Policymakers should be cautious about adding more to the national debt and the money supply.
The sharp increase in consumer prices this spring may be a blip but may also be a sign that inflation is returning as a chronic problem. For those of us who can accurately recall the 1970s economy, it is a frightening prospect. Everyone else would benefit from reading contemporaneous news coverage.
Recent events call into question pronouncements of the leading Modern Monetary Theorists who thought that the U.S. could sustain much larger deficits without triggering major hikes in the cost of living. Instead, it appears that the traditional rules of public finance still hold: deficit spending financed by Federal Reserve money creation is inflationary.
Analogies between today’s situation and the 1970s are not quite on target. By the early 70s, inflation was well underway. Instead, we should be drawing lessons from the year 1965, when price inflation began to take off. Prior to that year, inflation seemed to be under control with annual CPI growth ranging from 1.1 percent to 1.5 percent annually between 1960 and 1964 — not unlike the years prior to this one.
Like 2021, the post-election year of 1965 saw the inauguration of an ambitious unified Democratic government. That year, Congress enacted Medicare and Medicaid, began providing federal aid to local school districts, and greatly expanded federal housing programs. At the same time, the Johnson administration was expanding U.S. involvement in Vietnam, increasing the defense budget. The federal budget deficit expanded from $1.6 billion in the 1965 fiscal year (which ended on June 30 in those days) to $27.7 billion, or 3% of GDP, in fiscal 1968.
Although the Federal Reserve made some attempts to ward off inflation, it generally accommodated the government’s fiscal policy according to Allan Meltzer’s detailed history of this period published by the St. Louis Fed. Between calendar years 1965 and 1969, annual CPI growth surged from 1.6 percent to 5.5 percent, setting the stage for the Nixon administration’s closure of the U.S. Treasury’s gold window and imposition of wage and price controls. Inflation reached double digits in 1974 and again between 1979 and 1981. Notably, these were also recession years, refuting the fallacy of the Phillips Curve, which depicted a supposed policy trade-off between inflation and unemployment. By the early 1980s, we had ample evidence that ill-considered policies could give us a combination of high inflation and unemployment, known back then as “stagflation.”
This policy mix was also not great for equity investors. The Dow Jones Industrial Average moved sideways during the inflationary period, closing at the same level in December 1982 as it did in January 1966. One lesson from that period was that high interest rates can be bad for stocks.
That may be one reason the Fed remains reluctant to allow interest rates to rise today. Although messaging from the latest Federal Open Market Committee meeting showed greater willingness to normalize interest rates, action is not expected until 2023.
Rate hikes may bring other worries for the Fed in today’s environment. Given the large volume of variable rate mortgages and corporate loans outstanding in the U.S. today, a rise in interest rates could push highly indebted homeowners and companies into bankruptcy, potentially triggering a recession. The federal government would have to roll over its record stock of short-term debt at higher interest rates, ballooning its interest expense and potentially crowding out more popular spending priorities.
But if private capital is to continue participating in debt capital markets, such as those for corporate bonds and bank loans, interest rates will have to rise to compensate them for the loss of purchasing power on their principal.
Although annual growth in CPI fell sharply after 1982, it is not strictly correct to say that inflation was defeated. Except for a few years around the turn of the century, the federal government continued to run deficits, a portion of which were monetized. Notably, the government began running trillion dollar deficits, and the Fed drove interest rates down to near zero during the Great Recession, but CPI growth remained muted.
But CPI does not tell the whole story. Some sectors of the economy have experienced substantial inflation, but they are not fully incorporated in the consumer price index. Home prices, healthcare costs and college tuition all soared in recent decades. Meanwhile, apparel and consumer electronics remained affordable due to globalization and improved technology.
Back in the 1970s, most of the world was not part of the global economy. Eastern Europe was in the Soviet bloc, while China, Vietnam and India had yet to become major exporters. As more low-cost producers of goods and services came online during the 1980s and 1990s, prices were pushed downward (often and regrettably at the expense of American manufacturing jobs). The trend toward developing countries joining the international trading system and producing inexpensive consumer goods is now over. Indeed, the recent increase in protectionism is, if anything, rolling back the wave of international price competition.
