Deficitly

May 25, 2011

With all the commotion going on around us

Osama…..tornadoes….floods

The public has been spared the talk on the debt ceiling

Did you hear the gang of six talks fell apart?

They were seen as representing the best hope

For a bipartisan deal to reduce the deficit

Senator Tom Coburn dropped out

Citing differences over entitlement spending,

Saying the 3 Republicans and 3 Democrats were

Unable to bridge differences over Medicare and Social Security

The clock is ticking,

We already exceeded the debt limit.

Now we are just shuffling payments

While waiting for a resolve.

How did we get to
this point?

There is some great information on the internet about this
subject.

Stephen Bloch did some extensive research on the deficit

And how it relates to each President

His report is titled:

US Federal Deficits, Presidents and Congress

Below are some of the facts I found interesting

  • First data he found showing
    a deficit was traced back to 1910
  • The single best predictors
    of deficits for most of the century have been war.
  • Starting in the 1970’s, it
    became harder to see a connection between war and deficits:
    • Permanent deficits became
      a way of life, regardless of whether there was a war going on.
  • The Deficit did not break
    the $1 trillion mark until 1981
  • The Deficit did not break
    the $5 trillion mark until 1995
  • During the first seven
    years of G W Bush presidency, the deficit was increased by almost twice
    the dollar amount as it had been for 32 years. (Running from JFK through
    GHW Bush).
  • When GW Bush entered
    office the deficit was $5.807 trillion
    • When GW Bush left office
      the deficit ballooned to $11,909 trillion.
    • The deficit increased
      $6,102 trillion
  • Since Obama entered office
    the deficit has grown to $14,268 trillion
    • That an additional $2,359
      trillion

Some other interesting facts:

  • Military spending has
    increased 81% since the year 2000
  • Fraud constitutes at least
    ten percent ($100 billion) of the nearly one trillion in taxpayer dollars
    that Medicare and Medicaid will spend this year.
  • The current tax system of
    the United States will collect about 18% of the GDP(Gross Domestic
    Product)
  • Spending needs are much
    higher, currently around 24% of GDP.

What makes up the 24%?

I referred to an article by Jeffrey Sachs (Economist and
Director of Earth Institute, Columbia University)

Focusing on best estimates for 2021, a decade from now

  • Social Security outlays
    will total around 5.2% of GDP
    • As Americans age and as
      health care cost have multiplied, The cost of Social Security and
      Medicare have risen from 1.7% of GDP in 1980 to 5.1% of GDP in 2011
  • Medicare will total around
    3.6% of GDP
  • Medicaid, assuming no
    drastic cuts, will total around 2.9% of GDP
  • Other mandatory programs
    for the poor, such as food stamps, will total 2.1% of GDP
  • Total defense spending is
    around 5% of GDP, most agree that defense should be cut and be around 3% of
    GDP
  • Most projections put
    interest cost on debt around 2.7% of GDP
  • Discretionary spending
    (cost used on public goods and services that cannot be provided
    efficiently by the private economy alone) will be around 4.5% of GDP

Now if you go and add up all these categories,

You will see that cost will total around 24% of GDP

In Paul Ryan’s plan, taxes would be kept at 18% of GDP and
spending would be cut to 19% of GDP.
However the deficit is still expected to grow to $16 trillion by 2021.

The Obama plan would have a slightly higher tax collection,
around 19% of GDP (by allowing Bush tax cuts expire for those making over
$250,000), while allowing the deficit to grow to $19 trillion by 2021.

Guess what!!!!!

 

They are still going
the wrong way!!!!!

Many experts feel that both of these current plans, as
presented seem practically impossible.

In several opinion surveys,

The public has spoken clearly about what to do:

  • Do not balance the budget
    by slashing Medicare, Social Security, or programs for the poor;
  • Increase spending on
    education and infrastructure;
  • Tax the rich and giant
    corporations.

This is not a practical solution either…….

It is our responsibility to stop the bleeding

Everyone will have to proportionally share in the sacrifice

Will someone step forward and have the vision and leadership,

To usher in this era……….

