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!

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!

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!

Fixing Obamacare Rather Than Repealing It

Posted on August 31, 2014 by jackheidel

The Manhattan Institute’s Avik Roy has just released a comprehensive and very impressive new study of the American healthcare system, “Transcending Obamacare: A Patient-Centered Plan for Near-Universal Coverage and Permanent Fiscal Solvency.” By 2025 it will increase insurance coverage by 12.1 million above Affordable Care Act levels. It will at the same time achieve a 30 year deficit reduction of $8 trillion compared to current CBO projections (see chart below).
More specifically Mr. Roy’s new Universal Exchange Plan will

Expand coverage well above ACA levels without an individual mandate
Improve the quality of coverage and care for low-income Americans
Make all U.S. healthcare entitlement programs permanently solvent
Reduce the federal deficit without raising taxes
Reduce the cost of health insurance

The five core elements of Mr. Roy’s Plan are:

Exchange Reform. The ACA’s individual mandate is repealed. The Plan restores the primacy of state-based exchanges and insurance regulation. 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.
Employer-sponsored Insurance Reform. The employer mandate is repealed, thereby offering employers a wider range of options for subsidizing employees insurance.
Medicaid Reform. The Plan migrates the Medicaid acute-care population onto the reformed state-based exchanges with 100% federal funding. The Plan returns to the states full financial responsibility for the Medicaid long-term care population.
Medicare Reform. The Plan gradually raises the Medicare eligibility age by four months each year forever. The end result is to preserve Medicare for current retirees and to maintain future retirees on their exchange-based or employer sponsored health plans.
Other Reforms. The Plan tackles the growing problems of hospital system monopolies and malpractice litigation and also accelerates the pace of medical innovation by reforming the Food and Drug Administration.

These reform proposals are amazingly ambitious and far reaching in scope. How can they possibly be achieved? Stay tuned!

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.

How to Control Federal Spending II. A General Approach

Posted on July 10, 2014 by jackheidel

“Life’s tragedy is that we get old too soon and wise too late”

Benjamin Franklin, 1706 – 1790

The above chart from the Congressional Budget Office’s latest budget forecast “Updated Budget Projections: 2014 to 2024” shows very clearly how the public debt (on which we pay interest) has climbed dramatically in the last six years, as a percentage of GDP, and is projected to keep on growing indefinitely. As the economy improves and interest rates return to normal levels, interest payments on the debt will skyrocket and become a permanent drag on future growth.
In a recent post “How to Control Federal Spending: The Highway Trust Fund” I pointed out that thanks to the Budget Sequester Act from 2011, it is unlikely that the $35 billion Highway Trust Fund, supported by an 18.2 cent per gallon federal gasoline tax, will be supplemented by general government revenue, paid for by increasing the deficit. In other words, discretionary spending is under control at the present time due to the ten year sequester limits.
But this makes up less than 1/3 of the federal budget, the rest being “mandatory” entitlement spending, for such programs as Social Security, Medicare and Medicaid. This is where the huge projected future growth in overall federal spending comes from and therefore where we need to focus on budget control. The huge challenge is that the number of Americans who are retired, now about 50 million, is growing rapidly. Furthermore, older citizens vote in greater proportion than any other age group and don’t want their benefits to be cut. Elected representatives need help to resist the pressure from senior citizens for greater benefits. Here are two possible ways to provide this help:

A Balanced Budget Amendment to the U.S. Constitution. It would have to be flexible enough to allow overrides for emergencies by a supermajority vote, but otherwise it would force Congress to either cut spending or else raise taxes to bring in more revenue. The tradeoff between these two alternatives would create the discipline to make the hard choices required.
Term Limits for national office. I would choose 12 year limits for both the Senate and the House of Representatives but other choices are possible. Knowing that one’s time in office is limited will help provide the strength to make the difficult decisions to either cut spending or raise tax revenue. New members of Congress are more independent thinking than the careerists whose main goal is to get reelected.

Either of these two possible changes in the rules would help turn things around. We need to do something before we have another financial crisis much worse than the last one!

Privatize Veteran’s Health Care

Posted on May 26, 2014 by jackheidel

The current Veterans Administration waitlist scandal is an unfortunate symptom of a much bigger problem, namely the very high and rapidly increasing cost of providing healthcare to our nation’s veterans. Especially at a time of huge budget deficits and exploding national debt, all branches of government, including our VA system, must operate more efficiently.
As we celebrate Memorial Day and the 70^th anniversary of the Normandy Invasion in WWII, this is a good time to contemplate a major restructuring of the VA. As pointed out two days ago in the Wall Street Journal, “VA’s Budget, and Rolls, Have Boomed”, not only has the number of VA healthcare patient visits increased dramatically from 3.4 million in 2000 to 5.6 million in 2012, but the average annual expenditure per patient has also risen by 62% over the same time period.
The purpose of having a separate healthcare system for veterans is to give them better care than they would otherwise receive. But the scarcity of resources means that their healthcare is being effectively rationed with longer waiting times.
The situation for veteran’s healthcare is a harbinger of what awaits us for our big government entitlement problems: Social Security, Medicare and Medicaid. For the sake of all recipients, present and future, the rapidly growing costs of these programs must be contained. There are lots of possible ways to do this. Our national leaders simply need to take the problem seriously and insist on action.
At the same time it makes no sense to maintain a separate health care system for our nation’s 22 million veterans, only 7% of our total population. The VA has lots of other responsibilities to take care of anyway: providing life-insurance, mortgage, and housing programs, managing cemeteries, and providing job training, for example. Veteran’s healthcare could and should be privatized with a voucher system administered by the VA. It will save billions of dollars for taxpayers and provide better, and timelier, healthcare for our nation’s veterans.

