The Republican Budgets Focus on Entitlement Savings

Posted on March 29, 2015 by jackheidel

Last week, both the House and the Senate passed ten year budget plans which would bring the federal budget into balance by 2025. I have devoted several recent blog posts to discussing these budget proposals and how they address our very serious debt and deficit problems.
There are several important points to make:

Under both of these Republican plans, overall spending will continue to increase by an average of 3.3% per year, from $3.8 trillion in 2016 to just over $5 trillion in 2015. The President’s budget would increase spending to $6.17 trillion by 2025 and would achieve no balance between spending and revenue.
Most of the savings in the Republican budgets, as indicated in the above chart, come from the mandatory (entitlement) programs of Social Security, Medicare and Medicaid. Medicare would be transformed into a subsidy program along the lines of the exchanges set up under the Affordable Care Act. Medicaid would be turned into a block grant program administered by the states. Social Security would be studied by a bipartisan commission to recommend operating efficiencies.
Other social welfare programs would be affected to a much smaller extent. For example, the Supplemental Nutrition Assistance Program (SNAP), or Food Stamps, has seen a growth of recipients of 69% between 2008 and 2013 while the poverty rate increased by just 16.5% during the same period. The Republican budgets would block grant Food Stamps to the states in order to achieve operating efficiencies.
It is true that both the House and Senate budgets would increase military spending by about 10%. But so would the President’s budget and we live in a very dangerous world. Military defense is one of the most very basic functions of our federal government.

Our country is in dire fiscal condition with large annual deficits projected indefinitely into the future, contributing to an exploding national debt. It is heartening that our political system is responding to this threat to our future security and prosperity. Let’s hope that House and Senate majorities continue to keep a sharp focus on the urgent task of fiscal restraint.

An Open Letter to Representative Brad Ashford

Posted on March 26, 2015 by jackheidel

You’re off to a great start in Congress! You’ve clearly established that you’re independent minded and that you vote your conscience. I expected that you would act in this way and that is why I supported you during last year’s election campaign. We need more people like you in Congress.
As you perhaps know, I am a non-ideological fiscal conservative and social moderate. I am, like you, mainly interested in finding practical, workable solutions to difficult and complicated problems. But I do have one guiding principle to which I strongly adhere. I believe that, as a general rule, every level of government should refrain from spending more money than what it can pay for with tax revenue.
Unfortunately our federal government has gotten away from this principle in recent years. This is clearly demonstrated in the above chart which shows an already very large national debt getting much, much worse in the coming years.
There is a movement in the new 114^th Congress to address this perilous situation which we have gotten ourselves into. I am referring to the bills drafted by the Budget Committees of both the House of Representatives and the Senate which would produce balanced budgets over the ten year period, 2015 – 2025.
It was reported in today’s Wall Street Journal that the full House voted yesterday to approve the budget bill by a 228-199 margin but without any Democratic votes. This means that either you voted against the Budget Bill or you did not vote on it.
I don’t believe that any one vote is so important that it constitutes a decisive litmus test determining my support of a candidate in a future election. However, as I mentioned above, I feel very strongly that we must greatly shrink our very large budget deficits and that now, not later, is the time to get started on this urgent task.
I hope to be able to support your re-election campaign in 2016 and beyond. That is why I am writing to you at the present time.

Status Quo on the Budget Is Not Good Enough!

Posted on March 24, 2015 by jackheidel

As I like to remind readers, I am a non-ideological fiscal conservative. I am not hard core anything. I just want to find practical, workable solutions for difficult and complicated problems. There is basically only one exception to my generally moderate outlook. I detest huge amounts of deficit spending except for unusual circumstances. Most of the time we should be willing to either raise taxes and/or cut spending to do what needs to be done and to live within our means.
This is why the current efforts by the Budget Committees of both the House and the Senate to devise a plan to balance the budget, i.e. eliminate deficit spending, over a ten year period is so exciting to me.
An analysis in today’s New York Times suggests that Congress should be content to just extend the so-called Ryan-Murray Budget from 2014-2015. “Ryan-Murray didn’t decisively move the needle one way or the other, which is why it was able to attract bipartisan support. Rather it preserved the status quo. In a world of divided government and polarized politics, keeping the government running without a lot of brinkmanship and high drama may be the best we can hope for.”
As I pointed out in my last post, current policy will raise government spending by 5.1% annually over the next ten years. The President wants to increase spending by an additional $1 trillion over this time period. The Republican budgets, which lead to balance in ten years, still allow spending to increase by 3.3% annually. The difference between the two plans is illustrated in the above chart from last Sunday’s Omaha World Herald.
Congress is finally in a position this year to start digging us out of the deep fiscal hole we have fallen into. Let’s hope that too much “bipartisan” status quo thinking doesn’t get in the way of progress!