Will the public be accepting to the reality of their
resolution….

Or will we continue to allow our excesses to undermine us.

Let us know your thoughts…… email george@hbsadvantage.com

Written by Jon Ward as reported in Huffington Post

WASHINGTON — The big numbers from Paul Ryan’s budget: It will reduce spending by $6.2 trillion over the next decade and reduce the deficit by $4.4 trillion.

It also cuts the top income tax rate by nearly a third, from 35 percent to 25 percent.

A big part of the House Budget Chairman’s plan rests on the assumption that President Barack Obama’s health care law will be repealed. Over the next decade, that would cut $1.4 trillion in spending alone, according to Ryan’s budget. Those savings, however, wouldn’t go directly to deficit reduction, because Ryan would also repeal the elements of health care reform that are aimed at raising revenue or reducing costs.

The Wisconsin Republican’s budget spends less on nearly every major category of the budget. Over the next decade, Ryan (R-Wis.) wants to cut $389 billion from Medicare, the public health insurance program for seniors. Over the same period, Ryan’s budget puts $735 billion less toward Medicaid, which benefits Americans too poor to afford private insurance. Discretionary spending on domestic programs is also reduced by $923 billion.

Two exceptions are security and defense spending and spending on Social Security, the public pension program for the elderly. Both are kept steady and relatively unchanged from Obama’s proposed budget.

A draft proposal from Ryan’s House Budget Committee says that under his plan, the national debt would be $1.1 trillion less than it would be over the next five years under Obama’s budget, and would add $3 trillion less to the debt than Obama’s budget proposal over the next decade. Ryan’s budget proposal would bring the debt held by the public to $13.9 trillion by 2016 and $16 trillion by 2021, compared to $15 trillion in 2016 and $19 trillion in 2021 under the president’s proposal. (The full national debt of just over $14 trillion also includes money owed to the Social Security and Medicare trust funds, but the public figure is the one normally used for budget forecasts.)

Though Ryan’s plan would reduce the size of the national debt as a portion of the economy – which is the key factor when considering the country’s obligations to creditors – the addition of new debt in the short term shows the gap between talk of not raising the debt ceiling by many Republicans and fiscal reality.

Ryan’s plan has $40 trillion in spending over the next 10 years compared to $34.9 trillion in revenues. Obama would spend $46 trillion in the coming decade while bringing in $38.8 trillion in revenues. So Ryan’s plan would still result in the government spending $5.1 trillion more over the next decade than it brings in, but that’s less than the $7.2 trillion in deficit spending that Obama has proposed.

The most fundamental difference between the competing budget proposals is seen in the way they envision the size of government’s imprint in the economy, as measured by spending and revenues as a percentage of gross domestic product.

Obama’s budget plan would take spending as a percentage of gross domestic product (GDP), the total economic output of the American economy, from 25.3 percent this year to the 22 percent range for much of the next decade. But by the end of the 10 year horizon, his plan has spending back at 23 percent. Revenues, meanwhile, which are currently at an anemic 14.4 percent, would creep up to 19 percent by 2015 and then hit 20 percent in 2021.

It would be the highest amount of government spending since World War II. During the 12-year presidency of Franklin Delano Roosevelt, spending went from 8 percent of GDP to 41 percent, driven by FDR’s New Deal but even more so by war spending.

During Harry Truman’s administration, spending was cut in half, from 41 percent of GDP down to 20 percent, and went down further to 18 percent under Dwight Eisenhower. It stayed at 18 percent of GDP through the John F. Kennedy presidency, crept up to 19 percent under Lyndon Johnson, and then went up to 20 percent while Richard Nixon was in the White House. Gerald Ford brought spending back down to 19 percent of GDP, it then went up to 22 percent during Jimmy Carter’s term, down to 21 percent under Ronald Reagan’s two terms and George H.W. Bush’s four years as commander in chief. Bill Clinton brought spending back down to 18 percent of the U.S. economy.

