Thursday, May 16, 2019

Budget Discipline Procrastination Already Has Had Its Consequences



In 1993, when Republican House Budget Committee staffers were searching for options to include in the GOP budget alternative “Cutting Spending First”, we opened a book called “CBO Spending and Revenue Options” to find proposals to reduce the rates of growth in federal spending over the next 5 years.

We found $177 billion in savings from projected baselines in Medicare and Medicaid alone. Over 5 years, not 10 years as is custom today. Those proposals just slowed down the rate of growth in both programs ever so slightly. They were not absolute cuts from the year before in any of the 5 years.

They led to balanced budgets from 1998-2001. That is all we need; a slowdown in growth in federal spending, not absolute cuts.

In Medicaid and Medicare in particular.

If Congress passed every proposal put out by CBO back then, we would be swimming in budget surpluses, not deficits. There were trillions of cumulative savings laid out back when the federal budget was only $1.4 trillion to begin with.

The most recent 2019 edition brings tears to the eyes of anyone who was serious about budget discipline 25 years ago. A cursory reading of the options to hold down the rate of growth in entitlement spending shows that most of the options in 2019 are the same as they were in 1993 simply because so few of them have been passed and implemented.

For example, there was a proposal back then to raise the eligibility age for Medicare from 65 to 67 to match the stairstep increase in retirement age eligibility of Social Security by 2024. We are living far longer than life expectancies were in 1935 when Social Security was passed; shouldn’t the retirement age in Medicare be raised to reflect that basic fact of life especially since Social Security has already done so?

Had it been passed into law 26 years ago, as it should have, we would be saving roughly $40 billion annually today, savings that would continue to compound far into the future.

If we had started the process back then to raise the retirement age to 70 by 2024, the annual savings in Medicare would be in excess of $100 billion today and $150 billion in 2024.

Both are still in the CBO Spending Options book as “options to consider”. Both have laid dormant for an entire generation. No elected Democrat or Republican public official has touched that third rail of American politics with a ten-foot pole.

The price of our collective national political cowardice and procrastination for the past 18 years is $15 trillion of new debt. Had substantive action been taken to reform entitlements back then, we could have seen balanced budgets every year beyond the four balanced budgets we saw from 1998 to 2001.

There is only one way to balance the budget now beyond making major programmatic changes in the major mandatory programs, Medicare, Medicaid and Social Security. To solve our federal budget crisis, we simply have to solve our burgeoning health care cost crisis nationwide. Inflation in federal health programs has averaged 6%+ annual growth for the past decade.

Spending in all federal health programs has to be held under 3% annual growth for us to have any chance of solving our debt crisis. Promising “free health care for all!” as all of the Democrat presidential candidates are proposing is exactly the wrong way to go if we are serious about fiscal responsibility.

Ronald Reagan said: “(T)he trouble with our liberal friends is not that they’re ignorant; it’s that so much they know isn’t so.”

Based on what we have seen when it comes to federal budgeting over the past 18 years now and still counting, apparently this includes our conservative friends as well.


Sadly.

(first published in North State Journal 5/15/19)

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Wednesday, May 8, 2019

Where Is “The Fiscal Sanity Caucus” In Congress Today?

Make This The Senate and House Chicken Caucus

There are 16 caucuses in the US House of Representatives. 

  • Congressional Progressive Caucus (CPC) – Progressive Democrats
  • Medicare for All Caucus – Progressive Democrats
  • New Democrat Coalition (NDC) – Modern Liberal/Centrist Democrats
  • Blue Dog Coalition (BDC) – Conservative Democrats
  • Blue Collar Caucus – Pro-labor and Alter-globalization Democrats
  • Expand Social Security Caucus (ESSC) – Progressive Democrats
  • Tuesday Group (TG) – Moderate Republicans
  • Republican Main Street Partnership (MSP) – Moderate Republicans
  • Republican Study Committee (RSC) – Conservative Republicans
  • Liberty Caucus (LC) – Libertarian Republicans
  • Freedom Caucus (FC) – Conservative Republicans affiliated with the Tea Party movement
  • The Congressional Black Caucus for African-Americans
  • The Congressional Hispanic Caucus for Hispanic Democrats
  • The Congressional Hispanic Conference for Hispanic Republicans
  • The Congressional Asian Pacific American Caucus
Note none of these caucuses is called “The Fiscal Sanity Caucus”. Or “The Balanced Budget Caucus”. Or the “We Came To Do What Adults Are Supposed To Do Caucus” which is manage our nation’s finances in a responsible mature process.

Not one single caucus named above has done anything to reduce federal spending over the past 18 years. Many have opined or whined about the deficit and blamed “the other side” for not co-operating on reducing the national debt. However, no legislator, committee, party or caucus gets any credit unless legislation passes both the Senate and the House and gets signed into law by the President.

That is the way it works in our American constitutional democratic republic. The road to fiscal hell is paved with good intentions…and lack of principled leadership.

The last Congress that oversaw a balanced budget was in 2001—pre-9/11 that is. Four balanced budgets from 1998-2001 was the result of work done starting in 1990, revved up in the House Budget Committee in 1993 and finalized in the 1997 Balanced Budget Act.

