Tag: Debt

David French of National Review and Greg Corombos of Radio America pause to cheer the Falcon Heavy rocket launch by Space X this week and David hopes it sparks more aspirational innovation that our nation so sorely needs. They also grimace as Republican majorities are preparing to jack up spending significantly over the next couple of years, even though some positive elements are included in the budget bill. And they sigh as Nancy Pelosi uses part of her marathon floor speech on immigration policy to say her young grandson blew out his birthday candles and wished he could look like his friend from Guatemala.

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It’s a tradition dating back to the Founding Fathers: the American government financing safeguards, be it retirement (Social Security), health benefits (Medicare), or rewards for military service in the form of federal entitlements. In an age of debt and deficits, when will lawmakers address entitlement reform? John Cogan, Hoover’s Leonard and Shirley Ely Senior Fellow and author of a new book on the long history of federal entitlements, assesses where the Trump administration goes from here.

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Congress Should Support the Trump Administration’s Balanced Budget … and Sustain It

 

The Trump Administration released its first full budget proposal on Tuesday. It is a good proposal. First, it balances the federal budget by the end of the 10-year budget period. Second, its gets a handle on the federal government’s accelerating debt and interest costs. Finally, it is pro-growth. This final point is critical because achieving the goal of the restoration of a responsible federal fiscal policy will be a practical impossibility in the midst of a stagnant economy.

The immediate task for Congress is to adopt a budget that matches the general parameters of the Trump Administration’s proposal. This is to say, the budget Congress adopts should include the same numbers for the total outlays, the total revenues, deficits, debt, and interest costs (both on debt held by the public and debt held by other government accounts) in each fiscal year. On the other hand, it is appropriate for Congress to modify the budget proposed by the Administration in terms of the individual accounts under these general numbers. The Trump Administration cannot expect to get everything it wants. Most important for President Trump is that he limit himself to issuing veto threats against any appropriations bill and reconciliation bill that follows from such a budget to very few matters—those that are at the very top of his policy priorities.

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Progressively Bankrupt

 

A recent story in the Wall Street Journal foretells a grim financial future for Connecticut, the wealthiest state in the union by per capita income. Its great wealth, however, does not translate into financial stability. For this coming year, the state expects a $400 million shortfall in tax collections that will only compound its looming budget deficit of some $5.1 billion, attributable to the usual suspects: service on existing debt, a lowered credit rating, surging pension obligations, runaway health care expenditures, and a declining population. In both 2011 and 2015, Connecticut Governor Dannel Malloy sought to fill the fiscal gap by engineering two tax increases on the state’s wealthiest citizens, so that today the state’s highest tax bracket is 6.99 percent. Under the state’s tax pyramid, about one-third of the state’s $7-billion budget is paid by the several thousand people earning over $1 million per year.

But reality has finally set in. Kevin Sullivan, head of Connecticut’s tax commission, has conceded that “you can’t go back to that well again.” Determined progressives may claim the path to prosperity remains blue. But sooner or later, the bubble has to burst. Even the well-heeled individuals willing to pay high taxes for superior services will cut back their business activities or flee when fleeced. Massive government wealth transfers cannot succeed if those whose wealth is to be transferred end up leaving the state altogether. Indeed, in some cases, the departure of just one billionaire can lead to a hole in the budget, as with David Tepper’s departure from New Jersey.

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Senator James Lankford (R- OK) has issued an urgent plea to the Trump administration: start taking the national deficit seriously or else the nation could slip into irrevocable fiscal failure down the line.

In a revealing conversation on this week’s OppCast, Lankford lamented that the national debt was almost entirely absent as a talking point during the whole of the presidential campaign.

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This Chart Shows Just How Hard a Balanced Budget Will Be

 

As a candidate, Donald Trump said he favored a balanced budget “relatively soon.” Then again, he also said, “I love debt. I love playing with it.” Just how much Trump loves or hates federal debt will be revealed in the coming months. Congress, too. Congressional Republicans have typically offered annual budget resolutions that would eliminate the budget deficit within a decade by reducing spending growth.