On the other hand, technological improvements may continue to shield us from inflation in certain sectors. For example, the displacement of human cashiers by automated check stands might restrain price hikes at the big box retailers, supermarkets, fast food chains and other establishments that can afford to invest in them. Smaller businesses, facing higher wages, may have to try to pass them through to consumers in the form of higher prices. Already in some parts of the country, restaurants are trying to recoup costs without raising prices on their menus by adding various surcharges ostensibly tied to specific costs.
It is possible that inflation is now moving from assets and human-intensive services to consumer products, but we will need several months of additional data to know for sure. Meanwhile, policymakers should be cautious about adding more to the national debt and the money supply.
In two Defining Ideas articles in 2009, “Who’s Afraid of Budget Deficits? I Am” and “Furman, Summers, and Taxes,” I criticized Lawrence Summers and Jason Furman, two prominent economists who worked in the Obama administration, for their dovish views on federal debt and deficits. They had argued that we shouldn’t worry much about high federal budget deficits and growing federal debt. Of course, that was before the record budget deficit of 2020. Now even Summers is worried. In two February op-eds in the Washington Post, Summers argues against the size and composition of the Biden “stimulus” bill.
Summers makes a solid argument, on Keynesian grounds alone, that the proposed $1.9 trillion spending bill is much too large. He also, to his credit, digs into some of the details of the bill, pointing out how absurd they are. Had Summers looked at more details, he could have made an even stronger case against the measure. For instance, one major provision of the bill, the added unemployment benefits through August, will actually slow the recovery. And other provisions of the bill, like the bailout of state and local governments, are bad on other grounds. The fact is that this is not your father’s or your grandmother’s run-of-the-mill recession. It was brought about by two things: (1) people’s individual reactions to the threat of Covid-19 and (2) politicians’ reactions, in the form of lockdowns, to the same threat.
First, though, let’s consider Summers’s big-picture case. A standard way that Keynesian economists, including Summers, evaluate a spending program to stimulate the economy is to consider the difference between the actual output (gross domestic product) of the economy and the potential output, that is, the GDP that would exist at full employment. They then advocate an increase in federal spending to close this gap. The typical increase they favor is less than the gap because of the so-called multiplier effect, the idea that when the feds spend a dollar the increase in spending in the economy is more than a dollar. Such multipliers, you might or might not be surprised to know, are difficult to estimate in advance, a fact that many Keynesians readily admit. But whatever the multiplier is, we know that if the difference between potential and actual output is $x billion, the stimulus spending, in the Keynesian view, should be less than $x billion.
Now comes the shocker. The stimulus spending in the Biden bill is a multiple of x. Summers quotes an estimate from the Congressional Budget Office that with the $900 billion measure Congress enacted and President Trump signed in December, the gap between actual output and potential output will fall from about $50 billion a month at the beginning of 2021 to only $20 billion a month at the end. He then notes that the Biden measure would spend about $150 billion per month over many months. So the spending is three times the current shortfall and over seven times the expected shortfall in December.
A major problem with the Keynesian model is that in its simplified form, which, amazingly, is still the one that Keynesian economists use to decide on the amount of spending needed, a dollar that the feds spend on item A is the same as a dollar they spend on item B. Summers, disappointingly but not surprisingly, does not challenge that view directly. He regards the $150 billion per month as overly stimulative whatever it is spent on.
However, Summers does grant the basic fact that one dollar spent on one item could be better or worse than one dollar spent on another item. And he finds much that is bad or, at least, inappropriate. In his February 7 op-ed in which he replies to critics and questioners, Summers notes, “Proposed expenditure levels for school support exceed $2,000 per student.” To put that in perspective, per-pupil spending in K–12 schools in academic year 2017, the most recent year for which we have data, was $13,094. So $2,000 is a huge increase in federal spending on something that, in the government sector at least, has been largely the preserve of state and local governments.
Summers also points out in his February 4 op-ed that the ratio of proposed spending to income loss is even greater for low-income families. He writes:
In normal times, a family of four with a pretax income of $1,000 a week would take home about $22,000 over the next six months. Under the Biden proposal, if the breadwinner were laid off, the family’s income over the next six months would likely exceed $30,000 as a result of regular unemployment insurance, the $400-a-week special unemployment insurance benefit, and tax credits.
