There is apparently some chatter among the chattering classes about the need for a debt commission to examine the federal debt and recommend ways forward. This is unbelievably tedious and dumb. The federal budget is not complicated, and everyone serious already knows what we have to do if we want to balance the budget.¹
Along those lines, today I got pointed to a piece by Paul Winfree explaining why the federal debt is about to explode:
In the next three years, the elements of the perfect debt storm will come together. At the end of 2025, (1) most of the provisions of the 2017 tax reform that lowered taxes for American workers, families, and small businesses will expire. A year later, (2) $350 billion in funding that states and local governments have become addicted to (and that was part of the $1.9 trillion Biden spending bonanza) will also expire, (3) as will $400 billion in contract authority from the bipartisan “infrastructure” bill. Meanwhile, (4) hundreds of billions of dollars in unpopular provisions used to pay for the Inflation Reduction Act will kick in (5) along with unanticipated costs associated with the new green energy tax subsidies.
Unless I'm missing something embarrassingly simple, these items are (1) a tax increase, (2) a funding cut, (3) another funding cut, (4) another tax increase, and (5) a vague and unspecified spending increase that probably won't happen.
In other words, they're all things that will decrease the budget deficit, not increase it. Am I an idiot? What am I missing here?
¹You need to address spending/funding of Medicare, Medicaid, and Social Security. Everything else combined is a relative pittance.
All true.
Medicare and Medicaid are tough, but a lot of the problem with Social Security would be eliminated by taxing all earned income (i.e., removing the $160,000 cap). Almost all of it goes away if you incorporate a modest social security tax in unearned income (really, capital gains).
When he was younger, Kevin opposed this because he thought burning political capital on a big tax increase just for the sake of the olds was not a good use of it.
The implication is that politicians will neither pass tax increases or allow funding cuts.
Before I got to your paragraph after the quote, I was thinking exactly the same thing. How the f*ck can anyone be that stupid?!? But, since I had never heard of Paul Winfree, my google search revealed the answer: he "was Deputy Assistant to the President for Domestic policy, Deputy Director of the Domestic Policy Council, and Director of Budget Policy in the Trump administration."
Simple answer to a simple question. Nothing but the very best of the best of the best people.
Never heard of Paul Winfree but let's see what his Wikipedia bio says:
"Paul Winfree was Deputy Assistant to the President for Domestic policy, Deputy Director of the Domestic Policy Council, and Director of Budget Policy in the Trump administration. "
Yeah, so I'm going with you're not the idiot, Kevin.
I agree -- how can a big tax increase, a few big cuts in spending, yada yada result in "the debt exploding"? Also, the "big tax increases" will be on the top earners, not "working families and small biz".
It's political gobbledegook designed to smoke the rubes. Pure nonsense.
The expiring tax cuts from the former guy’s tax package will largely affect low-mid income tax payers. Trump and Paul Ryan made the tax breaks for their rich patrons permanent.
Well if you look at this here Laffer curve you can clearly see that raising taxes results in less revenue for the government.
The Laffer curve is so eighties (not to mention that Laffer was lying about finishing his degree at the time he introduced it). Much sounder to use the Neolaffer curve.
https://www.salon.com/2017/04/27/trumps-massive-tax-cut-plan-is-idiotic-and-dangerous-last-laugh-of-the-laffer-curve/
The Laffer Curve is not *quite* as stupid as it sounds. Even Paul Krugman agrees there's a break-even point where higher tax rates reduce revenue (through tax avoidance and fraud, mostly). The what makes Laffer Curve evangelicals ridiculous is a) they always assume we're on the right-hand end of the curve (where rates depress collections) and b) their at least implicit assumption that the ideal tax rate is 0 (for the job creators, not for me and thee).
To put it even more simply, there was *never* a form of the Laffer curve in which both the ordinate and abscissa were labeled in units. Thus, it was always impossible to discover where the country was on the curve and the wingnuts could point to any part of the curve and announce "QED!"
not impossible for the wsj; behold...
https://s.wsj.net/public/resources/images/ED-AG112_1corpt_20070712182433.gif
Truly the most heroic curve fitting effort ever.
Yes.
If I can remember correctly most economists estimate the point where it crosses over is around 70%
I read 82%, but that may be one economist who differs from the majority.
