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The $15 Trillion Super Circus

It's not about revenue or lack of compromise; it's about knee-jerk capitulation on spending

By: Daniel Horowitz (Diary)  |  November 17th, 2011 at 08:39 AM  | 

RESIZE: AAA

The day has arrived.  Our total debt has surpassed $15 trillion.  At the close of business on Wednesday, the debt stood at $15.033 trillion, and is on the cusp of overtaking our GDP.  Overall, the federal debt has risen $4.41 trillion (41.5%) since Obama took office and $6.36 trillion (73%) since the Democrats took control of Congress in 2007.  Our GDP has grown by only $1.3 trillion during Obama’s presidency.  Pick your adjective of choice to describe this calamity: unparalleled, unprecedented, uncharted.  No word can begin to describe the destruction that Obama has wrought on our republic.

Over the next few days, you will read many factoids and statistics about the federal debt, but here is one acerbic point you may miss.  Ninety-one percent of Obama’s $4.41 trillion legacy of debt comes from the debt held by the public.

You see, the national debt consists of two components; debt held by the public and intra-government debt.  The debt held by the public is the sum of the treasury securities held by those outside the federal government, with the lion’s share owned by foreign countries.  The debt held by the public currently stands at $10.31 trillion.  The other component, the intra-governmental share, is owed to other federal agencies and accounts, most prominently, the non-existent Social Security Trust Fund, as well as accounts holding pensions for military veterans and government workers.  That share of the debt currently stands at $4.71 trillion.  Overall, Obama has increased the public share of the debt by $4 trillion (63%), more than Bush ever ‘accomplished’ in his entire eight year presidency.

It is through this dour prism that we must view just how vacuous is the current debate over the budget.  The prevailing narrative is that the entire supercommittee enmeshment is the result of the inter-party (and intra-party) debate over tax hikes.  The glaring reality is this: IT’S THE SPENDING, STUPID.

Republicans and conservatives can agree to enormous tax hikes from now until next year, but we still will not have a true compromise – a balanced approach.  This is because the Budget Control Act and the supercommittee don’t plan to cut one cent of spending.  The entirety of the $917 billion ten-year discretionary savings comes from reductions to the prodigal baseline.  We will never cut one penny from current spending levels.  In fact, not only did we lock in the aforementioned unparalleled spending rates, we committed ourselves to add over $800 billion more in deficit spending.  In other words, we are applying plastic breaks to a high-speed porkulous rail.

Moreover, the supercommitte plans to leave the other 65% of the budget, the mandatory spending, virtually untouched.  There will be no prudent reforms of Social Security and Medicare, and the $950 billion in mandatory welfare spending will go untouched.  Worse, Republicans are about to approve an Agriculture spending bill that raises spending on Food Stamps to an unfathomable $80.4 billion, double its funding level from just three years ago.

Outside conservative groups are often impugned as ‘intransigent’ bomb-throwers, unwilling and unable to compromise.  The stone-cold truth is that most of us would be willing to make some painful concessions on the revenue side, in the event that Republicans would fight for real reductions in government programs and departments.  That would be an authentic compromise; that would embody a true balanced approach.  Instead, Republican leaders are on the cusp of approving an ‘Israeli-Palestinian style compromise’, aka an unmitigated capitulation.

What you won’t hear coming out of this bipartisan concession super duper committee is that we cannot possibly raise enough revenue from tax increases to cover the deficits.  The top 1% already pays 36.7% of federal income taxes, even though they only earned 16.9% of all income.  The recession has reduced their adjusted gross income from $2 trillion in 2007 to $1.3 trillion in 2009.  Will tax hikes really offer them incentives to earn more money?  While we might gain some revenue in the short-term, we will lose the golden goose in the long-run.  Either way, we will never recover enough revenue to deal with the perennial trillion dollar deficits, the unfunded liabilities from entitlements, and the burgeoning growth in future interest payments.

We’ve been in this situation a number of times this year, and sadly, we will continue this tortuous cycle of submission to those who are mortgaging off our future.  Must we breach the $20 trillion milestone before we wake up?

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  • curtmilr

    I have requested the resignations of both Reps. Boehner & Cantor if tax increases are passed by the House. They Pledged not to do so, and were rewarded with power as a result.
    Sequestration, as bad as it will be, would be better than NOT making REAL spending cuts while sucking more taxes out of the productive private economy.
    We need Zero Based Budgeting, the closing of tax loopholes and subsidies while lowering tax rates to stem the tide. This would encourage growth and cut debt financed spending thereby bending the governmental finance curve towards a possibility of sustainability.
    This needs to be done now, and the shock of sequestration is what is needed to define the debate. This House leadership needs to grow a pair and demonstrate they have a spine!

