My Republican Friend Worries About the Federal Debt

My friend wrote:

"I heard on the radio that the Congressional Budget Office has issued a dire warning about the USA's debt problem.  Check it out (I don't have the web address). Of course, NO democrats ever mention our fiscal situation."

Dear Republican Friend;

"Dire" is in the eye of the beholder, e.g., I think climate change is a dire situation. You don't. Nor do your Republican Presidential candidates, who feel so strongly about it NOT being "dire" that they've criticized the Pope for addressing climate change in his encyclical. Yet unchecked, global warming will kill us. What the CBO report says, on the other hand, is that ALL THING BEING EQUAL, a growing debt will make us very uncomfortable. Here's the bottom line of the CBO summary:

If current law remained generally unchanged in the future, federal debt held by the public would decline slightly relative to GDP over the next few years, CBO projects. After that, however, growing budget deficits—caused mainly by the aging of the population and rising health care costs—would push debt back to, and then above, its current high level. The deficit would grow from less than 3 percent of GDP this year to more than 6 percent in 2040. At that point, 25 years from now, federal debt held by the public would exceed 100 percent of GDP.

The consequences of this growth in debt are addressed by the CBO as follows:

How long the nation could sustain such growth in federal debt is impossible to predict with any confidence. At some point, investors would begin to doubt the government’s willingness or ability to meet its debt obligations, requiring it to pay much higher interest costs in order to continue borrowing money. Such a fiscal crisis would present policymakers with extremely difficult choices and would probably have a substantial negative impact on the country. Unfortunately, there is no way to predict confidently whether or when such a fiscal crisis might occur in the United States. In particular, as the debt-to-GDP ratio rises, there is no identifiable point indicating that a crisis is likely or imminent. But all else being equal, the larger a government’s debt, the greater the risk of a fiscal crisis.

Now the reason Democrats don't pay more attention to the debt problem is that the problem is easily fixed. Let's start by eliminating the estate tax and reducing corporate taxes, two of the Republicans favorite "fixes." Did you know that the House just voted (along party lines) to repeal the estate tax? Congress’s Joint Committee on Taxation estimated that repealing the estate tax would cost the Treasury $14.6 billion in the 2016 fiscal year and $269 billion over 10 years. John Boehner said $269 billion “is nothing more than a drop in the bucket to the federal government.”

Of course the only reason you'd be interested in the facts about estate taxes is to avoid them, but if you are interested in the larger picture and why the Republican crusade to repeal estate taxes is such a farce, you could read this economic intelligence report, which would tell you that you have nothing to worry about, because the federal tax currently applies to estates worth more than $5.43 million for an individual or $10.86 million for a couple. Only Republican donors of the Sheldon Adelson variety worry about this, and even they aren't too worried, because they can afford good tax lawyers.

But I digress. You will note that at the beginning of this email I capitalized "ALL THINGS BEING EQUAL." There are quite straight-forward things our "leaders" in Congress could do to remedy the fiscal situation (e.g., raise the amount well-off people like you and I have to pay into Medicare). Then again, Congress could simply implement the Simpson-Bowles plan. That would result in the savings shown below. But as you've pointed out, every item has a "constituency." That makes it hard for politicians to tackle, especially those with no integrity.

So that leaves us with the prospect of waiting until the POTENTIAL crisis that CBO forecasts occurs in 2040 and then watching as our "leaders" take stop gap measures to stem the tide. And speaking of stemming the tide, do you know what sea level rise is predicted to be by 2040?

What Krugman & Stiglitz Can Tell Us by Jacob Hacker and Paul Pierson | The New York Review of Books

Excerpts:
We may be the richest nation in the world, but poverty is higher and social mobility between generations lower than in other rich nations. In other respects, our model is bloated: we release far more carbon dioxide and use far more water on a per capita basis; and we spend far more on health care, while leaving tens of millions uninsured and achieving health outcomes that are mediocre at best.

The spectacular profits of the energy industry, for example, rely heavily on the failure of regulation to incorporate fully the social and economic costs associated with environmental degradation, including climate change. Similarly, the increasingly aggressive activities of Wall Street—whether in the marketing of unsound mortgages, the use of excessive leverage, or the irresponsible use of derivatives—create huge risks for the economy as a whole. Yet these risks are largely not taken into account in the prices paid in financial markets. Without effective regulation, the costs are borne by all of us—most acutely by the struggling millions who have been pushed out of jobs.

The economics is really easy. If we were to spend more money at the government level and ... rehire the schoolteachers, firefighters, police officers who have been laid off in the last several years because of cutbacks at the state and local level, we would be a long way back towards full employment. ... Right now, there just is not enough spending, and we need the government, which can do it, to step in and provide the demand we need. ... We’ve had austerity in the face of a recession, in a way that we have never had before since the 1930s. ... And the results are clear: it’s disastrous. 

What Krugman & Stiglitz Can Tell Us by Jacob Hacker and Paul Pierson | The New York Review of Books