Disappointingly, though, Summers doesn’t point out that if the purpose of a stimulus program is to stimulate, paying people an extra $400 a week as long they’re unemployed is a bad idea. This omission is all the more striking given that Summers, in the late 1980s and early 1990s, was prominent in arguing that paying people to be unemployed will cause many of the unemployed to stay out of work longer. Indeed, in his article “Unemployment” in my 1993 Fortune Encyclopedia of Economics,later renamed The Concise Encyclopedia of Economics, Summers wrote:
The second way government assistance programs contribute to long-term unemployment is by providing an incentive, and the means, not to work. Each unemployed person has a “reservation wage”—the minimum wage he or she insists on getting before accepting a job. Unemployment insurance and other social assistance programs increase that reservation wage, causing an unemployed person to remain unemployed longer.
Economists since then have done a number of studies of the effect of extending unemployment benefits beyond the traditional twenty-six weeks, and the bottom line is that the effect is large. For example, Rob Valletta and Katherine Kuang, two economists at the San Francisco Federal Reserve Bank, wrote in November 2010:
By easing the financial burden of long-term unemployment, extended benefits reduce the incentives of eligible workers to search for jobs and fill vacancies. Research by Valletta and Kuang (2010) suggests that the impact of extended insurance benefits on the unemployment rate in late 2009 was only about 0.4 percentage point. Updated estimates for all of 2009 and the first half of 2010 suggest a larger impact of about 0.8 percentage point.
More recently, economists Marcus Hagedorn of the University of Oslo, Iourii Manovskii of the University of Pennsylvania, and Kurt Mitman of Stockholm University, in a 2016 study published by the National Bureau of Economic Research (“The Impact of Unemployment Benefit Extensions on Employment: The 2014 Employment Miracle?”), found that 2.1 million people got jobs in 2014 due to the ending of the extended unemployment benefits.
Of course, what we would really like to know is the effect of the double whammy of extending unemployment benefits through August and increasing them by $400 per week. The latter measure would cause millions of unemployed people to make more money by being unemployed than by being unemployed. My own admittedly intuitive guess is that if the bill passes with those benefits, at least two million workers who would have been working will be out of work. That one provision of the “stimulus” bill, in short, would create a drag on the economy.
The other major absence from Summers’s critique is any mention of the huge bailout for state and local governments. Last June, in “Just Say No to State and Local Bailouts,” I noted the Federation of Tax Administrators’ estimate that the combined effect of the pandemic and the state government lockdowns would be a loss of $152 billion in state government revenues through the end of their fiscal years. I also pointed out that the state governments’ rainy-day funds plus their year-end balances totaled $90 billion. So the needed cuts in spending to stay within the states’ balanced-budget requirements would have been $62 billion, which was only 7 percent of the prior estimated tax revenues.
These numbers, it turns out, were overly pessimistic. The Committee for a Responsible Federal Budget estimates that state and local government tax collections by the end of 2020 were over 2 percent higher than in the fourth quarter of 2019. It should be even easier for Congress to “just say no” to state and local bailouts. Unfortunately, the $1.9 trillion bill contains $350 billion for state and local governments, territories, and tribes.
Why doesn’t Summers mention the state and local government bailout? I don’t know, but here’s a hypothesis. He wants to get Democrats to listen to him but he knows they’ll turn off if he is too critical. Thus Summers softens his criticism of the bill by writing, “Its ambition, its rejection of austerity orthodoxy, and its commitment to reducing economic inequality are all admirable.” Senator Elizabeth Warren, in her book A Fighting Chance, recalled the advice that Summers had given her in a dinner conversation early in her time as a US senator:
Larry’s tone was in the friendly-advice category. He teed it up this way: I had a choice. I could be an insider or I could be an outsider. Outsiders can say whatever they want. But people on the inside don’t listen to them. Insiders, however, get lots of access and a chance to push their ideas. People—powerful people—listen to what they have to say. But insiders also understand one unbreakable rule: They don’t criticize other insiders. (Italics in original.)
I don’t know if this is true, but it fits. Larry Summers has been an insider for a long time and it’s probably hard for him to criticize his allies. That makes his criticism of this bill all the more credible.
I’m an outsider and so it’s easier for me to call them the way I see them. Here are the two major things I see, both of which undercut the case for any stimulus bill.
First, the economy is recovering. In January, the International Monetary Fund predicted that real GDP will grow by 5.1 percent in 2021. Possibly that’s because the IMF understands that this is not a typical recession. The slump we’re in was due initially to people’s fear of the virus, a fear whipped up by Dr. Anthony Fauci and others. But now it’s due mainly to lockdowns. As the percent of the US population that has had COVID-19 rises and the number of people vaccinated rises, we are getting closer to herd immunity. Then people will feel even safer going out and governments will have fewer excuses to keep their economies locked down. We can all become Florida or Florida-Plus. That will all happen without any stimulus bill.
