Tag: national debt

Party of Higher Debts

By James Kwak

The Committee for a Responsible Budget recently released an analysis of the budgetary proposals of the four remaining Republican presidential candidates (hat tip Ezra Klein, who shows the key graph). In short, all of the candidates propose to increase the national debt by massive amounts relative to current law, which includes the expiration of the Bush tax cuts at the end of this year.

CFRB compares the candidates’ plans to a “realistic” baseline that assumes the Bush tax cuts are made permanent and the automatic sequesters required by the Budget Control Act of 2011 are waived, among other things. Relative to that extremely pessimistic baseline, Santorum and Gingrich still want huge increases to the national debt; only Paul’s proposals would reduce it. Romney’s proposals would have little impact, but that was before his latest attempt to pander to the base: an across-the-board, 20 percent reduction in income tax rates.

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Health-Care Costs and Climate Change

By James Kwak

That’s the average global temperature from 1998 through 2008, according to NASA. This, of course, is what enabled George Will to write, in 2009, “according to the U.N. World Meteorological Organization, there has been no recorded global warming for more than a decade.”

Of course, George Will is just a run-of-the-mill climate change denier with a gift for mis-using statistics. In this case, he was probably citing a World Meteorological Organization study that said, “The long-term upward trend of global warming, mostly driven by greenhouse gas emissions, is continuing. . . . The decade from 1998 to 2007 has been the warmest on record.” And here’s the long-term picture, also from NASA:

You all know this, so why am I bringing it up?

Well, look at this, from J. D. Kleinke of AEI in The Wall Street Journal:

Those are annual percentage changes in nominal terms, so his point is that annual increases are going down. But what does the long term look like?

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Correction to Long-Term Debt Projections

By James Kwak

Back in October, I wrote a post laying out my long-term projections for the national debt, which were basically an adjustment to existing CBO projections. Peter Berezin recently pointed out a misleading ambiguity in that post. There, I used the same long-term growth rate of tax revenues in both my extended-baseline scenario and in my “realistic” scenarios. I got that long-term growth rate from the CBO’s extended baseline scenario in its 2011 Long-Term Budget Outlook, which assumes that current law remains unchanged.

In my realistic scenarios, I assumed that the AMT would be adjusted through 2021 but that the long-term growth rate would apply thereafter. I didn’t say anything explicitly about the AMT after 2021, but by using the long-term growth rate from the extended baseline, I was implicitly assuming that the AMT would not be indexed after 2021.

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How Big Is the Long-Term Debt Problem?

By James Kwak

Articles about the deficits and the national debt generally talk about unsustainable long-term deficits that will drive the national debt up to a level where scary things happen. Sensible commentators usually acknowledge that our current deficits are a sideshow and the real problems happen in the 2020s and 2030s due to modestly increasing Social Security outlays and rapidly increasing health care spending. I admit that this has generally been my line as well; for example, in a previous post I said that the ten-year deficit problem is entirely a product of extending the Bush tax cuts, but that even if we let them expire things will get worse over the next two decades.

But looking at the numbers, it’s not clear that the long-term picture is really that bad. Here I’ll lay out the numbers, and then, as they say on Fox News, you can decide. The summary is the chart above; the details are below.

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How Big Is the Deficit, Anyway?

By James Kwak

According to its CBO score, the Budget Control Act of 2011 (a.k.a. the debt ceiling agreement) initially reduced aggregate budget deficits over the next ten years (2012–2021) by $917 billion, with a provision that ensures that deficits will be reduced by another $1.2 trillion (either through an agreement in the joint committee that is ratified by Congress, or through automatic spending cuts). The chatter in Washington is that even with the $1.2 trillion, this is still too small, and there is still this massive deficit hanging over our heads. This is true to an extent, but not the way you are being led to believe.

The first question is this: How big is the deficit anyway? The answer is pretty complicated—complicated enough for S&P to mess up (although in my opinion they made a rookie mistake, as I’ll explain later). Warning: lots of numbers ahead, though the only math is addition and subtraction.

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Long-Term Budget Forecasts for Beginners

By James Kwak

In this season of debate over long-term deficits, this is ground zero:

That’s the key chart from the Congressional Budget Office’s Long-Term Budget Outlook, published just last month, which I read from cover to cover. The CBO is generally considered the authoritative source of budget projections, and CBO “scoring” has been an important aspect of legislative debates over the past few years. Although politicians from both sides criticize the CBO when they don’t like its results, I think it’s fair to say that it is generally both respected and nonpartisan.

Now, when people say that the federal government faces a long-term budget gap, they (including me) are generally starting from the bottom half of this picture: the CBO’s “alternative fiscal scenario.” The alternative scenario is widely considered the most likely path the budget will follow under current policy (although the CBO itself makes no such claim*). That’s probably a close enough approximation for most purposes. But if you’re going to think hard about long-term budgetary paths, you need to be a bit more careful about what it means.

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What Is This “Washington”?

By James Kwak

(Warning: Very elementary post ahead. Most of you probably know all this already.)

Mitch McConnell, Senate Republican Leader, quoted in Bloomberg: “We have seen the consequences of giving Washington a blank check. My message to the president is simple: It’s time for Washington to focus on fixing itself. It’s time Washington take the hit, not the taxpayers.”

That sounds good (if you don’t like “Washington,” that is), but what does it mean? McConnell wants people to think that their tax dollars go to feed some animal named “Washington,” and therefore our budget problems can be solved by simply feeding Washington less — without “taxpayers” taking the hit.

That might be true if “Washington” simply consumed money for its own sake, but the problem is that most of the federal budget isn’t consumed by the federal government.

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Who Created This Mess?

By James Kwak

Not us, say the Republicans. “We didn’t create this mess,” a Republican said to Tim Geithner in a meeting recently, referring to the national debt and the need to raise the debt ceiling this summer. Yet, as the Times continues,

“Independent analyses have shown that more than half of the $14.3 trillion debt is from policies enacted during the past decade when Republicans controlled both the White House and Congress, and much of the rest from lost revenues and stimulus spending and tax cuts since Mr. Obama took office at the height of the financial crisis and recession.”

I did one of those “independent analyses” (although not one that has made it into the media) myself a few months ago.

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What’s a Big Government?

By James Kwak

One thing that all parties seem to be able to agree on is that big government is bad. It was President Clinton, after all, who said, “The era of big government is over.” And the current Republican budget-slashing wave seems motivated by the idea that our government is too big.

But what is the size of government, anyway?* When a typical anti-government person thinks of government, she probably has in mind the EPA, the Consumer Financial Protection Bureau, the “jack-booted government thugs” at the the Bureau of Alcohol, Tobacco, and Firearms, OSHA, and all those government agencies that prevent businesses and individuals from getting on with their lives. The idea here is that government intervention in the free market makes the economy less efficient and therefore reduces aggregate societal welfare.

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Does The U.S. Really Have A Fiscal Crisis?

By Simon Johnson

The United States faces some serious medium-term fiscal issues, but by any standard measure it does not face an immediate fiscal crisis.  Overindebted countries typically have a hard time financing themselves when the world becomes riskier – yet turmoil in the Middle East is pushing down the interest rates on US government debt.  We are still seen as a safe haven.

Yet leading commentators and politicians today repeat the line “we’re broke” and argue there is no alternative other than immediate spending cuts at the national and state level.

Which view is correct?  And what does this tell us about where our political system is heading? Continue reading “Does The U.S. Really Have A Fiscal Crisis?” →