hard work by Congress. Many programs will have to be eliminated. Surviving programs will need to operate more efficiently. The entitlement programs of Social Security, Medicare and Medicaid will have to be greatly tightened up.
Is Congress up to this task? The future of our country depends on it!

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!

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!

How Do We Establish A Free Market Healthcare System in the U.S.?

Posted on October 16, 2014 by jackheidel

As I discussed in my last post, it is critical and urgent for the U.S. to sharply reduce the cost of healthcare, both public and private. There are basically two different ways to do this: with either a “single payer” system like most of the rest of the developed world has, or with a more nearly free market system than we have at the present time.
Both Switzerland and Singapore have largely free market systems with universal coverage and they operate at far less public cost, as shown above, than for other developed countries including the U.S. The Singapore model features Catastrophic Care insurance, coupled with Health Savings Accounts, for all citizens, with subsidies for those with low-income. The Swiss model employs exchanges, similar to our own Affordable Care Act, to subsidize, on a sliding scale, health insurance for the low income. In Switzerland only 20% of the people receive an insurance subsidy compared to 85% in the U.S.
The Manhattan Institute’s Avik Roy has proposed a true free market system for the U.S., “Transcending Obamacare: a patient-centered plan for near-universal coverage and permanent fiscal solvency,” which is modeled on the Swiss system. Mr. Roy’s plan sets up universal exchanges to offer insurance, subsidized if necessary, to everyone who does not receive it from their employer.
He proposes that over time Medicare and Medicaid recipients as well as Veterans would migrate into the exchange system. This means that eventually the 30% of Americans (elderly, poor and veterans) who now receive direct government (single payer) support would become part of the exchange system. Mr. Roy’s Universal Exchange Plan is projected to reduce deficit spending by $8 trillion over the 30 year period which it will take to fully phase in the exchanges. This will go a long way towards solving our serious fiscal problems.
Conclusion: both Singapore and Switzerland have high quality, cost efficient free market health care systems which proves that a free market approach is possible. Mr. Roy adapts and expands the Swiss model for the much larger and more complex American market. It isn’t necessarily the last word in healthcare reform but it takes a big step in the right direction.

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!

The Big Picture on Debt II. Why It Is So Alarming

Posted on August 10, 2014 by jackheidel

My last post, “The Big Picture on Debt,” used a chart from a recent Congressional Budget Office report (pictured below) to look at the history of U.S. debt. It is worse now than at any other time except at the end of World War II. But after 1945 massive military spending ended rapidly, the economy started growing briskly and debt as a percentage of GDP shrunk rapidly.
The light purple section at the right hand side of the chart portrays CBO’s debt projection for the next 25 years. As the report itself makes clear, CBO is using favorable economic assumptions in this projection. Without these favorable assumptions, our future debt will be much worse than this. And the same trends continue indefinitely into the future beyond the 25 year window.
Right now our huge debt is almost “free” money because interest rates are so low. But this situation cannot last much longer without setting off an inflationary spiral. As interest rates eventually resume their historical average of about 5%, interest payments on our accumulated debt will skyrocket and therefore increase the size of the annual deficits.
There are only three ways to shrink debt as a percentage of GDP: 1) cut spending, 2) achieve faster growth and 3) raise tax revenue. Let’s look at each in turn:

Government spending as a percentage of GDP is not shrinking but actually growing. Primarily this is because of the massive growth of the big three entitlement programs: Social Security, Medicare and Medicaid. All other government spending is subject to Sequester limits. This is a crude and insufficient way to control discretionary spending.
GDP growth, averaging 2.2% annually since the end of the Great Recession five years ago, is much slower than the overall average growth of 3.3% since the end of WW II. Major tax reform at both the individual and corporate levels, with lower tax rates offset by closing loopholes and shrinking deductions, would give a big boost to economic growth. But there is resistance to cutting tax deductions.
Raising taxes will in principle decrease deficit spending but the trick is to do it without hurting economic growth. Both individual and corporate tax reform could accomplish this if done in the right way. See here and here for specific proposals.

Conclusion: there are concrete ways to find solutions to get our massive accumulation of debt under control and shrinking as a percentage of GDP. But the prospects for action are gloomy.

It Does Not Add Up

Jack Heidel's blog on fiscal responsibility

Tag Archives: Deficit spending