Second, the $1.9 trillion bill represents government taxing us or our children in the future to spend money in places where we the people have chosen not to spend it now. The bill is, in essence, a huge instance of central planning with government officials’ preferences overriding ours. The bill, for example, contains $28 billion for transit agencies, $11 billion in grants to airports and airplane manufacturers, and $2 billion in grants to Amtrak and other transportation. How does the government know that those are the right amounts? What if, as I predict, when the pandemic and lockdowns end we will still have fewer people wanting to ride transit because they and their employers will opt for a hybrid model of some at-home work and some in-office work? The effect of this misallocation of resources won’t necessarily show up in GDP because GDP measures government spending at cost rather than at value. But this spending will make us somewhat worse off. It’s far better to rely on people having the freedom to make their own allocations.
If the government gets out of the way, the economy will recover. Maybe it takes an outsider to see that and to say that. I just did.
Before his death on February 6, George P. Shultz, a former US Secretary of the Treasury and Secretary of State, co-authored a final commentary warning of the dangers posed by the vast increase in US government spending in recent years, including during the COVID-19 crisis.
STANFORD – Many in Washington now seem to think that the US federal government can spend a limitless amount of money without any harmful economic consequences. They are wrong. Excessive federal spending is creating grave economic and national-security risks. America’s fiscal recklessness must stop.
The COVID-19 crisis has provided the latest impetus for government spending, even to the point of steering the American mindset toward socialism – a doctrine that has always harmed people’s well-being. But some say there is no need to worry about excessive spending. After all, they argue, record-low interest rates apparently show no sign of increasing. The economy was humming along just fine until the pandemic hit, and will no doubt rebound strongly when it ends. And is there even a whiff of inflation in the air?
This thinking is dangerously short-sighted. The fundamental laws of economics have not been repealed. As one of us (Cogan) demonstrated in his book The High Cost of Good Intentions, profligate government spending invariably has damaging consequences.
High and rising US national debt will eventually crowd out private investment, thereby slowing economic growth and job creation. The Federal Reserve’s continued accommodation of deficit spending will inevitably lead to rising inflation. Financial markets will become more prone to turmoil, increasing the chance of another big economic downturn.
Financial markets’ current relative calm and low consumer-price inflation are no cause for comfort. Previous periods of sharp increases in inflation, rapidly rising interest rates, and financial crises have followed periods of excessive debt like a sudden wind, without warning.
Shultz and Taylor’s book Choose Economic Freedom shows that economic indicators in the United States gave no hint in the late 1960s of the subsequent rapid rise in inflation and interest rates in the early 1970s. Likewise, financial markets during the years immediately preceding the 2007-09 Great Recession provided little indication of the calamity that would ensue.
So, what should today’s US policymakers do? Higher tax rates are not the answer. Even before the pandemic hit, every federal tax rate would have had to be increased by one-third in order to finance the current level of federal spending without adding to the national debt. Such an increase would have harmful effects – similar to those of mounting public debt – on economic growth and job creation.
Congress may be tempted to reduce defense spending to help close the deficit, as it often has done in the past. But these previous efforts demonstrably failed. Rather than reduce the budget deficit, Congress instead used the savings from lower defense outlays to finance additional domestic spending.
Unless policymakers abandon their misguided beliefs about budget deficits, cutting defense expenditure now would produce the same result. More importantly, it would be a grave strategic mistake, weakening US national security and emboldening the country’s foreign adversaries – particularly now that China is flexing its muscles in Asia and investing heavily in its military.
Throughout US history, the federal government’s ability to borrow during times of international crisis has proven to be an invaluable national-security asset. Two hundred years ago, the ability to borrow was instrumental in America maintaining its independence from England. During the Civil War, it was crucial to preserving the union. And it proved decisive in defeating totalitarian regimes in the two world wars of the twentieth century.
The US government’s careless spending is jeopardizing this asset. If the country continues along its current fiscal path, the federal government’s borrowing well will eventually dry up. When it does, America will be far less able to counter national-security threats. As hostile foreign governments and terrorist organizations recognize this, the world will become a far more dangerous place.
