Tackling the Deficit

[_honorentheos]

I may have mentioned a time or two on the board I think Presidential elections should be treated more like job applications. This cycle, Amy Klobachar has been the candidate I find to have the resume and interview responses that support her being a top tier applicant for the job.

Along those lines, it speaks volumes to me that of the Democratic candidates she seems to be the only one talking realistically about the economy and our deficit problem. But of real interest, and why I started this thread, is her idea to establish a mechanism in the budget to act as an economic gyro. Here's a direct quote from her proposed policies on this link:

https://medium.com/@AmyforAmerica/senat ... 7c0b859fec

Establish a dedicated fund to tackle the U.S. debt and support our economy. Senator Klobuchar will establish a dedicated fund to make a down payment to tackle the U.S. debt and protect our economy. She will initially seed the fund with $300 billion by raising the corporate tax rate and dedicating savings from the government-wide budget review. When the economy is doing well, the fund will finance deficit reduction. When specific economic indicators show our economy is in a recession, the funding will automatically be diverted to increase spending on programs that are effective at stimulating the economy like infrastructure spending, increased unemployment and nutrition assistance, and an increased federal share of Medicaid and CHIP spending. As tax changes are implemented and as departments complete Senator Klobuchar’s government-wide review, she will invest additional government-wide savings towards expanding the fund to decrease the deficit and support our economy.

I should add, the proposal would be an unnecessary one in an environment where politicians budget responsibly. The norm should be balanced budgets and reduced deficit spending during economic good times, and focused spending on positive, job creating projects when needed. But as we watch deficits and stock prices rise in tandem it seems we need a program, an economic form of lap band surgery if you will, to do what our political will prevents us from doing otherwise.

It's an interesting approach, combined with other suggestions, all of which seem to come from her real experience sitting on related Senate committees.

[_Res Ipsa]

I dunno, Honor. Sounds too gimmicky to me. Looks to me like that initial 300B represents 10 years of her proposed corporate income tax increase. That’s ten years of trillion dollar deficits. And, no, I’m not placing any stock in her claims about reducing government waste. That’s right up there with the check is in the mail and I promise I’ll pull out in time.

To reduce the debt, the government has to take in more money than it pays out. Right now, that’s over a trillion dollar swing. Amy’s 30B in additional tax revenue per year doesn’t even come close.

[_honorentheos]

Hey Res,

I wouldn't disagree that the above is probably intended to get attention more so than be a fix-all. Gimmicky? Ok. But I contextualize that with the fact it's a gimmick that refocuses budgeting behavior back onto basic fundaments that we've lost completely. As noted in the OP, it's only an interesting idea because we stopped doing what it proposes as a regular course of action. In a functional political environment, we shouldn't need a gimmick to remind those making budgets that when the economy is doing well one doesn't explode government deficit spending, too. Most diets come down to gimmicks because eating sensibly and being active is easy to say but people still don't do it.

Now, are proposals to expand taxing billionaires into the 1950s levels also a gimmick? It's certainly easy to say but I haven't seen much in the way of putting legs under it by anyone in a meaningful way. In that sense, I don't think most candidates are even offering ideas that rise to the level of a gimmick yet. Attempts to put numbers to the broad ideas ends up being a circus. For the majority of campaigning Democrats the issue seems to be where we spend money, and not worry so much about how much.

Of the proposals she put up on her website, the one I think is the most functionally pragmatic is the proposal to move to a biennial budget. There have been bills to do this in the past, with the idea of tying budget making with budget oversight over two years rather than redoing the budget on a 1-year cycle. She also includes pushing the forecasting window to 25 years rather than 10.

[_Res Ipsa]

Good morning, Honor. By gimmicky, I meant that her fund proposal purports to be a new way to solve an old problem, but won’t do anything substantive to solve the problem. I think it’s good that she’s thinking out of the box, but the specific proposal can’t work as advertised unless we are closed to having a balanced budget. I would not describe simply raising taxes as a gimmick, as it is one of the two basic tools we have to reduce the deficit.

I think the two-year budget cycle is worth trying. But there also needs to be some mechanism or incentive for the president and Congress to take the budgeting process seriously without penalizing the citizenry when they don’t. I also like the 25 year forecasting horizon. Too often, bills are passed where the cost is effectively deferred for ten years, with a fiscal time bomb exploding in the out years. A longer time horizon would help prevent that.

[_honorentheos]

Hi Res -

Presidential elections are always a bit frustrating in that there is a negative incentive for a candidate to put forward realistic policies given most of the electorate won't tune in to read or work through the proposals while their opponents will inevitably focus on the issues with it using soundbites. It seems the result is the discussion and decisions regarding which candidate to pick is reduced to reading broad guideposts about their views. Which is also probably ok in the sense any President is going to have their policies obstructed or modified by Congress, even friendly ones if they happen to have the same conditions as Trump and Obama. With Obama we got the ACA which didn't really reflect his or Clinton's healthcare plans perfectly but we went in the general direction the campaign promised. With Trump, besides Republicans getting Supreme Court justices and other federal justices, we ended up with the Tax Cuts and Jobs Act. While the specifics differed from the campaign promises he did end up signing a bill into law I didn't think Paul Ryan would have supported. The direction it was projected by economists to take us (into deep debt) is proving true. It also ended up benefiting the top 1% more so than the rest of us. The details differed but the broad outlines including economist predictions about the effects reasonably held.