Considering a Wealth Tax for the U.S.

Posted on March 18, 2014 by jackheidel

What should a country do when it has

Massive accumulated debt and annual deficits predicted to grow indefinitely.
A rapidly growing population of retirees heavily dependent on expensive entitlement programs such as Social Security and Medicare.
A national Congress which is unwilling to make significant spending cuts for fear of offending powerful constituent groups.
Growing income inequality and wealth inequality.
A stagnant economy and high unemployment which makes inequality worse.
An inefficient income tax system which does not take in enough tax revenue to pay the bills.

The best response by far is to implement broad-based, pro-growth, tax reform. I have often discussed how to make major changes to our current income tax system. I have also described an attractive way to introduce a consumption tax, the so-called Graetz Plan.
Another way to reform taxes is to introduce a wealth tax. The economist Ronald McKinnon has described a way to do this in a Wall Street Journal column, “The Conservative Case for a Wealth Tax”. His plan is to implement a federal wealth tax in addition to the federal income tax. It would consist of a flat tax of about 3% imposed on household wealth in excess of a $3 million exemption which would exclude 95% of the population. In addition to bringing in a significant amount of new revenue each year, which is its principal objective, it would serve the purpose of making a flatter, pro-growth, income-tax system more palatable to people who are concerned about inequality, and therefore to a much wider audience.
The economics journalist, Daniel Altman, recently reported in the New York Times, “To Reduce Inequality, Tax Wealth, not Income” that American household wealth totaled more than $58 trillion in 2010. The most recent issue of Forbes Magazine reports that there are now 492 billionaires in the U.S. with a total wealth of $2.3 trillion. A 2% tax on the wealth of just these billionaires alone would raise $46 billion. A 0.5% tax on the wealth of all Americans would raise $290 billion annually. These examples show that a “moderate” wealth tax could bring in a significant amount of new tax revenue which would make a big dent in shrinking our annual deficit.
We have to do something and do it quickly. The problem will occur when interest rates return to their normal level as they surely will before long. When this happens, interest payments on our national debt will sky rocket. It’s going to be painful regardless, but let’s try to head for the softest landing we can manage!

Invested in America

Posted on January 30, 2014 by jackheidel

The Business Roundtable, an association of chief executive officers of leading U.S. companies, has just issued a new report, “Invested in America: A Growth Agenda for the U.S. Economy”, describing four actions which policymakers can take to rejuvenate the U.S. economy.
They are:

Restore Fiscal Stability: constrain federal spending in a manner that reduces long-term spending growth, making both Medicare and Social Security more progressive and less expensive.
Enact Comprehensive Tax Reform: adopt a competitive, pro-growth tax framework that levels the playing field for U.S. companies competing in global markets. Several studies estimate that cutting the U.S. corporate tax rate by 10 % (e.g. from 35% to 25%) would boost GDP by 1% or more.
Expand U.S. Trade and Investment Opportunities: pass updated Trade Promotion Authority legislation and use TPA to complete many new trade agreements which are already pending.
Repair America’s Broken Immigration System: increase the number of visas for higher skilled workers and provide legal status for the millions of undocumented immigrants currently living in the U.S.

These are the same “big four” policy changes which many progressive business leaders as well as evenhanded think tank experts often recommend. They are really just common sense ideas which reasonable people should be able to come together on.
Isn’t it obvious that we’ll soon be in big trouble if we don’t get our enormous budget deficits under control? And that controlling entitlement spending is key to getting this done?
Isn’t it just as obviously commonsensical that even U.S. based multinational corporations will try to avoid locating business operations in countries like the United States with very high corporate tax rates?
Isn’t it likewise obvious that foreign trade is just an extension of domestic trade and that the world is better off with as much trade as possible?
Finally, the secret of a vibrant, growing economy is to encourage as much initiative and innovation as possible. Who take more initiative than the immigrants who figure out how to get here in the first place?
We don’t have to accept a sluggish economy, high unemployment and massive debt! But we do need to take intelligent action to extricate ourselves from the predicament we are in!

What Is the State of the U.S. Economy?

Posted on January 28, 2014 by jackheidel

On the eve of the President’s State of the Union address, the New York Times gives an answer to this question in today’s paper, “Obama’s Puzzle: Economy Rarely Better, Approval Rarely Worse”. The charts below do show the basic trends all moving in the right direction. But is this good enough?
The unemployment rate is moving steadily downward but it is still a high 6.7% almost five years after the recession ended in June 2009. And this is with a labor participation rate of only 58.6%, which is historically very low.
The budget deficit is dropping but is still unsustainably high. In the five years, 2009 – 2013, deficits have totaled $6 trillion dollars. As soon as interest rates return to their historical average of 5%, interest on this $6 trillion in new debt alone will total $300 billion per year, forever! Furthermore, the Congressional Budget Office, the most credible source of budget information, predicts that the deficit is likely to resume an inexorable climb within a few years as baby boomers retire in ever greater numbers, rapidly driving up entitlement costs.
Economic growth was stronger than expected in the last quarter of 2013 and this is a good sign. But it has averaged only about 2% since the recession ended which is very low by historical standards, in a post recessionary period.
The point is, do we really need to settle for such mediocre performance: a stagnant economy, high unemployment and massively accumulating debt? Should we just declare that in a highly competitive global economy with an ever higher premium on information and technology, that we just can’t do any better than we already are? Isn’t there some way to make our economy grow faster in order to provide more and higher paying jobs?
I think that the answer to this last question is an emphatic yes! In fact, this is what my blog is all about. Just read some of the other recent posts and let me know if you disagree with what I am saying!

It Does Not Add Up

Jack Heidel's blog on fiscal responsibility

Tag Archives: entitlements