The same this time around? Goldman Sachs raises some issues:

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Debt Is Headed Up Under Hillarynomics, Even Higher Under Trumponomics

 

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The Committee for a Responsible Federal Budget has updated its (non-dynamic) budget scoring of the presidential economic plans. Context: The federal debt-GDP ratio was 35% in 2007, which is more or less the postwar average. I would love see the number on a medium-term glide-path back to that level, though there is certainly no need to expedite things as Libertarian presidential candidate Gary Johnson would do.

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Turning the Tables on Sen. Warren

 

sen warrenSen. Elizabeth Warren grilled Wells Fargo’s CEO when he appeared before Congress Tuesday. The bank’s head, John Stumpf, came to Washington to answer for Wells Fargo employees who created millions of unauthorized bank and credit card accounts in the past five years. This earned the bank extra fees, of which the customers were unaware, while making Wells Fargo look like a great investment to Wall Street.

Warren thinks that the bank firing the 5,300 employees responsible is just window dressing. “You should resign,” Warren told Stumpf. “You should be criminally investigated.” A video of the exchange captivated struggling Americans angry at the elites who keep getting richer while they’re looking for change in their sofa to keep the lights on.

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Illinois on the Fiscal Brink

 

shutterstock_203635339Illinois — a state that has long embraced progressive fiscal policies — has moved one step closer to the financial abyss. Last week, Moody’s Investors Service issued the jarring announcement that it was downgrading Illinois’s general obligations bonds to Baa2 from Baa1, which is just two levels above junk bond status. The next day, Standard & Poor’s followed suit by lowering its rating to BBB+, or three levels above junk bond status. In one important sense, this is really not news at all, since Illinois had 13 bond downgrades under its previous governor, Patrick Quinn, even though it passed a temporary tax increase that collected an additional $31 billion in revenues between 2011 and 2015, 90 percent of which was funneled into pension payments for public employees.

The reason Illinois’s credit ratings have declined is that the state has been unable to live within its means. Even with its tax increases, Illinois has not had a balanced budget since 2001, though one is required under its Constitution. The latest credit downgrade stemmed from the inability of key players in the state to agree on any budget at all for the coming year. It is therefore no surprise that Moody’s observes: “The rating downgrade reflects continuing budget imbalance due to political gridlock that for more than a year has kept Illinois from addressing revenue lost due to income tax cuts that took effect in January 2015.” This remark reflects the bias of rating agencies to worry more about the condition of government balance sheets than the overall health of the state economy. Reduced expenditures are another, superior way to bring a budget into balance, which is necessary, for — as Moody’s ruefully notes — Illinois is running a structural budget gap of about 15 percent of its general fund expenditures.

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Full Faith and Credit?

 

shutterstock_280678718Why is the United States Government today still considered the finest investment risk in the world? The answer traces to Alexander Hamilton:

In 1789, Alexander Hamilton, the first U.S. Treasury secretary, faced a dilemma still challenging Congress today. The new nation was deeply in debt, and there was a lack of consensus in Congress about how to pay for it. Of the $75 million total debt, everyone back then agreed that the U.S. had to pay in full the $10 million loans from France and other nations to finance the American Revolution. Otherwise, no nation would ever loan money to the U.S. in an emergency again. More than $44 million, however, was owed to American citizens who had purchased war bonds during the war. Many of the original purchasers of these bonds had died or sold them at a significant discount to wealthy speculators. They had lost confidence in the ability or willingness of the infant nation to pay.

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Entitlement Reform and the GOP: Goodbye to All That?

 

shutterstock_215312209_SocialSecurityNot much talk about the national debt during this GOP primary season. Oh, there’s the obligatory — passing — reference to it during speeches and debates, but little more. Indeed, GOP tax plans would make the debt much worse by trillions over the next decade and beyond.

Now maybe one reason there’s less debt talk is that budget deficits are way down, and the long-term fiscal outlook improved. On the latter front, the WSJ’s Grep Ip highlights a new study — co-authored by former CBO boss Doug Elmendorf — that forecasts the US debt-GDP ratio won’t hit 100 percent until 2032 vs. the CBO’s 2009 forecast of 2023. (Thank low interest rates and slower healthcare inflation for that.)

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