US policymakers’ mistaken belief that deficits and debt don’t matter is the sad culmination of a long downward slide in fiscal responsibility. From 1789 to the 1930s, the federal government adhered to a balanced-budget norm, incurring fiscal deficits during wartime and economic recessions, and running modest surpluses during good times to pay down this debt. This prudent management of the federal finances was instrumental in establishing America’s strong position in world financial markets.3
President Franklin D. Roosevelt’s New Deal broke this norm, and deficit spending has since become a way of life in Washington, with the federal government outspending its available revenues in 63 of the 75 years since the end of World War II. At first, elected officials were deeply concerned about the adverse consequences of their excess spending. But over time, this anxiety gradually lessened. Annual deficits grew so large that by the mid-1970s the US national debt was growing faster than national income.Sign up for our weekly newsletter, PS on Sunday
During the last decade, any remaining fiscal concerns in either the Democratic or Republican parties have seemingly vanished. Freed from a belief that rising deficits and debt are harmful, policymakers unleashed a torrent of new spending. By fiscal year 2019, the federal government was spending $1 trillion per year more in inflation-adjusted terms than it had a dozen years earlier. In fiscal year 2020, the federal government added nearly another $2 trillion of new spending in response to the pandemic, raising the national debt to 100% of national income. This year, another trillion dollars of new spending – if not more – appears to be on the way.
The momentum toward more spending and exploding debt may currently appear unstoppable. But sooner or later, people will look at the facts, see the destructive path fiscal policy is now on, and recognize that they and the US economy will be better off with a different approach. At that point, America’s democratic system will say the expenditure growth must stop.
The resolution predicts the national debt will reach $41 trillion in 2030.
Congressional Democrats are currently using the budget reconciliation process to advance President Joe Biden’s $1.9 trillion COVID-19 relief and stimulus measure, the American Rescue Plan. The budget reconciliation process can be used to move federal spending, debt, and budget bills more quickly through the legislative process.
Friday, Senate Democrats used this process to approve a concurrent resolution that calls for a $3.8 trillion federal deficit this fiscal year followed by a $1.5 trillion deficit in 2022. Committees in the House and Senate still need to draft the actual coronavirus stimulus legislation but the resolution, which also includes 10 years of projected federal budget data, forecasts the national debt reaching a total of $41 trillion in the 2030 fiscal year. The national debt is currently over $27 trillion.
Because the national debt includes intragovernmental borrowing—money that the federal government owes to itself—it is a less useful measure of overall federal indebtedness than debt held by the public. Debt held by the public consists of all Treasury securities held by individuals and organizations that are not part of the federal government. Much of the debt held by the public has been purchased by the Federal Reserve, which is technically not part of the federal government. The budget anticipates this debt will rise to $36.5 trillion in 2030.
It is possible to compute projected debt-to-gross domestic product (GDP) ratios by dividing the publicly held debt projections from the Senate resolution by the Congressional Budget Office’s new GDP forecasts, which were released on Feb. 1.
The results of such a comparison are worrying. As shown in Figure 1, by the end of the current fiscal year, publicly-held debt as a percentage of GDP is forecast to eclipse its previous peak of 106 percent reached just after World War II. The ratio continues to rise gradually through 2030 when it is expected to reach 115 percent.
Figure 1: Federal Debt Held by the Public As a Percent of GDP
As the chart shows, there was a large uptick in recent years, with President Donald Trump adding nearly $8 trillion to it during his four-year presidency. And these projections for future budgets through the 2030 fiscal year could be underestimating the debt, as the report assumes the federal government will make an unlikely return to budgets with sub-trillion-dollar deficits in 2024, 2026, and 2027.
The debt forecast also does not include the impact of potential new spending, like the infrastructure package President Biden has called for, which Congress may attempt to pass through a second budget reconciliation.
While debt-to-GDP ratios in excess of 100 percent may be manageable in an environment with low interest rates, if interest rates spike upward then debt service costs could quickly crowd out other federal spending and economic activity. In the most extreme cases, spiraling debt could eventually help cause a sovereign debt crisis like those seen in Argentina and Greece in recent years.
The Congressional Budget Office reported on Tuesday that, with one month to go, the federal deficit for fiscal year 2019 has already topped $1 trillion. As night follows day, Trump administration critics blamed the tax cuts.
And once again, the data prove them wrong.