The only points that are justified on the Laugher curve are the start and end points. Every thing in between represents someone’s expectation of what they think will happen. When Bill Clinton raised taxes Dick Army, who claimed to be an economist, predicted the economic recovery would slam to a halt and the deficit would explode. What really happened was the recovery accelerated and the deficit disappeared. The Dick Army couldn’t have gotten it more wrong if they had tried.
Is the debt too high now? If so it is not due to Social Security, which has almost a $3 trillion surplus (it loans money to the rest of the government). The future projected shortfall in SS can be addressed by broadening its tax base, or simply dropping the requirement that its budget must be separate. The shortfall is projected to disappear later in the 21st century.
That Social Security is pointed to as a driver of the debt, even by Kevin, simply shows the absurdity of the whole debate.
Yeah, I agree. What some describe as "The Sky Is Falling" is just that the General Fund will have to start paying back what it has borrowed from SS. Oh noes! We have to pay our debts!
Republicans: The party of welching on debts.
And also, as Dean Baker regularly points out, the projected shortfall in SS income vs benefits is due to the failure of wages to grow as fast as they were doing until around 1970. So another solution to the problem in SS, as well as overall, is to increase wages, which would increase federal revenue.
But if the debt is not to increase, overall taxes must be increased, especially but not only on the highest brackets.
Correct. SS is separately funded and contributes *nothing* to the deficit or national debt.
I had the same impression when I read that article a few hours ago. Maybe he believes that we're on the portion of the Laffer curve where all tax increases increase Fed debt, but otherwise his examples were completely nonsensical.
Winfree is obviously a hack, to dishonestly characterize the The 2017 Tax Act as a tax cut to the working class when 90% went to the very wealthy is quite a tell. Let’s recall the Real Clear is a right wing organization. I know I should not be a surprised but it does amaze me how conservatives continually lie about the issues. It appears it is the only way they feel they can get votes.
He also wrote “ The second is that rising spending has forced the issuance of more debt, far exceeding supply. ”
Clearly he confused supply and demand. IOW he has no business publishing anything about economics. You’re not missing anything.
RealClear media started out claiming to be "fair and balanced", but has apparently shifted pretty drastically to the right. Its sites link to many nonsensical Republican propaganda pieces.
The only way to make sense of it is to assume that congress is going to reverse all these baked in deficit cuts because they are unpopular.
There's also repealing all those tax cuts. They cost trillions of dollars and somehow are off the table.
Yeah, this assclown is basically arguing that Da Spendingzz Will Kill Us All! and of course tax increases -- particularly upper-income -- to address it are right out.
In other words, a typical Republican.
We don't want to balance the budget. We want the government to make sure that aggregate spending (public plus private) is sufficient to purchase everything that is produced. If spending is insufficient unemployment will result, if spending is excessive inflation will result. Stable prices and full employment are the holy grail of fiscal policy. There is no law or logic of economics or finance or accounting that says the budget needs to balance, over a fiscal period or a business cycle or ever.
Correct.
Remember the "fiscal cliff"? It's back! In "debt storm" form.
You didn’t put this through the right wing nutball filter: increasing taxes in any form will crater the economy, knock up your teenage daughter, and crucify Jesus for a second time.
I am rather cynical about Presidents not renewing tax cuts. Obama, on the stump, would call the Bush tax cuts 'wasteful and unnecessary. The Bush tax cuts should be completely repealed.' Then Obama made 82% of the Bush tax cuts permanent: heck Bush only had the tax cuts in place for 10 years....
My point, I suspect, neither Biden or Trump, would allow all of those tax cuts to expire.
https://www.cbpp.org/research/budget-deal-makes-permanent-82-percent-of-president-bushs-tax-cuts
Like everyone else, Kevin has ignored the military budget. Cut it by 5% every year for 10 years and a lot of problems will magically disappear. Note: I don't believe the military budget will ever get cut.
All you need to know about the author of the piece:
Paul Winfree, Ph.D., who was the director of budget policy and deputy director of the White House Domestic Policy Council during the Trump administration, is president and CEO of the Economic Policy Innovation Center.
Ugh. Why.
Who? MMTers? If that's what his thinking is, he's not following the disparity between MMT and what the Fed is actually doing. This is a straw man AFAIC.
IDK what the hell he's talking about. The steep rise in the debt interest rate coincides with the Fed's sharp increase in the central rate. See: https://fred.stlouisfed.org/graph/?g=1cmKF
FFS. Duh. This happens quite often. Imagine what'll happen when we reach the ZLB again. Suddenly, that rolled over debt is extremely cheap.