How the Obama and Republican Budgets Compare

Posted on March 22, 2015 by jackheidel

The Budget Committees for both the House of Representatives and the Senate have now passed plans to achieve balanced budgets within a ten year period. My last two posts have discussed the compelling need to get deficit spending under control and an overall rationale for how to approach this difficult task. Today I will take a look at the major differences between the Obama budget and the House and Senate budgets. The two congressional budgets are quite similar and will surely be reconciled into a single budget.
Here are the major differences:

Revenue. The President wants to raise taxes by $3 trillion over 10 years to pay for more spending while the Republicans wants revenue-neutral tax reform in order to increase economic growth.

Spending. Under current policy the government will spend $48.6 trillion over the next ten years which represents a 5.1% annual rate of spending increase over the present. The President wants to spend an additional $1 trillion over this time period on new initiatives. The Republicans propose spending about $5.4 trillion less, or $43.2 trillion, which still works out to a 3.3% annual rate of increase over the present.

Deficits. Under current policy the deficit would start to increase, as a percentage of GDP, in 2018. The President proposes to stabilize the deficit at 2.5% of GDP. The Republicans would balance the budget within ten years by shrinking the deficit down to zero.

Public Debt. Under current policy the public debt (on which interest is paid) will increase to 79% of GDP by 2025. The President’s budget would stabilize the debt at the current level of 73% of GDP. The Republican’s balanced budget would shrink the debt to 57% of GDP by 2025.

There are stark differences between the President’s proposed budget and the Republican alternative. Which is the better route to progress and prosperity? Is it to raise taxes, increase government spending and only stabilize the debt or is it to streamline taxes, slow down the growth of spending and shrink the debt? This is a fundamental question of government policy which will not be quickly resolved. But at least the question is being raised in a dramatic way!

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!

The President’s Budget: Stabilization of the Debt Is Not Enough!

Posted on February 5, 2015 by jackheidel

President Obama has proposed a $3.99 trillion budget for next year, a $340 billion increase from the current 2015 budget year. As shown in the charts below, it projects deficits of about 2.6% over the next ten years equal to its (optimistic in comparison to the CBO) growth projections for GDP. This means that the debt would stabilize at about 73% of GDP. And, of course, achieving his predicted stabilization of debt will require big tax increases over this ten year period.
Here are the major weaknesses in the budget:

Sequestration. The President declares that “I’m not going to accept a budget that locks in sequestration going forward.” Everyone deplores the mindlessness of sequestration but the only responsible alternative is to make targeted cuts throughout the budget. The President makes no attempt to do this. And he wants to add spending for various new education and research initiatives, as well as an expanded Earned Income Tax Credit for low-income workers.

Infrastructure. Spending over the next six years would increase by $238 billion to be raised from a 14% repatriation tax on the $2 trillion in foreign earnings held overseas by American multinational corporations. The problem is that any repatriation tax should be tied in with overall corporate and business tax reform, exchanging lower tax rates in return for closing loopholes and deductions, in order to make U.S. business taxes competitive with those of other countries. Fundamental tax reform is the key to getting our economy growing faster.

Entitlements. The President’s budget does not even mention the biggest threat to long-term fiscal sustainability, namely the rapidly increasing spending for Social Security, Medicare and Medicaid. It will be very difficult to make progress on this critical issue without presidential leadership.