The CBO report says that the federal deficit reached $1.067 by the end of August. That’s up $168 billion from the comparable period in fiscal year 2018. The deficit this year will be larger than the entire budget was in 1987.
Where did the increase come from? Why, tax cuts, of course.
But the report shows that revenues climbed 3.4% so far this fiscal year – a growth rate that’s faster than GDP. Spending, however, shot up by 6.4%.
Look within the data, in fact, and you see that the tax cuts are working as promised – by accelerating economic growth, they’re at least partially paying for themselves.
Take corporate taxes. Ask any Democrat running for president and they will bemoan the tax “giveaways” to giant corporations. What they won’t tell you is that corporate tax revenues are up 5%.
In fact, corporations paid $8 billion more in the 11 months of this fiscal year than they did in the same period of fiscal year 2018. That increase alone is enough to fully fund the Environmental Protection Agency for an entire year.
What’s more, the CBO notes that corporate income tax payments through May were on 2018 activities. When you compare corporate taxes from June through August to same months last year, they are already up $18 billion – a 48% increase!
Meanwhile, individual income and payroll taxes are up $82 billion – a 3% increase over the prior year. Payroll taxes alone, which are a good indication of how well the job market is because they are automatically deducted from every worker’s wages, are up 6.4%.
Now look at the spending side of the equation.
The CBO report shows that while revenues have climbed by $102 billion, spending shot up by $271 billion.
The entire increase in the deficit over last year is due to rampant spending increases, not the Trump tax cuts.
Spending increases were across the board.
Social Security costs climbed 5.7%; Medicare, 6.5%; Medicaid, 4.6%.
Defense spending is up 7.9%, but spending on everything else in the budget has climbed by 4.5%.
Here’s the really worrisome figure: Interest payments on the national debt is up 14% over the prior year.
It should go without saying that these levels of spending growth are unsustainable. Yet instead of confronting them, lawmakers and the Trump administration are aggravating them. Entitlement reform is a non-issue at the moment. Every increase in defense spending has to be matched with a hike in spending on domestic programs. The national debt continues to explode.
And while Republicans appear indifferent to the debt explosion, Democrats are eager to more than double the size of the federal government, without saying how they’d pay for that increase let alone bring existing annual deficits down to earth.
To paraphrase Herbert Stein, something that can’t go on forever, won’t. The only question is when it won’t.
In the first two months of the new fiscal year, tax revenues are up. But so is the deficit. Why? Because spending continues to outpace revenues. So why do tax cuts keep getting blamed?
The latest monthly budget report from the Congressional Budget Office shows the deficit jumping $102 billion in just the first two months of the new fiscal year.
That sure looks like the deficit is “soaring,” as one news outlet claimed. But as the CBO makes clear, almost all that deficit increase was the result of quirks of the calendar. Depending on where weekends fall, significant sums of spending can get shifted into different months.
A true apples-to-apples comparison, the CBO says, shows that the deficit climbed by just $13 billion. Continue reading
By Ali Meyer • Washington Free Beacon
Repealing the Affordable Care Act’s individual mandate would reduce the federal deficit by $338 billion in the next decade, according to a projection from the Congressional Budget Office.
The individual mandate requires that Americans purchase health insurance or pay a penalty to the Internal Revenue Service for not having coverage. A recent Taxpayer Advocate Service report found that roughly 4 million Americans paid an average penalty of about $708 this year for a total of $2.8 billion.
The budget office predicts that eliminating the mandate would reduce the deficit by $338 billion from 2018 to 2027 and would decrease the number of those with health insurance by 4 million in 2019 and by 13 million in 2027. Even with this loss, the report says that markets would remain stable in almost all areas of the United States over the next decade. Continue reading
by Ali Meyer • Washington Free Beacon
President Donald Trump’s proposed budget for 2018 would reduce the deficit over the next decade by $160 billion and increase GDP at the same time, according to an analysis from the Congressional Budget Office.
Trump’s budget proposes a cut back in mandatory and discretionary spending that would not only reduce the deficit, but the debt as well.
Relative to the size of the economy, federal budget deficits are projected to decline by 2.6 percent to 3.3 percent of gross domestic product over the next 10 years. This would mean that the deficit would be roughly one-third smaller than it was originally projected to be.
