Budget

Once Again, Uncle Sam Shirks Fiscal Responsibility in Budget Deal

Trump's 2018 commitment that he would never sign a massive spending deal ever again was fake news.

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This year, the deficit will end up being the fourth highest in U.S. history. It's gigantic, and it will hit a little over $1 trillion by the end of the fiscal year. It's also larger than previously projected. And it's growing fast, at a time when the United States is not in a recession—unlike the economies that delivered the three previous highest deficits.

These are all facts that should help members of Congress and the administration recognize that it's probably time to reduce spending. But they fail to make that realization.

White House and congressional negotiators reached accord on a two-year budget on Monday. That deal would lift discretionary spending caps by $320 billion over the next two years. Just a reminder, Congress put these caps in place as the result of the 2011 debt-ceiling debate. At the time, the debt had doubled since 2008, and annual deficits were above $1 trillion because of the recession and a silly, expansive stimulus bill. President Barack Obama was then in power, and Republicans in Congress were allegedly horrified by the level of red ink. As such, they were not going to agree to increase Uncle Sam's borrowing authority without some commitment to fiscal responsibility—hence the spending caps.

That was then; this is now.

If the last eight years have proven anything, it's that nothing is more predictable than the spectacle of both parties making a deal to do away with the caps, at least "temporarily." Now, you can't blame the Democrats who never wanted the caps in the first place and have no problem asking for ever-more government spending. The same can't be said about Republicans, however, who staged a big show to get the caps in the first place and always like to parade as the party of fiscal responsibility.

So here we are today. This deal would lift the caps for two years. The Committee for a Responsible Federal Budget (CRFB) projected that it would add up to $1.7 trillion to the debt over the next decade. In exchange for this extra spending—which House Democrats love, I am sure—the debt ceiling would be suspended for two years, which the administration and the Department of the Treasury in particular must love.

Let me repeat that: House Speaker Nancy Pelosi would get $320 billion above the FY2019 levels of $597 billion for discretionary spending and $647 billion for defense (plus an additional $69 billion in the Pentagon's Overseas Contingency Operations fund), while Treasury Secretary Steven Mnuchin would not have to worry about his ability to borrow more money for Uncle Sam. Meanwhile, future taxpayers would be saddled with a phenomenally large debt increase and the corresponding promise of higher taxes and slower growth.

We are told not to worry, as some $55 billion of that spending increase with be offset with other savings, such as some Medicare cuts and Customs and Border Protection fees. But when all is said and done, if you believe that these offsets will materialize, I have some oceanfront property in the Mojave Desert to sell you. Whatever Congress and the White House agree to cut this time around is likely to go the way of the 2011 spending caps and be negotiated away in future budget deals.

When this budget deal was announced, CRFB President Maya MacGuineas rightfully noted that "this agreement is a total abdication of fiscal responsibility by Congress and the President. It may end up being the worst budget agreement in our nation's history, proposed at a time when our fiscal conditions are already precarious." She added that "If this deal passes, President Trump will have increased discretionary spending by as much as 22 percent over his first term, and enshrine trillion-dollar deficits into law."

In the process, President Donald Trump undermined his budget director, Mick Mulvaney, who argued for the implementation of a one-year overall spending freeze instead of this spending frenzy. I guess Trump's 2018 commitment that he would never sign a massive spending deal ever again was fake news.

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  1. There is no question they will never balance the budget and never pay off the debt. The deficit is a function of revenue and always will be.

    Let’s say, for instance, that revenues were 10 Trillion. They’d spend even more, probably around 14 or 15 Trillion. Let’s say revenues were only 1 Trillion,. They’d spend more, but only about 1.4 to 1.5 Trillion.

    The debt is an underhanded way of stealing value from savers via inflation and they will always do so. But they have to keep it subtle, so it is a function of a revenue and always to the tune of 20 to 50 percent for a given year.

    1. this is why starve the beast is the correct strategy. I support any and all measures that will reduce revenues to those evil bastards.

      1. If one of the hijackers had just showed up in the ER with cutaneous anthrax, which would not be “skin irritation “ or a single lesion and not been diagnosed and aggressively treated he would probably have died………………………….

      2. The DEBT is not the DEFICIT. And the DEFICIT is not the DEBT. They are separate problems.

        Government BORROWING drives up the debt, not government SPENDING.

