Pethokoukis, Economics, Taxes and Spending

The CBO, the national debt, and Edmund Burke

Image Credit: Congressional Budget Office; AEI

Image Credit: Congressional Budget Office; AEI

Looking at the new 10-year budget forecast from the Congressional Budget Office brought to mind this quote from Edmund Burke: “Society is indeed a contract. It is a partnership in all science; a partnership in all art; a partnership in every virtue, and in all perfection. As the ends of such a partnership cannot be obtained in many generations, it becomes a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born.”

Contracts bring responsibilities, obligations. It’s hard to see how America’s fiscal path satisfies ours to those who have passed and to those still on their way:

1. $8.7 trillion in new publicly-held debt over the decade, bringing the total to just shy of $20 trillion. In 2023 alone, interest on the debt will be nearly $900 billion, four times today’s level.

2. Publicly-held debt as a share of GDP will be 77% of GDP in 2023 — and rising thanks to rocketing entitlement spending. Indeed, it will never fall below 73.1% of GDP. Before the Great Recession, it was 36%.

3. The flood of new debt comes despite tax revenue from 2015 through 2023 being higher than the historical average. We have a spending problem.

The CBO isn’t as elegant as Burke, but it gets its message across:

Such high and rising debt would have serious negative consequences: When interest rates rose to more normal levels, federal spending on interest payments would increase substantially. Moreover, because federal borrowing reduces national saving, the capital stock would be smaller and total wages would be lower than they would be if the debt was reduced. In addition, lawmakers would have less flexibility than they might ordinarily to use tax and spending policies to respond to unexpected challenges. Finally, such a large debt would increase the risk of a fiscal crisis, during which investors would lose so much confidence in the government’s ability to manage its budget that the government would be unable to borrow at affordable rates.

11 thoughts on “The CBO, the national debt, and Edmund Burke

  1. the interesting thing is that of all the things we do spend money on – ONLY FICA/SS generates a 75-year horizon look-ahead.

    How about we do that for things like military pensions and the VA?

    SS does not need major fixing. We can fix Medicare simply by re-instituting the 20% co-pay and charging those who make more than 70K a year in retirement income – the full cost of Medicare – about $400 a month – still a bargain compared to other programs.

    but what can you do when your national defense is spending 1.5T and your total revenues available are 1.5T and the unfunded liabilities of such spending that involve retirement and health care are basically ignored rather than having the same 75-year horizon that SS has.

  2. The CBO report from June of last year (if that is the one you are referring to) only projects two alternatives — stay on the present course of spending/revenues or get rid of the Bush tax cuts. There are many other alternatives that we have. We should be concerned about our debt, but not alarmed — it can be fixed. It would be a big help if we grew our economy — we have so much potential for that and it is not being realized.

  3. the most important thing not being focused on in the discussion of debt is the real components of it.

    we take in about 1.5 Trillion in general tax revenues and right now National Defense – which is DOD + things like VA, military pensions/health care, Homeland Security, FBI/CIA anti-terrorism, nASA satellites and DOE work for DOD ships and weapons…

    So we DO spend this much – 1.5T on National Defense and yet in most discussions, we actually “low ball” that number to a base DOD budget and that’s simply not dealing with the realities.

    Next, when you count “entitlements”, are we counting those given to DOD and govt employees supporting National Defense as not compensation for their work but instead “free” like other entitlements?

    Do folks realize that National Defense employees pay into and get SS and Medicare rather than stand-alone direct pensions and health care which really are attributable to their employment in National Defense?

    we ignore this in most discussions of spending and deficits and debt but there are legitimate and real components.

    Is anyone seriously talking about getting rid of Medicare and other entitlements for retired military and civilian employees of National Defense ?

    Here’s a proposition.

    What percent of our available revenues should be spent for National Defense?

    what’s that number?

    Once you have that number, you’ll know how much we can afford for entitlements.

    that’s a more realistic approach than the fuzzy logic used in the advocacy to cut entitlements but we never put a number or a percent on it.

