Spending Our Grandchildren’s Money
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The presidential debate schedules have been announced, with a total of 6 Democratic debates scheduled between October 2015 and March 2016 on CNN, CBS, ABC, NBC, Univision, and PBS (but not on Fox, what a surprise!). The Republicans have 9 more debates scheduled, on top of the two already aired.
None of the networks has called me yet to ask what questions I would pose. But if I were given the chance, I would like to ask all of the candidates a few questions about what I view as the most pressing problem facing the USA, which is the $18.1 trillion federal debt. So here are my questions, starting with one about the chart above.
Question #1 (referring to that chart above): Running a surplus in the federal government has historically been bad for the economy. Every time that it has happened over the past 9 decades, there has been a spike in the unemployment rate which followed. Efforts to pay down the total debt in 1929 and 1930 helped contribute to the Great Depression. Surpluses after WWII to pay off all of the war bonds led to a 5-year stagnation of economic growth. Even the near-surpluses of the 1990s snuffed out the technology boom, and pushed us into a recession starting in 2001. So how can we ever pay down the $18.1 trillion debt if the surpluses which would be needed for paying off the debt will hurt the economy?
Question #2: Total federal debt now stands at $18.1 trillion, but total federal receipts from all sources are only $3.6561 trillion (for the 12-month period ending in August 2015, the latest data available). If we were to stop spending money on everything and just direct all tax receipts toward paying off the debt, it would take 5 years to pay off the debt. That’s like a family who makes $50,000 a year having a home mortgage for $250,000, which every loan officer would agree is an untenable situation. How do we get Congress and the Executive Branch to stop pushing us further into debt?
Question #3: A lot of people, including some presidential candidates, have claimed that the federal government ran a surplus in the 1990s. But a quick check of the data shows that total federal debt has increased every year since 1960. Can any of you explain how the total debt goes up when there is supposedly a surplus? Here are the actual numbers:
FY Total Federal Debt
2015 18,151,061,200,913 (preliminary)
Question #4: Total federal receipts are now running at a rate of 18% of GDP. Every time that tax receipts have gone this high as a percentage of GDP, the U.S. has ended up in a recession, as if having the government take too much money out of the economy snuffs out the economic fire. What would you do in your prospective first term to keep more money in the hands of taxpayers, and to get us out of the recession we seem to be heading into now?
Question 5: Governor Bush has proposed that if we can hold federal spending growth to just 2%, but grow GDP at 4%, then we can quickly balance the budget. For the 12 months ending in August 2015, total federal receipts were $3.235 trillion, and expenditures were $3.6561. If those growth rates of spending and taxes could really happen, and if the changes in growth rates started right now, it still would not result in a balanced budget until 2021, and along the way we would add another $1.2 trillion to the total federal debt. And even if we assume Donald Trump’s promise of a 6% GDP growth rate, and starting right now, it would still take 3 years to get to a balanced budget. Isn’t it time for more drastic action on federal spending?
Question 6: According to a Dec. 2014 study by the Heritage Foundation, 75% of federal spending is taken up by major entitlements, income security, and net interest on the debt. That leaves only 25% for everything else, including national defense, transportation, K-12 education, and other items. If we are going to really reduce federal spending in a meaningful way, aren’t we going to have to tackle entitlement spending? And how would you propose that we modify that entitlement spending at a time when the Baby Boom generation is now starting to retire and draw Social Security and Medicare benefits?
Question 7: Congress sets the tax rates and the budget, but individual members of Congress seldom incur any negative personal impact from the federal government increasing its indebtedness. It seems that member of Congress do not have a big enough personal incentive to balance the budget. Rather than creating a “balanced budget amendment”, would you support passage of a special income tax rate of 90% that would only apply to members of Congress, plus the president and vice president and all cabinet secretaries, and only for years in which the total federal debt rises?
Editor, The McClellan Market Report
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