        The solution to our debt problem is simple: STOP ISSUING DEBT-BASED MONEY! Begin issuing pure “unbacked” fiat money to fund the deficit, rather than going further into debt. The inflationary impact of unbacked dollars is no worse than the inflationary impact of the same amount of debt-backed dollars. Issuing unbacked dollars will halt the increase in the national debt and its crushing $479 billion in annual interest. Paying off part of the maturing debt each year and rolling over the rest will eventually bring the national debt (and its taxpayer-financed interest payments) down to zero. See http://www.fixourmoney.com .

    2. But then what happens when countries around the world start using other reserve currencies? Then the gov’t could still do this, but it wouldn’t be so subtle anymore…

    3. That’s just BS. Spending increases because the DeRp’s have no ability to even discuss the big three spending items (SS, Medicare, military/veterans) and have little control over the fourth (interest on debt). And it is the completely predictable spending increase on those four items that is driving total spending – and the deficit and thus the debt.

      Starve the beast was never a sound financial concept. It was purely political. And in fact, the reverse is true. Proposing that wars or SS or medicare be paid for by increased taxes is in fact the only way those three spending programs will ever be discussed on the SPENDING side because increasing taxes to pay for them will make them more unpopular.

      And that is exactly what will happen whenever the two ‘trust funds’ go empty because that’s when formulas kick in to actually cut spending. At that exact moment, the elderly and their doctors will advocate for higher taxes to pay to ‘restore’ that spending. Followed one nanosecond later by those two programs becoming less popular among others. Followed a week or so later by polls – and then push-polls – to find out what sort of option can produce an electoral majority. Followed near simultaneously by a market panic as ‘interest on the debt’ strives to make its opinions on it paying for that spending known.

      All of which will produce a nice crisis environment within which everyone can know nothing, blame everybody else, panic, and then panic some more.

      ‘Starve the beast’ only affects the date on which the above will occur.

      1. Very much agree with the above. Starve the beast is a flawed strategy because it has only led to increased deficient spending. Only real way to effect cuts is to make people understand the cost of the programs and that can be done with tax increases. Tell the public, if you want this program it has to be paid for by taxes.

        1. Only they’ll try and convince everyone that they’re only taxing those greedy rich people.

          1. Just the opposite. Base this on the conservative idea that everyone is treated the same. You know “everyone get a tax cut” just some get a bigger one. So reinstitute progressive tax rates like we had. A poor person would pay a very small amount and rates would go up as income goes up. Everyone has skin in the game. No more saying “only the rich are paying taxes”. Does that work for you?

            1. Everyone having skin in the game is the only way to prioritize spending. It’s too easy to spend everyone else’s money. Amendments that guarantee a balanced budget and equal proportional taxation are what are required to solve this debt fiasco.

              Without the first we’ll have continuous debt until the dollar collapses. Without the second we’ll have the government continuing to consume more GDP until the economy collapses.

            2. The rich didn’t get, based upon tax rate, a bigger cut. They pay such an oversized amount to begin with that any cut they receive is outsized. That is the problem with progressive tax rates. But if we must have one it must be a true rate, with minimal deductions and rules that you cannot get back more than you pay in. In fact, I would cap refunds at like 95% of taxes paid so everyone actually has skin and maintains skin in the game. I’d much rather have a VAT tax on non-food items, first time pitches (not second hand) and eliminate income taxes all together.

              1. how to move

            3. Reinstitute progressive tax rates? Are you saying we don’t have those already? You’ve got to be kidding.

              1. My short answer here is that the tax code is a total mess. Is it progressive, not really. Start by getting rid of deductions and the standard exempts. Add more tax rates, very small for the lowest incomes with regular increments. Have rate apply same for all income no matter, wages, interest, or investments. Finally just have the IRS figure the taxes and send you a refund or bill.

                Bonus to this plan is cutting deduction means you could probably cut the IRS staff by half.

          2. That’s why Switzerland has the right federal approach. A three-legged tax base

            a. VAT/consumption (3% on food/utilities, 8% on else) so everyone has skin in game

            b. income (flat 12% with a 25k or so exemption) for the broad middle class (and corporate)

            c. wealth (0.75% or 75bp with a 300k or so exemption) for those who can avoid income tax by timing income and creating paper losses.