I say that because I don't think promises to cut or raise taxes should be categorized as gimmicky so much as guideposts on the grounds they are usually not detailed enough to even be a gimmick. What I take issue with is most candidates put out their tax plans, put up numbers that show how they will accomplish everything anyone could ever want, and then ignore the comments put out by economists who start forecasting probable consequences. Yet it seems those probable consequences are far more realistic than that a candidate will be able to pass their actual plan into law. At best, we'll get the gist of it provided they have a cooperative Congress and that's it. So it makes little difference if they provide a detailed plan anyway. Even one full of gimmicks if they felt the need.

So when I point out that raising taxes on billionaires isn't offering up much, let alone offering up a gimmick, it's because looking over the field suggests - if Trump loses which isn't a given - we'll probably end up with a $15/hr. Federal min. wage regardless of who gets elected, repeal of the upper bracket and estate tax changes from Trump's TCJA, and see something that attempts at a wealth tax of some kind...maybe. The latter is probably the most challenged, and essentially gimmicky, aspect of tax proposals being put forward. And the predictions of how they will actually work out aren't positive. That doesn't make them a bad idea completely, in my opinion, but we aren't living in the 1930s. The global wealthy have much more sophisticated mechanisms for protecting their wealth, and for all the promises behind them the outcome is almost certainly going to be a depressed effect on innovation. Like my issues with libertarian philosophy that ignores current conditions, the progressive attempt to rebalance the wealth inequality often ignores the fact the already super-wealthy are playing a different game. How the plans affect innovative new business pursuits has to be grappled with to make the idea less of a gimmick and more of an actual policy.

[_Res Ipsa]

I think that all makes sense, with a reminder that a democratic president will not be able to do any of those things if the Republicans hold the Senate.

[_Doctor CamNC4Me]

Out of curiosity, what number would you two feel ok’ish with the debt sitting at? I’ve probably read around a dozen or so opinion pieces that argues maintaining a sitting debt is a good thing. Because I’m a simple, simple, astonishingly average man, I intuitively feel we should pay our debt off with the caveat we can go into debt during downturns and wars, BUT we must pay our debt off. I feel, and it’s just a feeling, that paying so much in interest robs us of streets and bridges in the future, so to speak.

- Doc

[Guest]

Hey Cam, my understanding has been the percentage of debt-to-GDP matters more than a specific number but I agree with your main point. That being, interest on the debt has opportunity costs that result in declining quality of public services and other benefits. If we do as Trump has done for long enough, the interest payments start to become a huge chunk of the tax revenue.

As to a percentage, the golden number I've heard thrown around is in the 70% debt-to-GDP ratio. Why that's good and 80% is less good while one shouldn't then expect 35% to be even better is one of those aspects of the economy I assume fits into economist models in ways that are above my paygrade. The interest numbers, though, are less opaque. Last forecasts I recall reading put interest on our debt as exceeding our military budget in ten years or so if we don't steer away from the direction Trump is taking us. I doubt even ajax or subbie would argue that's sustainable.

One of the challenges with our Republic is the lack of long term incentives for our politicians to try and not screw future generations over other than basic human decency. Every politician claims their plans will rev GCP growth resulting in the debt-to-GDP ratio to balance out when they a) cut taxes and juice the business engine if they are Republicans or b) raise government spending that enables the middle and lower classes to grow and feed the economy. But we seem to be in an era where around 2% growth is the norm. Trump's two best quarters came after he 1) passed the tax bill and 2) saw a run on exports just ahead of the tariffs taking effect in 2018. Both of those quarters made it to 3.4% growth but otherwise his Presidency isn't looking that different from Obama's.

https://www.statista.com/statistics/188 ... in-the-us/

Now, the stock market is going gangbusters as we all seem to know. But manufacturing is laying people off, at least partially due to the trade war, and has been in red flag territory for most of 2019. So, I don't think there is an argument there that the current 105% debt-to-GDP percentage caused by Trump's deficit is going to get corrected by a rise in GDP growth.

[_aussieguy55]

Government Debt to GDP in Australia is expected to be 42.00 percent by the end of this quarter, according to Trading Economics global macro models and analysts expectations. In the long-term, the Australia Government Debt to GDP is projected to trend around 40.00 percent in 2020, according to our econometric models.
In the third quarter of 2019, the U.S. debt-to-GDP ratio was 105%. That's the $22.719 trillion U.S. debt as of September 30, 2019, divided by the $21.542 trillion nominal GDP. This ratio is a useful tool for investors, leaders, and economists. It allows them to gauge a country's ability to pay off its debt.

If McConnell reduces spending in Social Security and Medicaid does that mean less money is being spent in the economy. What did the 1% do with their tax cuts?

[Guest]

If McConnell reduces spending in Social Security and Medicaid does that mean less money is being spent in the economy. What did the 1% do with their tax cuts?

US debt is held in part in bonds and treasuries held by members of the public that are obligations to the holders. And there is also a percentage - about 26% - of the US debt that is essentially money the government borrowed from itself. That includes somewhere in the range of $2.9 trillion in treasuries that the Social Security Trust Fund holds. So in a sense, you could be right that if the US reduces payment to itself regarding that debt obligation the result is less money going to the people who have been retiring in greater numbers over the last 10 years. 2020 is supposed to be the first year SS will expend more than it takes in. We've reached a tipping point that is almost certain to become only more of a hot button topic going forward.

The other part of your question is better divided into asking what corporations did with their significant corporate tax cuts compared to households? The understanding I have is most corporations didn't turn their tax dividends into hiring, capital expenditures and growth that put that money back into the economy where those dollars gain even more multiplier benefits. Instead, a sizeable chunk went to stock buy-backs which inflate a company's stock price and paper value. See - inflated stock market. OTOH, consumer spending is widely seen as the central pillar of strength in the current US economy. Unfortunately, household debt is also a chunk of that, having returned to pre-recession levels so...