Focus on the Federal Budget

The federal debt is not being talked about much in this campaign for the presidency. Why not? Should there be more focus on it? How do we get to a balanced budget and pay down the debt? Right now, as of July 2016 the gross national debt is $19.48 trillion, about 104% of GDP. Here is a little history: In the 1930’s, during the height of the depression we ran deficits of between 0.1% and 5.8% of GDP; during WWII we had deficits as high as 29.6% of GDP, but we also had surpluses from 1947 thru 1949; in the 1950’s we had deficits that averaged 1.04% of GDP and the debt was 92% of GDP, but we also had surpluses from 0.7% to 1.9% of GDP; in the 1960’s we had deficits that ran an average of 1% of GDP and a debt that was 54.3% of GDP; in the 1970’s deficits ran an average of 2.1% the debt was 36.3% of GDP; in the 1980’s deficits ran an average of 3.8% the debt was 32.5% of GDP; in the 1990’s deficits ran an average of 2.88% of GDP with two years of 1.05% surplus and the debt was 54.5% of GDP; in 2000 and 2001 we had surpluses an average of 1.75% of GDP; from 2002 thru 2009 we had deficits that ran an average of 3.3% of GDP the debt was 55.5%; from 2010 thru 2015 we have had average deficits of 7.3% and debt was 91.4%, deficits have dropped back down to about 3% of GDP in 2014 and 2015 but debt was 102% of GDP. Numbers alone don’t give us a clear picture of the effects the economy has on the federal budget. For example, after WWII the economy grew very rapidly at around 10%, today it is a very anemic 1.2%. Tax rates are the other important part of the equation. For example, during WWII and the Korean War individual tax rates were as high as 91% with 24 tax brackets. Today the highest rate is 39.9% with seven tax brackets. The dilemma is, do you cut taxes or increase taxes in order to pay down the debt? It’s obvious that the high tax rates after WWII quickly brought down the debt and annual deficit, but there are two problems with trying to raise taxes today. One is, the economy is not growing as fast as it was after WWII. The second is that, after WWII the country was still pulling together as one, and people understood that the taxes were necessary. Today, businesses are demanding lower tax rates because the rates in most other countries are lower, and Democrats want to increase taxes to expand social services. That poses a political challenge. In the long run, lower rates eventually raise revenue, but would that raise enough revenue to lower the debt? Republicans want to slash taxes and regulations to get the economy moving, and eventually want to balance the budget; Democrats want more social spending and higher taxes but offer no plan for paying down the debt, that is clearly not practical. I think the real solution would be to raise taxes for a few years, make some spending cuts while increasing spending for the military and infrastructure along with cutting regulations. The problem is I don’t see the leadership needed to pull the country together to accomplish that.

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  • Brandon Zicha
    commented 2016-11-04 06:58:53 -0400
    Michael Wald. All those things your are saying. I like all those things. If I could flag it as ‘totally awesome’I would.
  • Michael Wald
    commented 2016-11-04 02:39:52 -0400
    “Ignoring the current level of debt is irresponsible. It seems to me that adding more social programs such as universal health care, free college, and basic income are problematic.

    An excessive focus on it is just as irresponsible. It’s nowhere near the most important issue right now. Also, the services above may actually save money vs the current system (our health care and welfare systems are extremely inefficient) and/or lead to greater GDP growth overall.

    “Providing universal health care and other new social services, will necessarily require much higher individual tax rates, as they are in Sweden and other countries that provide many social services.”"

    Yes, they will require higher taxes. But perhaps not to Sweden levels. It all depends on how it’s structured.

    In any case, “it’s too expensive”is not a good reason for inaction. As a nation, we have obligations to each other, and among those obligations is the responsibility to take care of our poor and sick.

    “Secondly, universal health care will wipe out the health insurance business, and that is socialism.

    Germany has a private health care system. So does Canada, Australia, and a whole lot of other countries with public health care. They seem to coexist just fine.

    Anyway public health care is NOT just a socialist idea. It’s also a component of Christian democracy (not to be confused with the Christian Right, which is completely different, much more insane, and almost unique to the U.S.), one-nation conservatism, ordoliberalism, and several others, many of which are hostile to socialism.

    “When the economy returns to a more normal level, it jumped to 2.9% in this last quarter, if that continues and it hopefully would, then there will be added inflation. Additional inflation will snowball the interest on the debt.”