            They’ve decided those numbers are fair distribution for federal stuff. So anything ‘new’ starts with increasing pain on all those to pay for it. If/when they can’t agree that it needs to be federal, it becomes a cantonal discussion instead. Or it turns into a very different kind of discussion/program (eg their pension system)

            Our tax base – narrowly on income – is what creates both the dependency at the bottom and the game-playing/loopholes from the top with the middle-class getting hammered. Which then results in ‘other guy will pay’ and ‘free lunch’ politics.

            1. “Middle class getting hammered”. Disagree.

              Comparatively speaking, the middle class doesn’t get hosed that bad for the $15-20k or so they pay in income taxes. Schools, roads, cops, firefighters and military. Not saying we should pay as much as we do for all that, but you can make an argument about value per dollar taken not being too bad. We all know that the bottom 47% or whatever don’t pay much, or get some of other people’s money. So who pays for the staggering bloat and waste in government? Process of elimination points to the obvious answer that the wealthy pay for it.

              If we all paid the same amount there would be zero tolerance for waste and bloat.

              1. No the wealthy do not pay for it.

                Warren Buffett received (minimum) $9 billion in direct TARP benefits via his ownership of GS and various banks. And in fact actively lobbied for that bailout cuz fearfearfear. It meant he was able to BUY at the market lows rather having all his ownership stakes go bankrupt.

                Income itself is irrelevant to him and always has been. He pays far less in income tax than Justin Bieber or Mike Trout or a ton of people who are building wealth through annual income. And in large part BECAUSE income is irrelevant to him personally, Berkshire itself doesn’t have to pay dividends. Which keeps the moat between the truly wealthy and the aspirational.

                The poor don’t directly pay for govt spending. But the higher marginal income tax even at their level is what directly creates the poverty trap which makes it far more difficult to get out of dependency and into the middle class.

                Not that you R’s would ever understand one fucking bit of either of that.

                1. eg Here’s a Heritage article re the effective marginal tax rate for a single parent w child

                  Between $10k and $25k, any additional $1 of income from a job is either taxed or results in reduced benefits, so they only receive 5-30 cents of additional disposable income. That’s an effective marginal tax rate of 70-95%. And it remains quite high (40%+) up until 50k or so in income. That’s the disincentive created because of both our dependence on income tax AND the R’s visceral hatred of the poor.

                  Jack Kemp was the last R who understood or gave a shit about any of this.

                  1. Haha. Ok. Everything is so terrible and unfair, and the poor and middle class are footing the bill for our bloated government. Got it.

                    So much resentment. Sad.

                    1. You are a total fucking fool.

                      45% or so of doctor’s INCOMES are payments from the govt. Average income = $300,000 per year. Well over half of Wall St is employed in Wall St now cuz of the TARP bailout. Average Goldman Sachs employee makes $360,000. Tenured college professors? $150,000. Avg federal employee in DC – $115,000 with half a million of them nationwide making over $100,000. 7 of the 10 richest counties in the US are the suburbs surrounding DC. Add a ton of jobs in the MIC, real estate, law/accounting, etc whose incomes are massively higher than they would be in a free market cuz of govt distortions/payments.

                      You are so fucking STUPID and filled with hate for the poor that you can’t even see the fucking scam here. Much of govt spending is payments TO the rich and those payments are what make them rich. They are laughing all the way to the bank. They ain’t being paid by the even richer than they who can always avoid taxes. And you and your fellow dingleberry-munching R’s can’t even begin to comprehend how stupid you are.

                  2. Haha. Wow. So much hostility. Thanks for proving my point.

                    “That’s an effective marginal tax rate of 70-95% and it remains quite high (40%+)…….”

                    I’ve been both poor and middle class. Your numbers are just ridiculous.

                    You’re really angry, brah. Stop obsessing over other people’s tax burdens to support a wasteful government. It just makes you a useful idiot. Remember, wasteful republicans appreciate the fact that they can be so irresponsible and still have folks you screaming “they should get even more!”

                    Haha. What a doosh.

  2. Not to worry, the Democrats are submitting a bill to do away with the spending cap. That should help with “fiscal responsibility”! (sarc)

  3. Its probably a veto proof majority.

    With that being said, Trump should not sign the bloated spending each year.

    1. This is one thing that gets me. The way I understand it (and I’m admittedly no expert), there is no such thing as a veto-proof bill. POTUS can veto any bill within 10 days of it being submitted. Now, the veto can be overridden by a 2/3 majority. In that case (or if POTUS doesn’t sign the bill within the original 10 days), the bill becomes law without a presidential signature.