    • edintexas

      The problem with “This House leadership needs to grow a pair and demonstrate they have a spine!” is they lack the principles and moral fiber to do that. They are far more concerned with what the DC press says about them, than they are about what those voters who pay attention to politics think and say. For the vast majority of voters really don’t pay much attention until just before an election, when slick 30 second ads give them the “information they need” to vote. Then the voters go back to the couch. And that only accounts for those who bother to vote. Thankfully we do not have a threat, or reward, system to force/encourage all to vote.

  • Death_of_the_Donkey

    1) Freezing spending (or even slowing growth of it to say 1%/year) will work fine once the economy starts growing again. Debt:GDP is what matters here, not gross levels of debt dollars. IE growth solves all of our problems (or most anyways).

    2) As for the percentage of taxes paid by the 1%, so long as we have a progressive tax system and so long as their share of the income pie keeps rising, so will their share of the tax pie. In Reagan’s first term, the top 5% took home roughly 17% of income (now it is 21.3%). That is going to have an impact on the distribution of taxes paid.

    3) Just a minor quibble, but using 2009 data for income (and I know that is likely all that is available now) is a bit misleading, since that was at the nadir of the recession and has likely rebounded some.

    4) I agree with your general conclusions, eliminate all tax deductions/loopholes/subsidies/special rates and lower rates with most of those savings. I don’t think zero based budgeting would work for most departments, but at the very least we need full audits of every department and program evaluations (for everything) on an annual basis.

    • http://redmeatconservative.blogspot.com/ Daniel Horowitz

      The GOP promised to fight for 2008 spending levels; to wipe clean the Obama era unsustainable spending. That level of spending is untenable, irrespective of any economic growth. You’re correct that in a growing economy we can do without absolute zero-based budgeting, but we must first wipe clean the Obama spending levels. Then, and only then, can we discuss the levels of future baseline spending.

      • Death_of_the_Donkey

        is going to go away once the economy starts to grow again. Unemployment, food stamps, and medicaid should all shrink in a lower unemployment rate growing economy. I agree in general with getting spending down and shrinking it over time as a percentage of GDP, but I do not see how we are going to get to 2008 levels under our current economic conditions without negatively impacting the economy.

        • edintexas

          Reducing spending on “entitlement” programs is an aberration which has rarely occurred in the past half century of Federal spending history. Such spending “should…shrink”, but politicians often have seen the need to keep the spending going. If not spending on “food stamps”, they will concoct a new program to spend the money or transfer it to another existing program. I would love to be proven wrong, but I’ll not hold my breath waiting for the significant reductions in spending you apparently believe will occur with an improved economy.

      • tomhave

        You are marching in a fool’s parade if you think only one party is responsible for the debt. As I have pointed out before the heart and soul of “supply-side”, “trickle-down” or “voodoo” is exapnsion of the federal debt.
        While it is a convient talking-point to blame Obama for the debt it will do little good unless we can put the matter in historical perspective. When Obama came to office we were in the middle of a massive recession. I say this not to blame Bush it was simply years of economic issues coming to a head. When Bush entered off in 2001 his baseline deficit that is the one he inherited was an actual surplus as of October 2001. (The fiscal year ends in October and that debt is considered the baseline or inherited deficit.) In October of 2009, Obama’s first deficit it was 1.4 Trillion. Obama has decreased the deficit slightly however with a slow recovery reducing the deficit either by spending cuts or tax increases is not a good idea.
        You are correct that it will take both spending cuts and tax increases to reduce the deficit. However, the best way to reduce the deficit is to grow the economy and creation of new jobs. Mitch McConnell has stated that his number one priority is to see Obama not reelected. This would preclude anything that might help the economy. He has been quite effective in slowing the recovery and his willingness to subordinate the good of the country to his anti-Obama obseesion will probably cost the country trillions of dollars in untold misery. Keep in mind this is what HE SAID WAS IN PRIORITY. I do not blame conservative generally for McConnel nor do I blame the GOP for him either. However, his willingness to be blunt about his desires for the country make it difficut for him to escape responsibility.
        The GOP has to decide what it really wants and then work for it. If they want a healthy economy then they should work for it. If they want real deficit reduction then they should work for that. If they only want to see Obama defesated then they should produce a credible candidate rather than present us with the Clown show we see on TV during the debates.