    Growth is certainly the preferred method of raising revenue. Any resulting inflation should be manageable.
  • Frederick Nordstrom
    commented 2016-10-28 16:13:08 -0400
    Ignoring the current level of debt is irresponsible. It seems to me that adding more social programs such as universal health care, free college, and basic income are problematic.

    Providing universal health care and other new social services, will necessarily require much higher individual tax rates, as they are in Sweden and other countries that provide many social services. Secondly, universal health care will wipe out the health insurance business, and that is socialism.

    When the economy returns to a more normal level, it jumped to 2.9% in this last quarter, if that continues and it hopefully would, then there will be added inflation. Additional inflation will snowball the interest on the debt.

    It will take finesse to get out of this overall untenable fiscal situation.
  • Michael Wald
    commented 2016-10-28 04:37:44 -0400
    “No one would willingly give $7 out of every $10 you earned

    That actually was the top tax rate from the 1960s-1980s. And before that it was as high as 91%.
  • Michael Wald
    commented 2016-10-28 04:32:15 -0400
    Warning: Long post ahead.

    Personally, I’d rather not hear too much about the debt. Most people (both politicians and citizens) don’t seem to really understand how it works anyway, and it winds up being a completely unnecessary scare tactic:

    1) “19 trillion”is a big, scary number, but doesn’t tell the whole story. To start with, it’s only about 102% of GDP, which is far from the largest it’s ever been (120% at the end of WWII). Also, about half of that is owned by the federal government itself, so the amount owed to actual creditors is much lower.

    2) While we have been putting on a lot of debt lately, much of that is from the recent recession, which is a time when running up debt is actually desirable. It makes absolutely no sense to pull back on public spending at a time when the private sector is also pulling back on spending, because A) People are in more need of government services, and B) you’d wind up adding even more people to the unemployment line, thus worsening the problem, and most importantly C) If nobody’s spending (because it’s a recession), businesses are going to cut back production and lay off workers, which causes more people to cut back on spending, which causes more layoffs—That’s a vicious cycle, and governments are best positioned to break it. That can be done with a tax cut, but spending tends to be more effective.

    3) The size of the debt is less important than our ability to service it—which we don’t really have a problem doing as long as Tea Party morons don’t threaten to throw the government into a cash flow crisis, as they’ve tried several times over the last few years.

    4) We actually do pay off our debt all the time—every time a T-Bill or Treasury note comes due. Old debt is simply retired for new debt—a process called "rollover"or “refinancing”. Since much of it’s short term, the publicly owned portion should shrink in good times when we’re not in emergency spending mode (but see below).

    5) Borrowing money for sound investments is good financial practice. Just like you took out a mortgage to buy your house or Walmart sold a ton of bonds to finance its newest stores, the government should be borrowing money (even in good years) to pay for long-term investmetns projects, like infrastructure, big-ticket military hardware, and many things that will take years to show payoff. Remember that the federal government (unlike most states) does not separate its operating and capital budgets, so one should expect at least a small deficit if the government is spending properly.

    6) Interest rates are extremely low, effectively negative in some cases. There was actually a proposal to sell bonds at actual negative rates a while back (it didn’t go anywhere), but in any case it would be almost irresponsible not to borrow at such low rates.

    As to taxes, spending, and regulation:

    The corporate tax is indeed too high, especially when you consider that our corporations also shoulder the burden of providing health insurance and other fringe benefits. Most other countries have both a lower corporate rate and better health care funding. That puts our companies at a disadvantage. Also, most countries don’t tax income worldwide like we do.

    That said, we do need to see some higher taxes—if only by repealing the Bush tax cuts. Right now we have a structural operating deficit (or at least we would if the federal government had a separate operating budget), which gives us less room to borrow in the event of emergency. That’s not a problem in the short run, but but it’s not good practice in the long run. And we can’t get back to a balanced operating budget by cutting spending alone—in fact, in anything we should be spending more than we are in some areas.

    On regulation and social spending: I’m a firm believer in both. We should be careful not to over-regulate, but we’ve seen what happens when we don’t regulate enough. We more Theodore Roosevelt, a bit less Reagan. And of course social spending not only helps stabilize the economy, but it’s also helps maintain social stability and can provide other long-term benefits. I’m certainly open to the “basic income”idea, but we also need to do something about the cost of health care, higher education, job re-training, and probably a few other things I can’t think of right now, so basic income may not be adequate by itself.

