budget deficit

Budget Deficits And Debt Projections Look Much Worse Assuming “Current Policy”

Publication of the CBO’s “The Budget and Economic Outlook: 2018 to 2028” has once again brought attention to the dire outlook for the federal public finances.

The challenge is best thought of in the following way:

1) there is a structural challenge associated with projections for debt-to-GDP ballooning in the coming decades due to unchanged entitlement programs interacting with an aging population

Washington Post Fact Check: Tax Cuts Didn’t Raise Federal Borrowing 84%

“Trump’s tax cuts are rocketing us into the debt ceiling,” wrote Catherine Rampell in The Washington Post on February 1, because “withholding from employee paychecks will drop starting no later than mid-February. Individual income tax revenue will therefore be about $10 billion to $15 billion less per month than the CBO previously estimated.” The suggestion that the debt crisis could be blamed on a mere $10-15 billion cut in monthly withholding got a Twitter shout-out from budget hawk Stan Collender, who must know that errors in monthly budget estimates are commonly larger than that.

This was followed two days later by Heather Long’s extremely misleading Washington Post story, “The U.S. Government Is Set To Borrow Nearly $1 Trillion This Year, an 84 Percent Jump from Last Year.” The article goes on to say, “Treasury mainly attributed the [$436 billion debt] increase to the ‘fiscal outlook.’ The Congressional Budget Office was blunter. In a report this week, the CBO said tax receipts are going to be lower because of the new tax law.” According to that link to another Post story, “CBO said that the tax law is expected to lower tax receipts by $10 billion to $15 billion per month. Even though the tax cut law went into effect January 1, the large drop in tax receipts didn’t kick in yet because companies won’t start using new withholding tables until sometime in February.” Fiscal 2018 began last October, so lower withholding tax can affect no more than 8 of the remaining months. Contrary to the Rampell-Long theory, the CBO’s revenue loss of $80-120 billion can’t explain her alleged $436 billion increase in Treasury borrowing.”

Where did all that added debt come from? What Ms. Long initially called “the exact” figure of $955 billion is later explained as “determined from a survey of bond market participants.” Asking about 23 bond dealers to guess Treasury “net marketable borrowing” is far from an official estimate, and it isn’t a measure of the deficit.

The RAISE Act Would Hurt U.S. Taxpayers

Robert Rector of the Heritage Foundation recently argued that the RAISE Act, a bill introduced by Senators Cotton (R-AR) and Perdue (R-GA), would save taxpayers billions by reducing lower-skilled immigration.  Below I will argue that the RAISE Act does no such thing mainly because it does not actually increase skilled immigration, does not much alter the current education level of immigrants in the United States, and would result in removing at least 500,000 H-1B visas within a year of passage.  Using the National Academy of Science (NAS) fiscal estimates, the RAISE Act is more likely to increase deficits over the next 75 years than to decrease them.

Rector makes two main claims in his post.  The first is that “[b]ased on the National Academy of Sciences’ estimates, the average low-skill immigrant (with a high school degree or less) who enters the country imposes a net present value on taxpayers of negative $142,000.”  A fiscal net present value (NPV) means that each immigrant in this education range would have to deposit $142,000 upon arrival that would earn 3 percent compounded annual interest to cover the full cost of social services that he or she will be expected to consume over the next 75 years.  The second claim is that the RAISE Act could save taxpayers at least $1 trillion by cutting the flow of immigrants with a high school degree or less.  The sections below will analyze these claims by using the National Academy of Sciences’ estimates and information from the Current Population Survey of the U.S. Census (CPS).

Presidential Spending

President Obama has issued his final federal budget, which includes his proposed spending for 2017. With this data, we can compare spending growth over eight years under Obama to spending growth under past presidents.

Figures 1 and 2 show annual average real (inflation-adjusted) spending growth during presidential terms back to Eisenhower. The data comes from Table 6.1 here, but I made two adjustments, as discussed below.

Figure 1 shows total federal outlays. Ike is negative because defense spending fell at the end of the Korean War. LBJ is the big-spending champ. He increased spending enormously on both guns and butter, as did fellow Texan George W. Bush. Bush II was the biggest spender since LBJ. As for Obama, he comes out as the most frugal president since Ike, based on this metric.

Figure 2 shows total outlays other than defense. Recent presidents have presided over lower spending growth than past presidents. Nixon still stands as the biggest spender since FDR, and the mid-20th century was a horror show of big spenders in general. The Bush II and Obama years have been awful for limited government, but the LBJ-Nixon tag team was a nightmare—not just for rapid spending during their tenures, but also for the creation of many spending and regulatory programs that still haunt us today.

President Obama Plays While the Federal Budget Burns

The U.S. is bankrupt. Of course, Uncle Sam has the power to tax. But at some point even Washington might not be able to squeeze enough cash out of the American people to pay its bills.

President Barack Obama would have everyone believe that he has placed federal finances on sound footing. The deficit did drop from over a trillion dollars during his first years in office to “only” $439 billion last year. But the early peak was a result of emergency spending in the aftermath of the financial crisis and the new “normal” is just short of the pre-financial crisis record set by President George W. Bush. The reduction is not much of an achievement.

Worse, the fiscal “good times” are over. The Congressional Budget Office expects the deficit to jump this year, to $544 billion.

The deficit is not caused by too little money collected by Uncle Sam. Revenues are rising four percent this year, and will account for 18.3 percent of GDP, well above the last 50-year average of 17.4 percent. But outlays are projected to rise six percent, leaving expenditures at 21.2 percent of GDP, greater the 20.2 percent average of the last half century.

A Fiscal Train Wreck

That is the title of a 2003 New York Times column by economist Paul Krugman. The gist of his column was that the Bush tax cuts and future entitlement program liabilities would usher in calamitous deficits. Setting aside the tax cut and entitlements issue, Krugman’s comments on the dangers of deficits are interesting considering seven years later Krugman is one of the most prominent supporters of massive deficit spending to stimulate the economy.

Deficit Prognostications

Exactly two years ago, George W. Bush released his final budget. Here’s what the Washington Post had to say:

[T]he president’s budget envisions a big jump in the budget deficit, from $163 billion in 2007 to about $400 billion in 2008 and 2009. Much of that increase will be the result of a slowing economy and a stimulus package expected to cost about $150 billion.

Bailout Coming for the Postal Service?

The U.S. Postal Service is in financial trouble. Undermined by advances in electronic communication, weighed down by excessive labor costs and operationally straitjacketed by Congress, the government’s mail monopoly is running on fumes and faces large unfunded liabilities. Socialism apparently has its limits.

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