Since 2001, the national debt has exploded from $5.8 trillion to over $22 trillion today. Tax revenues have increased from $2 trillion to $3.4 trillion since 2000, a 70% increase during a time of historically low inflation.

However, spending has gone up from $1.7 trillion to over $4 trillion, a 135% increase since 2000.

The problem with debt accumulation is spending. Not taxation. We have more debate about taxation, though, than spending.

Why? Because cutting taxes is fun. Cutting spending is painful. Spending more of your money is great fun, especially to those who love more government control of everything.

The problem is manifold. Members always blame everyone else for their inability to lead on cutting spending. Their collective lack of understanding of basic principles of arithmetic coupled with no apparent understanding of economics and accounting is self-evident on a daily basis. They simply do not know how to lead by brokering deals and compromises that produce less-than-perfect solutions but they put the brakes on spending nonetheless.

History will not remember any of them well. There are no “Profiles in Courage” to write about when it comes to fiscal discipline since 2001.

Balancing the budget is not that hard. Even a caveman like me can do it. So can every person reading this opinion piece as long as they know how to subtract.

In 1993, former budget staffer Greg Hampton and I found $177 billion in spending savings over 5 years from the baseline in Medicare and Medicaid alone and helped my boss, former Congressman Alex McMillan of Charlotte, get it into a document supported by 15 GOP House Budget Committee Members called ‘Cutting Spending First’. We were 85 seats in the minority at the time and Republicans had not controlled Congress since 1955.

Republicans took over Congress in 1994. $135 billion of those proposals made their way into the landmark 1997 Budget Act which led to the only balanced budgets we will see in our lifetimes if things don’t change very soon.

If any Member of Congress or Senator wants to start “The Fiscal Sanity Caucus”, call me. You can be an Army of One at least to start.

(first published in North State Journal 5/10/19)

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Thursday, May 2, 2019

Something’s Happenin’ Here with GDP Growth


"There's something happening here. What it is ain't exactly clear” are the opening lines to the 1966 Buffalo Springfield hit song, “For What It’s Worth”.

For what it is worth, the same can be said about recent economic data in America. “Everyone”, meaning all of the experts and commentators on talk shows, keep predicting a significant slowdown of the American economy and have done so since the night Donald Trump was elected in 2016.

Nobel Laureate Paul Krugman proudly wrote in the New York Times in the wee hours after Trump won the electoral college: “If the question is when markets will recover, a first-pass answer is never”.

Ouch. One has to think Mr. Krugman wished he could have a do-over with that colossal gaffe.

Except apparently he doesn’t. On April 8, 2019, only 23 days ago, he wrote: 'It’s true that U.S. economic growth got a bump for two quarters last year, and Trumpists are still pretending to believe that we’ll have great growth for a decade. But at this point last year’s growth is looking like a brief and rapidly fading sugar high”.

First quarter 2019 GDP growth came in at 3.2% last Friday. The consensus among professional economists and prognosticators was 2%.

What has happened? Has every economist turned into a non-analytical clone of Paul Krugman? Why has the source of this new-found economic growth not been “exactly clear” for everyone to see?

One important factor could be the higher 1-year write-off of the purchase cost of new machinery and equipment for small businesses in the Trump tax bill. Business owners point to this tax change as being an underappreciated aspect of the accelerated economic growth we are seeing in the US economy.

A small business contractor can buy a new truck and expense the whole cost of the vehicle in the first year even though it might take 5-7 years to pay for the loan. If a small business had $45,000 of net profit, they could offset that with the $45,000 cost of the new vehicle and drive their taxable income way down to cite one very simple example. Depending on their tax bracket, the owner could save up to $15,000 in federal taxes and $2000 in state taxes which is money that stays in their pocket, not the government’s.

Economic growth is directly attributable to productivity gains in the economy. Buying new machines that can produce more product at a lower cost is the very definition of “productivity gains”. We all benefit from such productivity gains whether we are employees, owners, investors, stockholders or retired from the workforce.

Former Vice-President-under-President-Barack-Obama Joe Biden entered the presidential race last week ostensibly to “take America back to the golden days” he apparently thought happened while he and President Obama were leading our country.

Americans throughout modern history have considered 2% annual real growth “dismal” and “disappointing”. Former President Obama and his Vice-President Joe Biden considered 2% to be the “new normal” for the American economy going forward. Forever.

Annual real GDP growth never exceeded 2% during any of the 8 years the Obama/Biden team was in charge. How odd that as soon as they left office, GDP is now growing almost 60% faster under the pro-free enterprise policies of President Trump as passed by a Republican Congress with zero Democratic votes.

If you want to know one big difference between the Obama and Trump White Houses, consider that in 8 years, the Obama Administration did not add this provision to help spur the economy back to full health.

The difference between 1% GDP annual growth to 3% GDP growth across 35 years, about a generation, would mean the US economy would double from $21.5 trillion to $43 trillion in 2054.

For what it’s worth 3.2% growth is far preferable to 2.0%. Why go backwards into the future?

(first published in North State Journal 5/1/19)



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