    If we need higher taxes, spending, and regulation to make everyone’s life a bit less miserable, so be it.
  • Shawn Clement
    commented 2016-10-20 01:46:37 -0400
    I don’t have fancy percentages and it may sound very simplistic so forgive me.

    I think we are expecting to much detail prior to elections and no campaign (other than Ross Perot) has ever shared detailed plans prior to election day. Trump believes (I think it is more like HOPES) that by cutting the highest corperate taxes in the world and a one time freebie to allow overseas money to return to the U.S. will create jobs. Those increased jobs will eventually pay into the taxes to fix the economy and pay down the debt. Unfortunately I think he is placing to much faith in corporate America to create those jobs rather than just eat up the profits. Hillary on the other hand thinks raising taxes (though her income tax increase levels vary from minimum $125K and up) will pay for the current spending and somehow also be enough to pay the debt. My problem with Hillary’s plan is the increased corporate taxes to 65% which will drive away jobs, not bring them back. Either way with current spending left unchecked the debt will only get worse. You need tax money and there is no way the top 1% will give our government a bail out. No one would willingly give $7 out of every $10 you earned. They’ll just hide the money until she is out. I think if Trump wins, he needs to bring in big business CEOs and negotiate that deal to ensure business creates the jobs needed to bring in new tax revenue.
  • Shawn Clement
    tagged this with important 2016-10-20 01:46:36 -0400
  • Brandon Zicha
    commented 2016-10-12 07:40:34 -0400
    Wait? Are we talking about any policy issues in this election? I think its all about temperament. Get with the program, guy ;-)

    My general view is that we have very inefficient programmes built on very dubious approaches to policy. I, personally, think the Whigs should look seriously at the Universal Basic Income as a centerpiece of its aspirations because as wonky and ‘hugs for everyone’ as it seems, it replaces the lions share of social programmes and overhead with a computer that cuts checks and moves cash around.

    Now, we are moving cash anyway, we are just doing it crazy inefficiently and paternalistically and in an expensive and means tested way.

    We would raise revenues easily by simplifying the tax code, reducing and enforcing corporate taxes (or eliminating them following an amendment reversing the SCOTUS interpretation of the 14th amendment declaring corporations persons) and reviewing transfers to groups rather than individuals.

    Beyond that any change should be gradual. We aren’t actually headed towards a ‘fiscal cliff’in the sense that the U.S. can easily sustain its debt load given its place in the international economy so long as we stop acting like a political asylum (Thanks Trump) and freaking everybody out.

    With a transition of our governing philosophy from what Moynihan called ‘Programme Liberalism’ to something more like ‘Policy Liberalism’ we may be able – with minimal revolutionary change (like exchanging Social Security for private accounts) to reduce spending dramatically.
  • Frederick Nordstrom
    commented 2016-10-11 14:13:17 -0400
    Theodore, thanks for your thoughts.

    One thing, as you mentioned, paying down the debt will reduce the interest on the debt and that is very important. When the economy picks up inflation will likely pick up as well, so it’s vitally important that we focus on paying down the debt.

    On military spending, currently our military is as small as it was prior to WWII. We need more ships to protect trade routes that China is working to take over. We need to replace aircraft which is not being properly maintained, and the military needs some more people as well. The problem is with military procurement, it needs to be reformed; how that can be accomplished I don’t know because Congress sometimes gets too involved in what equipment gets authorized. I think we may need move to a more mechanized military in the future utilizing such things as drones and robots, and who knows what because our all volunteer force needs a rest too. I don’t see the draft being an option unless something really drastic happens. We are currently spending 17% of the budget on the military. Well over half of the budget goes to social spending such as Social Security, Medicare and many others.

