Budget Debt
The US Government spends more than it takes in just about every year. Here are the budget deficit numbers by year since 1932. If anyone wants to know why we have a budget problem in this country, all you have to do is look at the running debt clock. We are now at $21T in debt.! But, if big numbers alone don't get your attention, then lets put the $21T in perspective, it represents over 100% of GDP. The nation owed $10.6 trillion on Jan. 20, 2009, when President Obama was sworn in, and he doubled it – more than Bush piled up in two terms. There is bipartisan agreement that we cannot sustain this level of debt. There is also bipartisan agreement that we must correct the outflows exceeding inflows that drives the debt higher every second (see debt clock) . Everyone who manages a checkbook has seen this problem before and knows how to correct it - reduce expenses and increase income. Increasing revenues is critical to the solution, but will not have an immediate impact. Reducing expenses is also critical to the solution and can generate immediate impact. It is the only thing in your control instantly! Sequestration and government shutdown revealed that with immediate impacts in 2012 & 2013. Everything else we here about this subject beyond these two facts is just noise and should be ignored. The political left and right cannot agree on how to correct this problem. The left solution to our problem is to increase taxes on the rich to increase income. Currently the top 20% of income earners pays 80% of the federal tax burden. So do we want them to pay 100%? 110%? 120%? Maybe just write the check every year for the entire cost of government, whatever it is? Clearly this is not a solution. The right wants us to reduce spending and taxes, which was also a poor solution in a recessionary economy, but in a growing economy in 2017 has promise. But, the truth is we must do both (reduce expenses and increase income), we must do it now and it will not be easy. All the political hot air outside these two facts is simply a distraction from the difficult but obvious answer. Trump's tax law in Dec 2017 had an economic stimulation effect. A growing economy will usually increase income (tax revenues for the government) over the 10 years, but not immediately. The Trump tax reform due to money overseas that will be returning home, will have immediate positive revenue impacts. His military defense spending will have a negative national debt impact. To immediately begin to impact our budget deficit and debt problem whiling anticipating increased revenues we also must immediately and dramatically cut spending. That MUST include discretionary spending AND entitlements (Social Security, Medicare & Obamacare) which represent 90% of the problem. The left will say you are hurting education, the homeless, healthcare of all Americans, the elderly and on and on. The right will shout "we are already taxed enough". All This whining MUST be ignored. No one wants to hurt themselves, their families or their neighbors We have no choice but to intelligently make these difficult decisions while minimizing the pain. But there will be pain. And our representatives MUST ACT NOW. It is a dereliction of duty if they do not. The 2 year budget passed Feb 2018 does not do this. It was a purely bi-partisan negotiation (which is good) but gives everything to everyone and makes no tough decisions on spending. Below you can watch the ongoing debate on this critical issue. And hopefully see the solution we need develop. Then, in 2020, the COVID-19 pandemic arrives and budget busting, debt and printing money takes on historic proportions!

Debt Ceiling Fakery

5/18/23
from Maudlin Economics,
5/16/23:

The United States is about to hit its credit limit. Treasury Secretary Janet Yellen says the government will have to stop borrowing as soon as June 1 unless Congress raises the debt ceiling. Depending on who you ask, that could mean anything from “no big deal” to “economic catastrophe.” We somehow survived a similar episode in 2011, but that one ended quickly. Bad things could happen if the politicians can’t make a deal. No matter how this stand-off ends, it’s already exposed some deep misunderstandings. They matter, too, because we really do have major budgetary challenges. They won’t get solved when the people in charge can’t even speak the same language. So, let’s get some things straight. Artificial Ceiling Commentators often compare the federal budget to a family sitting around the kitchen table, discussing finances. That’s a nice, relatable but flawed comparison. The federal government isn’t a family. It has entirely different abilities and limitations. When you borrow money—by getting a credit card, for instance—the lender typically gives you a limit. They want you to borrow so they can earn revenue, but not so much that you can’t repay it. They estimate your ability and set an interest rate high enough to make the risk worthwhile.

The debt ceiling the government is presently approaching is self-imposed by the borrower (Congress). The lenders (i.e., T-bond and T-bill buyers) in this situation are happy to give the Treasury more cash at very low interest rates.

Congressional Doubletalk The 14th Amendment says the “full faith and credit” of US government debt can’t be questioned. This may override the debt ceiling, but there’s a more practical issue, too. The Constitution gives Congress “power of the purse,” i.e., the responsibility to set tax and spending policies. The president then executes those policies. The bills Congress passes (which become law when the president agrees) are actually orders to the president. They are Congress saying, “You will spend certain amounts of money on the things we tell you to buy.” Presidents can’t ignore Congressional appropriations. They must spend the money as ordered. What happens when the tax rates Congress sets don’t raise enough revenue, and Congress also won’t raise the debt ceiling to let the president fill the gap? No one knows. Every option breaks the law. It puts the president in an impossible situation. This is so ludicrous it may be unconstitutional. Some think President Biden should simply ignore the debt ceiling and issue more debt anyway, even if Congress doesn’t act. But that’s not great either; it would put those particular bonds under a legal cloud, maybe raising interest rates.

Imaginary Cuts All this is happening because House Republicans say spending is out of control. They passed a bill last month outlining their better ideas. Because cutting Social Security and other mandatory programs is politically difficult, their savings focus mainly on “discretionary” spending. Their proposal would save $3.2 trillion over 10 years by rolling back spending to 2022 levels, then capping growth at 1% annually. That sounds reasonable. The problem is they don’t have the power to cut spending 10 years in advance. Nor does anyone else. All spending bills are for one year and one year only.

That’s how our system works. A future Congress can always change anything today’s Congress does. It has to be that way or elections become meaningless.

The Republicans talking about big spending cuts are claiming credit for something purely hypothetical. Ditto for the Democrats who are afraid their favorite domestic programs will face cuts. They probably won’t—at least not for long. These are political charades having little impact on actual spending policy… which really does deserve a thorough rethink.

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