The hidden programs bankrupting the country
One of the most amusing things politicians say is when they ask how we are going to fund tax cuts. They act as if the revenue is theirs by natural right. The most obvious course of action never seems to occur to them: cutting the budget.
The reality is that they really don’t need tax revenue to fund their programs. They can sell more debt to the investing public in the form of Treasury bills and bonds. Rates are at historical lows. It is super cheap for the government to borrow money right now.
That’s because of fear and uncertainty surrounding the stability of our economy. When economic conditions are uncertain, the best thing to do is pull your money out of risky investments and opt, instead, for safe, secure, guaranteed returns.
FUNDING TAX CUTS
Treasury debt is considered the closest thing in the world to that. It has been since 2008.
Every now and then, financial sites like Marketwatch run these articles on the massive US debt to get your attention. If you are curious enough to click, like I am, you are likely to be pummeled with reasons why the Bush tax cuts, or even the Reagan tax cuts, have brought us to where we are today:
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In August 1981, with the U.S. at the beginning of a recession, President Ronald Reagan signed major tax cuts into law. While Reagan’s supporters credit the cuts in tax rates with juicing the stock market and the U.S. economy, the downside was obvious: less money flowing into the government’s coffers. A U.S. Treasury paper shows the 1981 act reduced federal revenue by an average of $118 billion a year (in today’s dollars) during the first four years.
President George W. Bush also signed tax-cut packages into law in 2001 and 2003. Individual-income tax rates were cut, as were taxes on capital gains and dividends. This table shows where the Bush tax cuts fall in size compared to other major bills. President Barack Obama extended the cuts for two years in 2010, and made most of them permanent in 2012. Kathy Ruffing, a consultant to the Center on Budget and Policy Priorities, estimates that the cuts originally enacted during the Bush years will account for $5 trillion of debt outstanding through fiscal 2017. That includes interest.
In other words, it’s the Conservatives fault for getting us into this mess. Tax cuts, wars, bank bailouts, and stimulus programs got us into this mess. Not only that, but the policy changes that Trump has promised to make to try and extract the government tentacles a little bit from our lives, such as tax cuts, are guaranteed to cause additional problems.
The truth of the matter is that $20 trillion is nothing compared to $210 trillion. That’s the estimated present value of the government’s off-budget unfunded liabilities, at least as of 2015 when Harvard Professor Laurence Kotlikoff last calculated it.
TSUNAMI OF UNFUNDED LIABILITIES
That $210 trillion represents what we owe to everybody alive in terms of their lifetime social security, Medicare, and Medicaid benefits. The US government would need to invest $210 trillion at 3 or 4 percent today to be able to afford all the future payments it has promised to pay.
There is no such investment. The entire US economy is only about $19 trillion. China’s, at number one, is about $23 trillion.
It’s not the $20 trillion that’s important. It’s the $200 trillion that nobody is paying attention to. It points to inevitable federal bankruptcy. The causes are Social Security and Medicare. Those are liberal programs first enacted by Roosevelt’s New Deal and extended by Lyndon B. Johnson’s Great Society.
It’s not tax cuts that are going to bankrupt the economy. It’s the middle-class welfare programs that are politically impossible to cut.