Trump’s budget also aims to reduce the debt to 80 percent of GDP, which is 11 percentage points below the budget office’s baseline. By the end of the next decade, debt held by the public is projected to decline by 0.6 percent of GDP. Continue reading
by Ali Meyer • Washington Free Beacon
The Congressional Budget Office issued its latest budget and economic outlook: Government spending is projected to outpace federal tax revenues over the next decade, driving up the debt to record-high levels.
The federal government collected $17 billion more in revenues in 2016 than in 2015, and most of that money came from individual income taxes. Overall, the budget office predicts that revenues will rise by 4 percent on average over the next decade, rising to 18.4 percent of gross domestic product by 2027.
Despite the increasing amount of taxes that the federal government is collecting from the American people, the amount the government spends is even greater. Continue reading
by Ali Meyer • Washington Free Beacon
Outstanding federal debt is projected to hit $28.2 trillion over the next decade, according to a report from the Congressional Budget Office.
At the end of this year, outstanding federal debt is expected to climb to $19.4 trillion and to rise by $8.8 trillion in the next ten years.
The federal government’s budget deficit, which is the difference between how much money the government spends and how much money it takes in through tax collection, will be $590 billion by the end of 2016, $152 billion more than the previous year. Continue reading
Federal tax revenues continue to run at a record pace in fiscal 2014, as the federal government’s total receipts for the fiscal year closed April at $1,735,030,000,000, according to the Monthly Treasury Statement.
Despite this record revenue, the federal government still ran a deficit of $306.411 billion in the first seven months of the fiscal year, which began on Oct. 1, 2013 and will end on Sept. 30, 2014.
In the month of April itself, which usually sees the peak tax revenues for the year, the federal government ran a surplus of $106.853 billion. While taking in $414.237 billion in total receipts during the month, the government spent $307.383 billion.
In fiscal 2013, the federal government also ran a one-month surplus in April, taking in $406.723 billion during the month and spending $293.834 billion, leaving a surplus of $112.889 billion. Continue reading
On Feb. 17, 2009, President Obama promised the sun and the moon and the stars. That was the day, five years ago, when he signed the $800 billion “American Recovery and Reinvestment Act.” President Modesty called it “the most sweeping economic recovery package in our history.” He promised “unprecedented transparency and accountability.” He claimed the spending would lift “two million Americans from poverty.” Ready for the reality smackdown?
The actual cost of the $800 billion pork-laden stimulus has ballooned to nearly $2 trillion. At the time of the law’s signing, the unemployment rate hovered near 8 percent. Obama’s egghead economists projected that the jobless rate would never rise above 8 percent and would plunge to 5 percent by December 2013. The actual jobless rate in January was 6.6 percent, with an abysmal labor force participation rate of 63 percent (a teeny uptick from December, but still at a four-decade low). Continue reading
The debt of the federal government, which is normally subject to a legal limit, jumped by $409 billion in the month of October, according to the U.S. Treasury.
That equals approximately $3,567 for each household in the United States, and is the second-largest one month jump in the debt in the history of the country.
In the continuing resolution deal sealed by President Barack Obama and the Republican congressional leadership last month, the legal limit on the federal debt was suspended until February 7 of next year. Continue reading
I have been broadcasting for 31 years and writing for longer than that. I do not recall ever saying on radio or in print that a president is doing lasting damage to our country. I did not like the presidencies of Jimmy Carter (the last Democrat I voted for) or Bill Clinton. Nor did I care for the “compassionate conservatism” of George W. Bush. In modern political parlance “compassionate” is a euphemism for ever-expanding government.
But I have never written or broadcast that our country was being seriously damaged by a president. So it is with great sadness that I write that President Barack Obama has done and continues to do major damage to America. The only question is whether this can ever be undone. Continue reading
The recent wrangling in Washington over the debt ceiling, with both sides promising to return to battle early next year, never got around to considering this proposition: Maybe debt ceilings are a bad idea, because they may lead to increased spending.
A debt ceiling may seem like a good way to constrain out-of-control government, by focusing attention on the federal deficit and the resulting debt increase. (For the record, the United States debt recently surpassed $17 trillion.) But that focus draws attention from the underlying problem: too much spending.
Debt ceilings also provide a false sense of security. Borrowing will never get too far out of hand, the thinking goes, because the ceiling will cap it. Yet the U.S. debt hits the debt ceiling time and again because the federal government runs chronic deficits. This addiction to overspending has forced Congress to raise the debt ceiling more than 90 times during the past 70 years, and 15 times since 1993 alone. Continue reading