Understanding US Debt

Trump’s Debt Reduction Plan Will Increase It by $5.3 Trillion

By Kimberly Amadeo, THE BALANCE

Donald Trump Donald Trump’s plan to reduce the debt will instead add $5.3 trillion. Getty Images

Donald Trump promised to reduce the nation’s $19.5 trillion debt by growing the economy and reducing waste in federal spending. Instead, his policies will increase the debt by $5.3 trillion. Here are his plans to reduce the debt, and how they will impact the U.S. economy.

“Grow the economy to increase tax revenues.”

Trump initially promised to grow the economy by 6 percent annually. Since then, he revised his growth estimate to 3.5 percent to 4 percent.

His administration projected growth rates between 2.4 percent and 2.9 percent annually in the FY 2018 budget.

He plans to boost growth by cutting taxes. He released his tax cut plan in his first 100 days.

Tax cuts rely on supply-side economics. It says that tax cuts generate enough growth to replace lost revenues. That worked so well during the Reagan Administration that it was called Reaganomics. But that’s because the highest tax rate then was 90 percent. Today’s highest rate is 39 percent, not nearly as onerous.

Nevertheless, tax cuts will boost growth in the short-term. That’s because the real generator of economic growth is confidence. Trump has the support of a Republican majority in both houses of Congress. They support Trump’s tax cut plan. He also promises to reduce regulations. Businesses will have enough confidence in the future to spend more and create jobs. Consumer confidence will also rise, boosting the demand and consumer spending that drives 70 percent of the economy.

In the long run, 4 percent annual growth is unhealthy. Too much money chases too few good business projects. Irrational exuberance grips investors. They create a boom-bust cycle that ends in a recession. For more, see What Is the Ideal Growth Rate?

The Committee for a Responsible Federal Budget estimates Trump’s tax plan will increase the debt by $4.5 trillion in the next 10 years.

If he is successful in repealing and replacing Obamacare, that will add another $1.2 trillion to the debt. That’s because the ACA imposed taxes to pay for itself. (Source: “Donald Trump’s Plans Would Add $5.3 Trillion to the Debt,” Time Magazine, September 21, 2016.)

“Borrow knowing that if the economy crashed, you could make a deal. U.S. will never default because you can print the money.”

Trump issued these dangerous statements on the campaign trail. His attitude toward his business debt shows these are a core tenet of his success. A recent Fortune magazine analysis showed Trump’s business is $1.11 billion in debt. That includes $846 million owed on five properties. These include Trump Tower, 40 Wall Street, and 1290 Avenue of the Americas in New York. It also includes the Trump Hotel in DC and 555 California Street in San Francisco. But the income generated by these properties easily pays the annual interest payment. In the business world, Trump’s debt is reasonable. (Source: “5 Things You Need to Know About Donald Trump’s Debt,” Fortune Magazine, August 24, 2016.)

But sovereign debt is different. The World Bank compares countries based on their total debt-to-GDP ratio. It considers a country to be in trouble if that ratio is greater than 77 percent.

The U.S. ratio is already 101 percent. That’s $19 trillion in debt divided by $18 trillion in annual economic output (as measured by Gross Domestic Product).

So far, it hasn’t discouraged investors. America is the safest economy in the world. That’s because it has the largest free market economy, and its currency is the world’s reserve currency. Even during a U.S. economic crisis, investors purchase U.S. Treasuries in a flight to safety. That’s one reason why interest rates plunged to 200-year lows after the financial crisis. Those falling interest rates meant America’s debt could increase, but interest payments remained stable at around $266 billion.  But that changed in late 2016. Interest rates began rising as the economy improved.  At that rate, debt interest payments will double in four years.

The federal government will receive $3.6 trillion in tax revenue in FY 2017. Like Trump, that’s more than enough to pay off the interest on the debt. But the United States has another type of debt. That’s a massive fixed pension expense of $948 billion (Social Security benefits). Also, health care costs $977 billion (Medicare and Medicaid benefits). Those benefits plus the interest consume 66 percent of revenues. A business can renege on these benefits and face lawsuits. A President and Congress cannot cut back those costs without losing their jobs at the next election. Thus, Trump’s experience in handling business debt does not transfer to U.S. sovereign debt.

Trump is wrong that he could make a deal with our lenders if the U.S. economy crashed. That’s because there would be no lenders left. It would send the dollar into a collapse. That would send the entire world into another Great Depression. Printing money to pay off the debt would send the dollar back into decline. Interest rates would rise as creditors lost faith in U.S. Treasuries. That would create a recession. (Source: “U.S. Will Never Default Because You Print the Money,” CNN, May 10, 2016. “Donald Trump’s Economic Plans Would Destroy the Economy,” The Atlantic, May 8, 2016.)

Reduce the debt by eliminating waste and redundancy in ?federal spending.

Trump demonstrated his cost-consciousness in his campaign. He used his Twitter account effectively. Trump traveled to meet with voters one-on-one instead of using expensive television ads. He can use this ability in running the government. He outlined how he uses these strategies to success in his book. The Art of the Deal. (Source: “Donald Trump’s Campaign Blueprint: His Own Book,” The Wall Street Journal, Monica Langley, March 2, 2016.)

There is a lot of waste in federal government spending. The problem isn’t finding it. Both Bush and Obama did that. But the problem is overcoming the constituencies that support the various programs. Eliminating these benefits loses voters and contributors. Congress will agree to cut spending overall, but not in their district. (Source: “Why Washington Can’t Cut Wasteful Spending,” CNNMoney, February 28, 2013.)