No president since FDR has increased spending as a percentage of GDP by more than George W. Bush, taking it from 18.4 percent of GDP to 22.8 percent.

Obama’s budget does not show what happens beyond the 10-year window. So, compared to George W. Bush’s spending, he seems to be about on par. However, projections from the Congressional Budget Office (CBO) show spending growing at its current pace will grow to more than 26 percent of GDP in 2022, over 32 percent of GDP in 2030, 38 percent of GDP in 2040, and 45 percent of GDP by 2050, with the bulk of that spending driven by ever-rising health care costs.

Revenues under CBO projections would not move above 19 percent of GDP, leading to a gap between spending and revenues that would be difficult to sustain.

Ryan said a computer simulation program of what would happen in the future “crashes in 2037, because it can’t conceive of any way in which the U.S. economy can continue because of this massive burden of debt.”

Ryan’s plan would move spending back to historic levels, keeping it at 20 percent of GDP through 2030, and actually reducing it to under 19 percent by 2040. Ryan’s plan predicts revenues growing to 19 percent of GDP by 2040, allowing the national debt to be reduced over time.

The proposal landed in the middle of a busy news cycle where Washington is consumed with a spending fight over the current fiscal year budget, a much smaller portion of government spending that nonetheless will shut down the federal government if it is not resolved by Friday.

“Right now we’ve got some business in front of us that needs to be done,” Obama told reporters Tuesday afternoon, declining to respond to Ryan’s budget.

The reaction to Ryan’s plan was predictably split along ideological lines, though even those who supported the broad contours of Ryan’s plan did not embrace it in all its detail.

Robert Borosage, co-director of the liberal Campaign for America’s Future, delivered the harshest rebuke of the day to Ryan’s plan.

“This is being hailed as courageous. It isn’t courageous; it is corrupt,” Borosage said in a statement.

“Rep. Paul Ryan’s budget plan will push rising health care costs onto those least able to afford them – the elderly, the disabled and the poor,” Borosage said. “It will do nothing to curb the rising costs imposed by the powerful complexes – insurance and drug companies, private hospitals – that now force Americans to pay twice per capita of any other industrial nation for worst results.”

Rep. Chris Van Hollen, the Maryland Democrat who is Ryan’s foil as the Budget Committee’s ranking member, said the plan was a “lopsided approach” to deficit reduction that took too much from the disadvantaged and elderly in order to benefit wealthy Americans and big business.

“Behind the sunny rhetoric of reform, the Republican Budget represents the rigid ideological agenda that extends tax cuts to the rich and powerful at the expense of the rest of America – except this time on steroids,” Van Hollen said in a statement.

However, David Walker, the former U.S. comptroller general and founder of the Comeback America Initiative who is generally a fiscal hawk, said Ryan “should be commended for having the courage to lead in connection with our nation’s huge deficit and debt challenges.”

“His budget proposal recognizes that restoring fiscal sustainability will require tough transformational changes in many areas, including spending programs and tax policies,” Walker said.

Among the 2012 Republican presidential hopefuls, only former Minnesota Gov. Tim Pawlenty was quick to comment on Ryan’s plan.

“Thanks to Paul Ryan in Congress, the American people finally have someone offering real leadership in Washington,” Pawlenty said, but he otherwise steered clear of the details and focused on the coming fight over the debt ceiling.

“President Obama has failed to lead and make tough choices his entire time in the White House. While the budget is going to be debated for several months to come, the more immediate issue we face is President Obama’s plans to raise the debt ceiling next month. That’s a really bad idea,” Pawlenty said in a statement.

“With over $14 trillion debt already, we should not allow Washington’s big spenders to put us further in the hole. We must get our fiscal house in order with real spending cuts and with real structural reforms that stop the spending spree before it bankrupts our country,” he said.

Even the conservative Heritage Foundation, which heralded Ryan’s plan as “a monumental budget proposal for monumental times,” dinged it for insufficient levels of defense spending and for not addressing Social Security.