The Fiscal Freight Train & the Damsels Tied to the Tracks

The biggest threat to all federal spending programs, including Medicare, Medicaid, and Social Security, isn't Paul Ryan; it is the interest on the public debt. The Treasury Department, at least, recognizes the problem. From Bloomberg:

While some of the lowest borrowing costs on record have helped the economy recover from its worst financial crisis since the Great Depression, bond yields are now rising as growth resumes. Net interest expense will triple to an all-time high of $554 billion in 2015 from $185 billion in 2010, according to the Obama administration's adjusted 2011 budget.

"It's a slow train wreck coming and we all know it's going to happen," said Bret Barker, an interest-rate analyst at Los Angeles-based TCW Group Inc., which manages about $115 billion in assets.

And here is a quote from the Washington Post:

Starting in 2014, net interest payments will surpass the amount spent on education, transportation, energy and all other discretionary programs outside defense. In 2018, they will outstrip Medicare spending. Only the amounts spent on defense and Social Security would remain bigger under the president's plan.

The soaring bill for interest payments is one of the biggest obstacles to balancing the federal budget, pushing the White House and Congress to come up with cuts deeper than previously imagined. Unlike with discretionary spending or even entitlement programs, the line item for interest payments cannot be altered except through other budget cuts.

Seven years from now, interest on the federal debt will exceed spending on Medicare. Again I have to point out that that is not what happens if the President's plan fails, that's his plan.

What is most worrisome is that these projections rely on optimistic assumptions about borrowing costs. The OMB projects that interest on the debt will consume almost 20% of all federal revenues by 2016. According to Economics21.

Over this period, the effective interest rate implied by the ratio of net interest expense to public debt is 3.5%. This happens to be the average for the 5-year constant maturity Treasury rate over the past 10 years.

However, the average 5-year borrowing cost for the 10 years ending in January 2000 was 6.3%, while the average 5-year borrowing cost for the 10 years ending in 1990 was 10.4%. Stress testing the President's budget against these different interest rate assumptions reveals that public debt dynamics could trigger federal insolvency in relatively short order.

If the effective interest rate on the debt is 6.3%, interest on the debt will consume thirty cents out of every dollar of revenue by 2016. If it rises to 10.4%, interest payments will consume 60% of all federal revenue by that date. By 2021, interest payments would consume almost 80% of revenue.

I return to the point of my last post. We are facing a genuine financial crisis. This slow moving train wreck doesn't look so slow to me. The train will reach the damsel within a decade.

The Ryan plan is at least a plan. It is a genuine attempt to deal with the problem. The President has no plan at all. The strategy of Congressional Democrats, the New York Times, Paul Krugman, and Cory Heidelberger is to say "yeah, something needs to be done," and to attack anyone and everyone who proposes the slightest cuts in the spending programs that are driving up the debt. This may win the next election, but it isn't going to save Medicare or Medicaid or Social Security. It's going to doom those programs, and a lot more as well.

Comments

[caheidelberger]

(That picture rocks!)

As Mr. Gibiliso suggests at the bottom of the preceding thread, the President could be playing some chicken. I don't approve of that: I'd rather have the counterplan on the table and debate which is better. The most logical counterplan would be to raise taxes to meet our obligations to current and future retirees. Start with the Bush-Obama tax cuts, offset by seeking reasonable efficiencies (like the deficit reduction in Obamacare, which the Ryan plan gives up) and cuts in other programs (like war). The least logical plan is to make health care more expensive for senior citizens by voucherizing and privatizing.

http://my.firedoglake.com/scarecrow/2011/05/05/paul-ryan-misrepresents-his-medicare-voucher-plan-again/

[caheidelberger]

(Perhaps we can realize further savings by omitting letters from words, as I demonstrate with my reduction of Mr. Gibilisco's name. Bt incresing efficincy dos nt alwas incres efctvns. Rps. Ryn & Nom fal t grsp tht w cn onl ct s fr.)

[Donald Pay]

Many liberals have been saying since Reagan's and Bush's mismanagement of our fiscal situation that we need to make changes, but not the ones suggested by the corporate elite (and their minions in the Republican Party). If we could just get back to the tax rates under Clinton we'd have a good chunk of the problem solved. The Bush tax cuts need to go. End the cap on FICA taxes, eliminate corporate welfare. I don't think we should consider any changes to our social safety net until we can get back to sensible tax policies.

[Bill Fleming]

Weird how many supposedly business minded people don't seem to understand that business growth requires increase in income in addition to expense control. And that expenses are essential, you can only cut them so far before you're not in business anymore.

I have yet to hear any fellow business owner say they are not hiring because they don't know what their taxes are going to be. I have heard LOTS of them say they're not hiring or otherwise expanding their operation because there is not enough demand for their products and services.

Put simply, in a consumer driven economy, increased spending is the name of the game.

So the real question is, hey GOP do you want the government to be run like a business, or not?

I'm just sayin'.

[Stan Gibilisco]

Don't feel bad, Cory. On the title page of my second book way back in the early 1980s, my surname appeared without the "c" just as you spelled it at the top of this thread. To this day, a google phrase search on "Stan Gibiliso" will reveal several hits for the affected work. My wife at the time did not think it was funny, but I laughed with great gusto.

[Stan Gibilisco]

On a more serious note, Cory, I think you're exactly right. Let's bring it up for a debate. Let the people know the facts. They'll find out sooner or later anyway.