Stabilization of the Debt. The President’s budget, with quite optimistic revenue and growth projections, stabilizes the debt over ten years. But this is not nearly good enough. To be satisfied with a public debt of 73% of GDP indefinitely into the future is simply too risky. What’s going to happen when we have another financial crisis, as we surely will? How are we going to cope with our growing rivalry with China with very little budget flexibility? And one can imagine any number of other possible emergencies which might occur. Putting the debt on a clear downward trajectory is the only prudent thing to do!

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!

The Legacy of Senator Tom Coburn

Posted on January 4, 2015 by jackheidel

Oklahoma’s Senator Tom Coburn has just retired from Congress after serving six years in the House of Representatives and ten years in the Senate. He will be sorely missed because his achievements were legion.
By ridiculing the “Bridge to Nowhere” in Alaska in 2006, he eventually prevailed upon Congress to totally eliminate earmark spending by 2011.
Beginning in 2010 his staff compiled an annual “Wastebook” each year listing numerous examples of wasteful spending by the federal government. The “2014 Wastebook” gives 100 such examples totally $25 billion ranging from laughing classes for college students to a State Department program to dispel the perception abroad that Americans are fat and rude!
Beginning in 2011, Senator Coburn has prevailed upon the Government Accounting Office to issue annual reports entitled “Actions Needed to Reduce Fragmentation, Overlap and Duplication and Achieve Other Financial Benefits.” Now, after four years, a total of 226 specific actions have been recommended by the GAO. GAO’s Action Tracker shows that the government has addressed about 19% of the efficiency recommendations made by the GAO. Be thankful for small progress!
His latest, finest and presumably last major effort along these lines is a 320 page report, the “Tax Decoder” which is intended to “decode the tax code for every taxpayer. It reveals more than 165 tax expenditures costing over $900 billion this year.” Although more than $1.7 trillion in tax revenue was collected by the government in 2014, the IRS will be unable to collect an additional $500 billion that is owed. This would have been enough to cover the $483 billion deficit for fiscal year 2014!
As Senator Coburn points out in the introduction to this document, “ideally Congress would throw out the entire tax code and start over. But at the very least, Congress should make the tax code simpler, fairer and flatter.”
It is rare that a single member of Congress makes such an extraordinary contribution to our country’s welfare!

We Agree There Is a Huge Debt Problem! How Do We Fix It?

Posted on December 30, 2014 by jackheidel

Yesterday I gave my second “Fix the Debt” presentation, this time to the Greater Omaha Kiwanis Club. The main slide (just below)
is all they needed to appreciate the magnitude of the problem. Their main interest was “How do we fix it?” They listened politely to a bipartisan list of possible actions:

Policies that grow the economy
Health care cost containment
Social security reform
Defense spending cuts
Other spending cuts
Tax reform and tax expenditure cuts
Budget process reform

Then one member asked, “How about a balanced budget amendment?” and this became the focus of the discussion. A balanced budget amendment going forward would not pay off the debt but would stop adding to it. It would shrink the debt over time as a percentage of GDP as the economy continues to grow. This is the best we can do in a practical sense and represents a satisfactory solution. There are lots of problems, however, associated with passing a Balanced Budget Amendment:

First of all, it will be difficult to accomplish. It requires approval by a 2/3 vote of each house of Congress and ratification by ¾ of the states. This means that it could be stopped by just 13 state legislatures.
How would a BBA be enforced? By having the Supreme Court step in and require specific actions to raise taxes or cut spending? This seems problematic.
There would have to be a provision for override in the case of emergency (war or other catastrophe). A 2/3 vote by each house of Congress would be a logical way to handle a situation like this. But such a system could easily be abused.

The goal is to significantly shrink the debt as a percentage of GDP over time as the economy grows. This does not require a balanced budget but only that annual deficits be lower on average than annual growth of the economy. Representative Paul Ryan’s “Roadmap” plan, for example, would shrink the debt by 30% over a 20 year period without a single annual balanced budget. The important thing is to shrink the debt as a percentage of the economy, and to get going on this as soon as possible. If it requires a somewhat rigid amendment to get this done, then that’s what we need to do!

It Does Not Add Up

Jack Heidel's blog on fiscal responsibility

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