      Point is, Trump could absolutely veto the spending bill, regardless of how much congressional support it has. And maybe, just maybe, if he vetoed the bill and sent out one of his tweets, it would rile up his base and get them to care more about the deficit. Then, as has happened a lot the past 3 years, those constituents might influence the voting behavior of their congressional representatives.

      1. Or he vetoes it and it is maintained. Then Pelosi refuses to negotiate. The goverernment shutdown. The media blame it all on Trump, run one apocalyptic story after another. Laying all the blame on Trump. The market crash and we enter a recession. Democrats win the Presidency, take the Senate and expand control of the House.

        1. In short; Republicans have to increase spending so that the Democrats don’t gain political power and increase spending. Did I get that about right?

          1. No, that is a nice mischaracterization/simplification. What I am saying is that it is a no win situation. Because, even if he cut it today. If my scenario goes through and Kamala Harris or Elizabeth Warren or Bernie Sanders wins, how long will the decrease last? Yeah, I wish it were completely different, but I have grown cynical as I’ve aged.

          2. In short; Republicans have to increase spending so that the Democrats don’t gain political power and increase spending. Did I get that about right?

            Correct. The budget and deficit is simply not a battle worth fighting right now. Getting more constitutional originalists, striking regulations, and removing some of the racist laws are of primary importance right now.

            1. I don’t see how, with that kind of thinking, budgets and deficits could ever be a priority. Even if Trump gets his second term, the argument will be that Republicans need the House in 2022. Then they’ll need to hold the power in 2024. It will never end, as witnessed during Bush 2.

              If it takes a Republican loss in 2020 to get it through their thick heads that their base actually cares about reducing the size of government (yes the budget is the best measure of the size of government) then I say it’s well worth it. Better to have a major party stand for something out of power for a few years, than 2 major parties that only care about power in the next election. It’s becoming increasingly difficult to tell the two parties apart, and that’s more dangerous than a couple of years of Democrats at the helm.

              I said at the time in 2008 that Obama winning the election might be the best thing for the country, because it sparked a renewed vigor in fiscal responsibility. Unfortunately, that thinking among Republicans was mostly thrown out the window when they regained the reins of power.

        2. I might be more amenable to that line of reasoning if Trump hadn’t already led a government shutdown just eight months ago over an appropriations bill (because it didn’t spend enough on one line item).

          I think the standard response around here is “fuck you, cut spending.”

      2. If Trump vetoes the budget bill, markets and investors get the jitters and we head for a recession.

        Trump can afford to do that in his second term; he can’t afford that in his first term if he wants a second term. Right now, he needs to maintain the economic mirage.

        1. Hahaha. Of course. Because getting power is what’s important. What one does with it is meaningless until power can be assured for one’s lifetime and well beyond.

          That seems to be the R’s MO now. Talk a good game about fiscal responsibility while out of power – and then prove how fiscally irresponsible one can be once in power.

          Manana. Manana. That’s when we’ll become responsible. Until then – look at those evil folks over there who are trying to acquire the power that is OURS now. Don’t let them near the levers we control. Bwahhahaha

          1. Our government has been largely useless since we decided to become Team America World Police.

  4. This will be good for my kids. Paying off debt builds character.

  5. If your only issue is that the caps have no real meaning, then you cannot blame the Democrats. If your problem is the actual overspending then you certainly must blame the Democrats. Unless you view them as irredeemably irresponsible.

  6. When the interest paid on the national debt becomes the single largest item on the federal budget, perhaps someone will become “woke.” Though I doubt even that will happen.

    “I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”

    ― Winston S. Churchill

  7. The last group to oppose deficits was the Tea Party, and they were denounced as white supremacists by the left, persecuted, and attacked.

    Deficits is what people want, and they are getting it. Any politician who doesn’t go along doesn’t stand a chance.

    Democracy is the theory that the common people know what they want, and deserve to get it good and hard.

  8. That ship sailed years ago guys, Only way we’ll have sound fiscal policy will be after ‘the collapse’.

    buy bitcoins,…might help.

  9. Fiscal responsibility in the federal government?
    I haven’t read anything that funny in my life!

  10. When in 1988 bank regulators assigned America’s public debt a 0% risk weight, its debt was about $2.6 trillion, now it is around $22 trillion and still has a 0% risk weight. When do you think it should increase to 0.01%?
    https://subprimeregulations.blogspot.com/2015/07/just-before-fall-of-berlin-wall.html

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