        • nathanalbright

          You’re pushing tax increases, blaming Bush for Obama’s deficits, and talking about conservatives as if you’re not one. That’s treading on dangerous ground here.

        • ScottRM

          That is the question. There was a time when a responsible conservative could write the Tomhave writes above without being called a troll but my things have changed. Blaming Obama for everything and suggesting that repealing all things Obama is the path to prosperity is partisan nonsense and is obviously an attempt at political reincarnation at the nations expense. Obama’s rise was the greatest threat to the conservative establishment in decades and still is. The financial crisis and its aftermath was and is the greatest threat to the nation since WWII. The conservative response was to double down on hardcore principles and attempt to throw the other side under the bus. The cracks in this plan are starting to emerge. Perry, Cain, Bachman and Gingrich may not all be clowns but they are not presidential material, or even close. Romney is close, but he is a flip flopper no matter how you look at it. Where are the credible conservative candidates that will lead the NATION as opposed to the GOP machine? My opinion is that the credible men and women don’t want to run because they know that they will be pawns of the powerful radicalized GOP machine or they will be slaughtered by their own. Apparently, for these guys it is better to wait.

    • skorrent1

      You can “audit” and “evaluate” all you want, but unless you mandate prioritizing, which ZBB does, nothing will ever be cut, either within a department or across departments.

  • skorrent1

    I have a quibble with your statement that foreigners own “the lions’ share” of public debt. China is at 1.3T and not growing, Japan close to 1T, Europe and the ME 2 to 3T. It’s nice to see some of that trade deficit money come home, even if it is into T-bills, but that still leaves about half to be split between private investors and the Fed. That split is interesting because, while private holdings “merely” reduce funds available to the productive sector, Fed holdings are really just printed money, debasing the currency. Different economic effects from the two. My guess is that the Fed owns nearly half the split and is increasing holdings. Anyone got the true poop on this?

    • http://redmeatconservative.blogspot.com/ Daniel Horowitz

      absolutely correct. As CNS news reported yesterday, the Fed has surpassed China as the largest shareholder of the public debt. That will exacerbate our debt problem with gratuitous inflation.

      • Death_of_the_Donkey

        inflation is very low right now and most of the “currency debasement” occurred between 2001-2008 before the fed was expanding its balance sheet. Also, the fed will be better able to control inflation in the future by selling off its massive hoard of treasuries if it chooses to at some later date if inflation rears its head in a meaningful way.

  • buddyp

    Just an analytical note: At least most of the intra-governmental debt is practically meaningless. Most notably, “debt” “owed” to the the Social Security “trust funds”, which is less than $3 trillion, represents (at most) an obligation to spend that much over time on Social Security benefits. There is zero chance we would choose (through the political process) to spend less than that amount anyway (we will surely spend much, much more over time), so it’s not really like a debt, which is something you have to pay and wouldn’t be paying unless you owed it. It’s like if you have kids and I informed you that you have a “debt” to your kids “food account” that requires you to spend $10 on food for them over the course of their lifetime. Assuming you know you’ll willingly spend much, much more than than on food for your kids anyway, you’ll say “ok, so what? That “debt” doesn’t change anything for me.”

    It’s best to focus on debt held by the public (more precisely, that debt as a % of GDP) as the key metric.

    • http://redmeatconservative.blogspot.com/ Daniel Horowitz

      the astounding thing is that 91% of Obama’s accrued debt has come from the portion held by the public.

      • Death_of_the_Donkey

        since we are no longer bringing in a social security surplus, we are also no longer borrowing against the payroll tax receipts, which was primarily how our intragovernmental debt is formed. Theoretically, the debt not held by the public should start to shrink as those social security trust fund bonds are paid off and not replaced with new ones.

        • buddyp

          By the way, the whole basis for debate over Social Security — the degree of projected “solvency” of Social Security — is nonsensical, and yet both sides base their arguments largely on that nonsensical metric (the left is guilty of this to a greater degree, but even arguments from conservatives tend to be based on “solvency”).

          Notwithstanding the fact that Social Security has a dedicated tax raising revenue that must be spent on it, it is still part of the whole. In the ultimate, practical sense, SS revenues are part of total revenues, and SS spending is part of total spending. The internal balances of the program (cash flow balance and long-term “solvency”) are irrelevant bookkeeping matters that are only important insofar as public misunderstanding and the related confused debate focuses on these balances. They have no true practical significance.