    All in all, we need to reform spending in order to get more bang for our buck in all programs.
  • Theodore Theopolos
    commented 2016-10-08 22:38:42 -0400
    I wish these things actually keep my indents when I start a new paragraph.
  • Theodore Theopolos
    commented 2016-10-08 22:36:41 -0400
    I totally agree with you Mr. Nordstrom. Unlike 2012, the 2016 elections just completely ignore the budget crisis that still very much threatens us as a country. Tired of the usual banter about taxes, I really admire the fact that you would suggest raising taxes. Everyone forgets the purpose of taxes and that they can help in the long if done wisely, like the tax increases George H. Bush did that cost him the election but saved the economy. If we can increase taxes along with some austerity in spending, then we can pay down the debt which will decrease the interest, and in turn use the money saved from not paying as much interest back into paying off the debt even more. At the Whig Convention in Indianapolis, we brainstormed that the federal government should not rely so wholeheartedly on income tax alone. For instance, my state of Ohio’s top sources of revenue are Federal reimbursements, Sales and Use Tax, and income tax. In 2010, the federal government’s top sources of income were the income tax, the payroll tax, and the corporate tax. Granted, the federal government cannot reimburse itself and I’m not sure what can be used to substitute the lowering of payroll and income tax. A sales tax sounds nice, but it may hurt those at the bottom that receive the numerous subsidies and exemptions that allows them to pay little in payroll and income (These people exist not as loafers that escape paying taxes as some might suggest, but pay taxes to receive benefits to offset them. We could try to give further subsides to offset the sales tax but how much more complicated and exploited that will be lies beyond my knowledge). Tariffs becomes a popular suggestion these days, but the corollary would be increase in cost of living which decreases consumer spending that in turn hinders the economic growth needed to help pay the debt. I am no tax genius, but this thought exercise does discourage the hypothesis the Convention proposed. After such thoughts, I can now understand (but refrain from agreeing until I know more) why Democrats do constantly propose increase in corporate taxes and income taxes on the wealthy, but only to hear the Republicans bemoan the shriveling of potential investments needed for economic growth. This begs the question for us Whigs, “What can we design that will be inherently ours?” Personally, I do not like to rely blindly on supply-side economics because the business class can easily invest elsewhere, invest dishonestly, or not bother to increase investments. They cannot be disregarded though as they can allocate an average person’s wealth for mutual benefit through stock trading, and that allows millions of Americans to retire with relative comfort (And hopefully they can do the same for me). On top of that, with grassroots investments like crowd funding that promising businesses can turn to (and that’s on the surface of this brand new way of investing online), what exactly gives the business class such great exemptions above the rest of us anymore? However, just as easily as a business man can invest outside the country, a big business can relocate to a new country and escape taxes if the government becomes too assertive. Still, I do agree with the assertion of cutting regulations to create a more business friendly environment, but must avoid long term repercussions (Such as those concerning public safety, which can range from building regulations to environmental regulations). Despite this conundrum, we need to create an approach that can work by being unique in solving this dilemma; how to create sufficient revenue that does not discourage growth. Originally, I wanted to type much more on the topic of spending. Investment in infrastructure will do wonders for our economy, and its a platform so innate to us Whigs. However, I disagree with immediate military spending. It stands to be our largest expense and makes us the largest investor in defense; and as someone from a military family, I find no shame in that. However, we cannot ignore the fact most of our spending goes into the defense program. This notion does not inherently mean spending cuts, but freezes in spending increases. Over half a trillion dollars funds the program (526.6 billion in 2014); we must invent a new approach to the matter of spending with such money. It comes to developing a new approach to fighting our current threat of terrorism that can be highly effective without demanding more money. I am no genius on this matter so I do not know what to propose that could be effective while keeping on budget (Though I will always highly urge against cutting into R&D). Once the debt becomes more bridle, we can then assess what our military needs most and tend to the matter. Health care would be the one with most potential in reducing it we can implement a system that can insure every citizen without all the hoops and thousands of pages of babel. Social security would also need to be one to urgently reform because the Millennials exceed the number of Baby Boomers, and we will barely uphold our promise to them and will be in no shape 50 years later to cover an even larger group. My apologies for my wide breadth of words, but I deemed it appropriate to give a well-thought answer to a well-thought inquiring on such an important matter. I find exerting such energies into these matters helps to understand the fundamentals of government that is needed to nurture a competitive political party.
  • Theodore Theopolos
    tagged this with necessary 2016-10-08 22:36:41 -0400
  • Theodore Theopolos
    tagged this with important 2016-10-08 22:36:40 -0400
  • Theodore Theopolos
    tagged this with good 2016-10-08 22:36:39 -0400
  • Frederick Nordstrom
    published this page in Whig Forums 2016-10-06 18:56:48 -0400