Not directly. It's being driven by the Fed's response to inflation and the rate of inflation is not persistent. As anyone who has paid attention knows, we're in a period of disinflation.
Supply of what? Debt? Well we must be doing well on that matter 'cause the 30-year rate has been going down since October!
No, this is factually wrong. What they're searching for is the highest rate of return of their capital. Therefore, treasuries require higher rates to compete. If what Winfree said were true, we would have a true debt crisis. All we're seeing is ebb and flow of capital.
There's the kicker, KD. He believes Congress will have to spend this amount of money to avoid a reduction in federal spending. It's not that the cuts will happen, but that Congress will make sure that the cuts won't happen.
There you have it. Another fucking Laffer Curve true believer. Nuff said.
If anyone cites Real Clear Bullshit, you shall be arrested for the offense of low intelligence, have your hands chopped off, your tongue cut out, and your brain lobotomized so that you cannot spread RCB.
"What am I missing here?"
The collapse of the economy due to the decline in deficit spending. Yes, that's right. We have to cut the deficit in order to avoid the calamitous consequences of cutting the deficit.
> You need to address spending/funding of Medicare, Medicaid, and Social Security. Everything else combined is a relative pittance.
Where are you getting your data from? When I go to the CBO, I see
* social security + medicare + medicare is a little less than half of all spending.
* 'other' is a quarter of all spending
* Defense and Interest payments on debt are each an eighth of all spending.
Paul Winfree is the idiot, but there are a couple issues that arise out of the things he points out.
First, the aspects of the 2017 tax cuts that are set to expire are the most popular ones that benefit the broadest group of taxpayers; they will almost certainly be extended. The Trumpublicans learned from W Bush's tax cuts -- which played the "revenue neutral over X years" game by providing that the tax cuts on corporations and the wealthy would expire withing the time span. And those tax cuts DID expire, because when the time came Obama was President and the skyrocketing economic growth that the Trumpublicans were sure would make any tax increases unnecessary hadn't occurred.
So under Dumpster they made the tax cuts for the middle class the ones that would expire, while the cuts for corporations and the wealthy were permanent.
The second thing is that while the end of the subsidies to the states from the federal government won't hurt the federal deficit, it probably will put a lot of states in rough situations.
Given our dysfunctional politics and corporate apologist news media, the funding issue for medicare and medicaid may be the hardest to solve. For any clear eyed person, it is the easiest to solve: go to a universal single payer system for healthcare.
Using 2019 numbers, government in the US pays for about 67% of healthcare thru direct payments to providers, government's share of health insurance costs for its employees, and tax subsidies of health insurance premiums and other healthcare costs. In the most generous single payer countries, government's share of healthcare costs approach 90%. The difference between 90% and 67% X the $3,800 B in US healthcare cost in 2019 = $874 B.
A study comparing the not super efficient Canadian healthcare system that covers about 74% of healthcare costs with our supremely inefficient one, concluded that in 2017, in 2017 dollars, well over $600 B could be saved if we could get to Canada's level of spending on administrative costs. This difference in administrative costs is completely due to the extra costs imposed by the splintered, mostly for-profit, insurance system in the US. These costs include the insurance companies' own expenses and profits and the costs to providers in trying to pry money out of the insurers and patients.
The study did not capture all of the administrative costs imposed by health insurance in either country. The data was not available. They found data for sectors accounting for less than 70% of total healthcare spending.
The Canadian system is administered by each Province. Some rules and levels of coverage differ by Province. The population of the average Province is around 1% of the whole US. It is easy to imagine that a single payer system in the US aiming at covering 90% of expenses could save $700B/yr or more in administrative expenses.
Compared to other countries, we are overspending on pharmaceuticals by around $300B/yr.
Amazingly, no one seems to have really investigated how much healthcare spending in the US is for fraud. People throw around numbers that correspond to 5% or 10%. It could be more, no one knows.
Going to a single payer system doesn't guarantee that anything will be done about pharmaceutical costs or losses to fraud. However, it would make it really easy to go after them both. $300B to $500B per year in savings related to these problems is conceivable.
Adoption of a comprehensive single payer system as advocated by Senator Sanders, would replace Medicare and Medicaid. It would likely cost little, or nothing, or less than nothing to government in the US. It would reduce total personal, out of pocket, healthcare spending in the US by around $9000/household.
Yeah, it's a terrible idea. Billionaires are against it.