Friday, January 31, 2020

SQUANDERING AMERICA - MASSIVE DEFICITS - CONGRESS YAWNS

New projections of deficits provoke no response from Congress

New projections show a deteriorating fiscal outlook for the federal government, but Congress is not debating changing course.
A year ago, the Congressional Budget Office projected that trillion-dollar deficits would not begin until 2022. As of Tuesday, the organization sees that type of loss beginning this year, fiscal 2020.
A big reason for the change in estimates is that, late last year, Congress and the White House expedited lowering taxes while simultaneously increasing spending.
Government-funding legislation passed and signed into law last December boosted federal spending by $1.4 trillion for military and nonmilitary programs and killed revenue-raising Obamacare taxes. It also renewed expired tax breaks that alone will drain $22.3 billion from federal coffers in 2020, according to the Joint Committee on Taxation, the congressional scorekeeper for taxation.
“The [CBO] numbers make the case perfectly, which is we have big problems, and we are going to need big changes,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a group that advocates for deficit reduction. "Ideally, we would put together a plan that is big enough to address this problem and would include new revenues … and a massive rethinking of our spending programs."
Bill Gale, a senior fellow at the Brookings Institution, said that entitlement reform, such as for Medicare and Social Security, should take priority over adding a new revenue stream, such as a value-added tax or a carbon tax, which would bring more revenue to the federal government.
“I think it makes sense to pursue those opportunities vigorously … I’m not in favor of enormous fiscal rectitude right now,” he said, referring to the creation of an additional revenue stream. Gale's first choice would be entitlement reform.
Lawmakers from both political parties have indicated that the CBO’s projections are a clear sign that reforms are needed in how the federal government taxes and spends. Rep. Steve Womack, a Republican from Arkansas and the top Republican on the Budget Committee, said that the agency’s deficit projections showed an “unsustainable trajectory.”
The committee’s chairman, Rep. John Yarmuth of Kentucky, said during the panel's Wednesday hearing on the budget report that it "once again confirms that, despite the economic expansion he inherited, the fiscal outlook has worsened since President Trump took office.”
Despite all the talk, a fix is unlikely in the current political environment.
“Congress and the president seem pretty unable to get much of anything done these days, so I would take a small improvement. It would be better than nothing, even just not making the situation worse,” MacGuineas said.
Lawmakers on Capitol Hill, however, appear more focused on deepening the situation by proposing ways to spend more and tax less. House Minority Leader Kevin McCarthy said on Monday that efforts are underway to produce another round of tax cuts following President Trump's comments in Davos recommending such legislation.
Democrats on the presidential campaign trail propose to expand entitlements, such as by implementing "Medicare for all" or by expanding Social Security. They vow to pay for the increase by raising taxes, but enacting new tax measures on that scale would be far beyond what has proved politically achievable in the past. If both parties get their way, the deficit would likely grow, not shrink.
The lack of fiscal restraint on the deficit leads to an increase in the debt. The debt held by the public will rise from $17.2 trillion to $31.4 trillion by 2030, according to the CBO, from about 80% of GDP to nearly 100%.
Current low interest rates make it relatively cheap to service the debt, but rising rates would be a rude awakening.
“An interest rate increase would be a painful wake-up call, but I hope we can start sensible budgeting without that kind of action-facing moment, but that may be what happens,” MacGuineas said.
In 2011, lawmakers approved a deficit reduction measure that created a bipartisan, bicameral “super committee” that sought to reduce the deficit by $1.5 trillion over a 10-year period. The group, however, failed in its objective. The legislation also allowed for across-the-board cuts, known as "sequestration."
Long before then, President Bill Clinton and a Republican-controlled Congress balanced four budgets in the 1990s, which led to surpluses between 1998 and 2001.

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