[duggersd]

Debate of two or more plans would be a very good idea. The problem has little to do with a lack of revenue. The problem is in the spending. However an increase in income could go a long way in solving the problem. Cory and Donald and, I suspect, Bill would have us believe we need to have an increase in taxes. I do not believe the increases these people advocate will actually raise the revenues as much as they believe they can. As a matter of fact, some Democrats will actually acknowledge the increases are more to make things more "fair". Sticking it to a group of people makes a lot of sense to people who are not part of that group.
Keeping tax rates where they are and getting out of the way will lead to an increase in revenues. Cutting spending to be at about 20% of GDP would also be a good start. Our problems are not due to being not taxed enough. They come from spending too much, and this was true from the last Administration as well. The real key in increasing income is to allow the economy to expand. Tax revenues increase whenever the economy expands. When the economy expanded under Reagan, revenues increased dramatically. When the economy expanded under Clinton in spite of tax increases, tax revenues increased. When the economy contracted at the end of Clinton's term, tax revenues decreased. Same thing happened with W.

[Jimi]

Donald,

"If we could just get back to the tax rates under Clinton we'd have a good chunk of the problem solved"

You have to do the math before you throw these ridiculous MSNBC Talking points around.

The Bush Tax Cut cost over 10 YEARS was $2.8 Trillion. $675 Billion over TEN YEARS [Top Tax Bracket] & 2.125 Trillion over TEN YEARS [All other Tax Brakets].

That doesn't even cover Obama's Deficit Spending since he has been in office. So it is clear we have a spending problem not a tax revenue problem.

The CBO estimated that the total Bush Tax Cut would cost $1.5 Trillion over 10 years, and Congress used that estimate to increase spending knowing full well that it was not even close to reality, especially after the economy began it's recession in December 2007.

For some perspective on how badly the Democrats have over spent since they took power in 2006:

Cost of both Iraq and Afghansistan since 2002 thru 2001 = $1.3 Trillion
Cost of Medicare Part D prescription drug Program 2006 thru 2011 = $272 Billion.

These two numbers are very important, because these are the talking points the Left uses to attempt to fool the American people into beleiveing that Bush Policies directly caused the Deficits we are expienceing right now....when clearly anyone who can do math can see with their own eyes that they are blatantly lieing.

[duggersd]

Jimi, while you have some correct points, I contend the Bush tax cuts cost the treasury nothing. Revenues increased, as a direct result of the tax cuts. I know the CBO has to use certain numbers, but the problem with CBO is it does not factor in human behavior. ;-)

[Jimi]

Duggersd,

"I contend the Bush tax cuts cost"

The term "Cost" is the proper terminology the CBO uses to explain the difference in revenue between having no tax cut vs. having a tax cut with the same exact economy as when the tax cuts are implemented. If the economy gets better because of the tax cut, then the CBO will claim the tax cut "Costs" more than what they estimated, and that is exactly what happend. Of couse the Tax Cuts didn't actually cost anything, and they clearly raised revenue and pulled us out of the 2001 recesssion. The reason why the CBO estimates are always incorrect, is because they are only allowed to make these estimates using guidelines set by the Budget Committees'. The estimates aren't meant to be accurate, they are meant to expose trends and provide context and contrast.

The point that needs to be made to Donald was that even if the Tax Cut, didn't happend, and you assumed the economy kept growing without the Tax Cut, it still does not cover Obama's Deficit spending, so it is clear, that to decrease the Deficit you have to cut spending, or provide growth. Since everybody knows that a tax raise will decrease the size of the economy, raising taxes is not a feasible long term solution to our massive deficit spending.

[Mark Anderson]

When trashing the Health Care Bill, Republicans made Medicare an issue, while of course, offering no alternatives of their own. I mean really, I can just reverse your phrasing, the Presidents health care reform is at least a plan, the Republicans have no plan at all. Why shouldn't the Democrats reciprocate in kind? Politics is a tough business.

[Dave]

I think Jimi should quit his "job" and/or refuse any other sources of income needed to pay his bills or otherwise support himself.

Why?

Jimi clearly believes that reducing ones income would have no "cost" associated with it...

Let us know how that works out, OK?

[Dave]

In other news:
The Center on Budget and Policy Priorities has updated and refined a widely cited chart, laying out the origins of the country's current fiscal trajectory. And as before, the lion's share of the problem comes from ongoing George W. Bush-era policies -- particularly deficit-financed tax cuts, which eliminated Clinton-era surpluses and left the Treasury poised for a huge hit when the financial crisis and economic downturn further eroded federal revenues.

***By the end of the decade, CBPP projects that, on the current trajectory, the Bush tax cuts, exacerbated by the economic downturn, combined with the wars in Iraq and Afghanistan will account for the significant majority of public debt as a share of GDP.***

Without those factors, and without the need for stimulus measures under President Obama, CBPP projects that the debt-to-GDP ratio would have dropped under both Presidents Bush and Obama.
http://www.cbpp.org/cms/?fa=view&id=3036

(Jimi will of course make some counter-argument based on current vs inflation adjusted dollars...)

[Dave]

And more on the "miracle" of the BUSH TAX CUTS...

"Thus, there is little evidence to support that the Bush tax cuts had a significant effect on growth. In addition, contrary to the argument that the tax cuts would pay for themselves being made at the time the tax cuts were enacted, the deficit ballooned as a result of the tax cuts."
http://moneywatch.bnet.com/economic-news/blog/maximum-utility/the-bush-tax-cuts-and-economic-growth/1024/

[Delroy]

If grandma's etsate had taxes due, the executor was to pay that amount out of the assets before distributing anything to the heirs. If you are the executor and need to sell an asset, GET IT DONE.If you are the executor and you already distributed the assets, this is your own fault.If you are not the executor, how did this bill get to you?

[Giavonthna]

...OBAMA HAS INCREASED THE DEFICIT MORE IN TWO YEARS, THAN BUSH DID IN EIGHT! Why aren't you outraged with him? Oh yea, it's okay when Obama does it. Your woishrp is sadly misplaced.