But that’s not the biggest problem in reducing federal spending. The major obstacle is that waste isn’t responsible for most of the federal budget. More than two-thirds goes toward transfer payments, such as the interest on the debt, Social Security, Medicare and Medicaid benefits. Those are obligations that have already been made through previous Acts of Congress.

Another $700 billion a year goes toward military spending. Trump has promised to increase that, not cut it. During his campaign, he promised 90,000 more soldiers, a 350-ship Navy, 100 more fighters, and stronger nuclear and missile defenses. That could add $50 – $100 billion a year to the defense budget. (Source: “President Trump Is Likely to Boost U.S. Military Spending by $500 Billion to $1 Trillion,” Forbes, November 9, 2016.)

That only leaves $507 billion to fund the rest of the government. Even if he cut that in half, it would only reduce the debt to $19.25 trillion. Here are 5 Discretionary Budget Myth-Busters.

How It Affects You

The national debt doesn’t affect you directly until it reaches a tipping point. That point is when investors begin to doubt that the debt can be paid off. The first sign is when interest rates start to rise significantly. That’s because investors need a higher return to offset the greater perceived risk.

The second sign is when the U.S. dollar starts to lose value. You will notice that as inflation. Imported goods will cost more. Gas and grocery prices will rise. Travel to other countries will also become much more expensive.

As interest rates and inflation rises, the cost of providing benefits and paying the interest on the debt will skyrocket. That leaves less money for other services, like the Justice Department. At that point, the government will be forced to cut services or raise taxes. That will slow economic growth. At that point, continued deficit spending will no longer work.

February 12, 2018 | 2 Comments »

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  1. “The major obstacle is that waste isn’t responsible for most of the federal budget.”

    The author knows this how?

    Anybody remember this?

    By SHARYL ATTKISSON CBS NEWS March 25, 2013, 12:28 PM
    Taxpayer money finances IRS “Star Trek” parody
    Share Tweet Reddit Flipboard Email
    Updated, March 25, 10:00 a.m. ET

    “Space: the final frontier
    These are the voyagers of the Starship Enterprise Y
    Its never-ending mission is to seek out new tax forms
    To explore strange new regulations
    To boldly go where no government employee has gone before.”

    Thus begins a six-minute “Star Trek” parody starring IRS employees and paid for with your tax dollars. It’s not likely to go over well with some Americans and members of Congress, especially since federal agencies have been complaining that it’s difficult to find trims under forced sequestration.

    CBS News filed a Freedom of Information request asking for the video after the IRS earlier refused to turn over a copy to the congressional committee that oversees tax issues: House Ways and Means. According to committee Chairman Charles Boustany, Jr. (R-LA), the video was produced in the IRS’s own television studio in New Carrollton, MD. The studio may have cost taxpayers more than $4 million dollars last year alone.

    According to a statement from the IRS, the “Star Trek” video (see above) was created to open a 2010 IRS training and leadership conference.

    “Back in Russia, I dreamed someday I’d be rich and famous,” says one crew member in the parody.

    “Me too,” agrees another. “That’s why I became a public servant.”

    And the two fist bump.

    IRS training video: Gilligan’s Island spoof
    Play VIDEO
    IRS training video: Gilligan’s Island spoof
    A separate skit based on the television show “Gilligan’s Island” was also recorded. The IRS told Congress the cost of producing the two videos was thought to be about $60,000 dollars.

    IRS Acting Commissioner Steven Miller said in a statement that one of the two videos was played in 400 locations and saved taxpayers $1.5 million over what it would have cost to train employees in person.

    Nonetheless, the IRS issued a statement that reads: “The space parody video from 2010 is not reflective of overall IRS video efforts, which provide critical information to taxpayers and cost-effective employee training critical to running the nation’s tax system. In addition, the IRS has instituted tough new standards for videos to prevent situations similar to the 2010 video.”

    In response to the release of the “Gilligan’s Island” parody, the IRS said in a statement, “This approach reflects a newer IRS model of using video to dramatically save on training and travel costs. Using video provides a more cost-efficient way of doing business than face-to-face meetings.”

    The IRS explained that the “Gilligan’s Island” segment is the introductory part of a 12-hour video training series for IRS employees.

    “The 2011 series was used to train 1,900 taxpayer assistance employees in approximately 400 locations across the United States, saving an estimated $1.5 million as compared to the potential costs to train these employees in person,” the IRS statement said.

    This week, Rep. Boustany called on IRS to give a full accounting of production expenditures at the television studio.

    Last year, a controversial General Services Administration (GSA) video surfaced. In it, GSA employees sang and joked about wasteful government spending. It had been shown at a 2010 government convention. Several GSA officials lost their jobs over the controversy.

    Investigative Producer Kim Skeen contributed to this report.

    https://www.cbsnews.com/news/taxpayer-money-finances-irs-star-trek-parody/

    What about adopt a high way for the national debt as a model

    http://www.adoptahighway.com/faqs/

    what about a national lottery for the debt principal

    In the fiscal year ended March 31, 2016, the New York Lottery achieved record revenues of $9.691 billion while net profit earned for aid to education was also a record at $3.302 billion. This represents growth of 5.8 percent and 6.1 percent, respectively over the prior year.
    new york lottery comprehensive annual financial … – NY Lottery – NY.
    http://nylottery.ny.gov/wps/wcm/connect/90370806-342e-4953-a8c5-170030cc467d/2015-16+CAFR.pdf?MOD=AJPERES
    cost cutting scene from
    Dave 1993
    https://www.youtube.com/watch?v=ZARAldXlSyA