          How much does “Social Security” (as a program, including its “funding” and its spending) contribute to our fiscal imbalance? The very question is nonsensical. Every dollar of FICA SS revenue reduces deficits by $1 (leaving aside dynamic economic effects), as does every revenue dollar from every other tax. And every dollar of Social Security spending increases deficits by $1 (again, leaving aside dynamic effects), as does every dollar of other type of spending. From the standpoint of overall (unified budget) deficits — which is the problem we seek to solve — the relationship between levels of FICA SS revenues and Social Security spending is as relevant as the relationship between, say, corporate income tax revenues and Education spending, or any other randomly paired type of tax revenue and category of spending, which is to say, the relationship is irrelevant.

          So every time I hear someone from the left contend that “Social Security” hasn’t previously and doesn’t now contribute to our deficits (and therefore we shouldn’t consider reducing projected SS spending), I feel like ripping their heads off. For example, Harry Reid said recently ?Social Security does not add a single penny, not a dime, a nickel, a dollar to the budget problems we have. Never has and, for the next 30 years, it won?t do that.?. What’s compounding his idiocy with yet more idiocy is that he’s counting “repayment” of the bonds in the “trust funds” as if that money doesn’t come from general fund tax revenues. But that’s beside my main point, which is that even if FICA SS tax revenues were projected to match SS spending forever, it would still be nonsensical to conclude that “Social Security” as a program is not contributing to our deficits. It’s not some income-producing asset that pays for itself; it’s paid for by taxes from the American public, just as all other spending is (eventually) paid for by taxes from the American public.

          By the same token, cash negativity or even ?insolvency? net of ?trust fund? ?funding? is not an argument that we must either reduce projected Social Security spending or raise FICA SS taxation. We could simply use more general fund revenue for Social Security spending if we so desired. (If any related laws needed to be changed to initiate that process, obviously that can be done.) I don’t want us to do that (I want us to cut projected spending by raising the retirement age, means testing, and adjusting the indexing for calculating benefit levels), but my point is that the internal bookkeeping balances, cash flows and “solvency” are irrelevant.

  • daniel22

    The way I see it the debt commission will not accomplish anything. Spending is not slowing down by example of the recent minibus bill just passed. Since we have cowards and culls in charge right now we can expect no steps taken. The real leadership sent to DC is being stymied.
    With no more money to be borrowed revenue must be raised to avoid “default”. With no more money available the Fed will be instructed to manufacture yet more making our dollar worth less leading to increasing prices. The banks know this and that is one of the major reasons that they are holding the cash that they are instead of investing it by loaning. As with China they know that any money loaned will be worth less when it is paid back in spite of interest accrued.
    With all of this Congress and the O still insist on buying our votes with our money. Boner and company have no intention of changing business just tactics.

    • nathanalbright

      …is useless as well. They would do better to invest it somewhere else and to get of such toxic dollars, if they truly were aware that the dollars would be worth a lot less in the near future. You do not hold onto dollars if you expect them to become worthless, but rather in an inflationary hedge (like gold, for example).

  • lilium

    The threat of cutting defense spending is like a local school district cutting sports or busing in order to pass a levy. It is cover for raising both taxes and spending. Let them cut it! Call their bluff.
    It is a total, not so funny, joke. We’ll save 1+T in 10 yrs., but spend over 10T in 10 yrs. It is a hoax and a fraud.
    Unless people start going to jail it will not change.

  • billstanley

    Czar Obama and tax-spend big-government politicians are driving the U.S. bus closer to the same cliff that Greece and Italy plunged over. During the first 33 full months of Czar Obama’s reign, the national debt increased by $4.36 trillion to $14.99 trillion, at an annual rate of $1.59 trillion. The increase in the last 12 months was $1.32 trillion. www.newsandopinions.net

  • hitthedeck

    Cut the budget of every program, department., personal and expence accounts by 10% and it would be safe that none of the quality or benifits or services would be effected. I am sure the managment of the these items would find the savings to keep them operating as usual.
    When washington is given a yearly budget they will burn the surplus toward the years end to get an increase for the next year.
    The pig will eat everything you give him and when he can have more without asking he will eat hisself to death.

  • lastgopinillinois

    handed down by the supercommittee.
    Go small, or Go BIG, the democrats in the supercommittee will not agree to ANYTHING unless includes tax rate increases.
    None of the Tea party folks in congress and many more Republicans will vote for that.
    Sequestration will ensue with automatic spending cuts starting in 2013.
    But by then, we will have a majority in the House and Senate and a GOP President ! Yayyyyy!
    And then we will fiscally clean house.

    I know….wishful thinking. Cant I have a few happy thoughts?