    Start with National Defense and work back. You decide what percent of our available revenues you want to allocate to ND and then put that number to our available revenues and give me your number.

    • “… the most important thing not being focused on in the discussion of debt is the real components of it. we take in about 1.5 Trillion in general tax revenues and right now National Defense – which is DOD + things like VA, military pensions/health care, Homeland Security, FBI/CIA anti-terrorism, nASA satellites and DOE work for DOD ships and weapons … what can you do when your national defense is spending 1.5T and your total revenues available are 1.5T” — Larry G

      The first thing that you need to do is get a little perspective.

      Spending on national defense, a core constitutional function of government, has declined significantly over time, despite wars in Iraq and Afghanistan. — Heritage Foundation

      It’s amazing, though entirely predictable, that the same leftists who, after 9/11, insisted that specific security functions be taken from the private sector and re-tasked to the government, and that those new government employees be unionized and granted bulletproof pensions and medical benefits, now complain about the costs involved.

      But you asked, “what can you do” ? So, let me help. We can start cutting here:

      “The Senate Budget Committee reported that in 2011, state and federal government spending on 83 means-tested welfare programs, not including Social Security or Medicare, cost $1.03 trillion. And these expenditures are burgeoning. The Congressional Research Service found that between 2008 and 2011, federal spending on welfare programs increased by 32 percent. The Heritage Foundation has reported that over the next ten years, the U.S. will spend twice as much on welfare as national defense.”National Review

      “The federal government spent enough money on federal means-tested welfare programs to have sent each impoverished household a check for nearly $60,000, according to figures from the Census Bureau and the Congressional Research Service (CRS). According to a report from the CRS … $1 trillion was spent on federal welfare programs during fiscal year 2011 – with $746 billion in federal funds and $254 in state matching funds.”CNS News

      “The federal government actually runs 126 separate anti-poverty programs. They’re managed by 13 different agencies. … The federal government runs 33 different housing programs: 21 programs to provide food, eight healthcare programs, 27 cash or general assistance programs. It’s hard to find a government department that doesn’t run an anti-poverty program. All this adds up — and this is just the federal government. If you also include state and local spending, the government will spend nearly a trillion dollars this year fighting [i.e., subsidizing] poverty. That’s almost the size of the national deficit this year. For a poor family of three, that’s nearly $62,000 dollars. The poverty line for that family is just $18,500. With this kind of spending, poverty should be wiped out — instead it’s growing.” — Fox News

      According to the 2013 U.S. Military pay scale, an E-9, with over 16 years of service, earns $62,340. In order to earn that pay they must be fit, trained for duty and possess years of experience. They are on call 24/7 and must be ready to leave their families and deploy anywhere in the world. Most importantly, they must be prepared to fight and die if necessary. Or, they could go on welfare.

      When you’ve gotten your friends and family off the government tit, get back to us.

      • Hmmm, let’s see, what do we get for some of that “wasteful” defense spending:

        Gadgets the Pentagon Made — From the Microwave to the New iPhone – Wired

        The iPhone 4S’ Talking Assistant Is a Military Veteran, Wired

        The daVinci Surgical System

        Internet -> Offshoot of ARPANET program.

        Geoimaging sats (like google earth) -> Offshoot of military spy sats

        Communication/telecom sats -> Offshoot of project SCORE (first military communication sat)

        Commercial Aviation Control System -> Derived from military radar and control nets

        Anything involving spaceflight -> Derived from US Army Rocket and ballistic missile research

        Cell phones -> Based on packet radio research by DARPA

        Integrated Circuits -> Early funding for transition from transistors to integrated circuits was VLSI program.

        Changing the world: DARPA’s top inventions

        Military research and technology, adopted by the private sector, has had an incredible impact on the economy and the quality of our daily lives. Can you point to any comparable benefit from welfare spending?

        • the bottom line is that we currently take in 1.5T in revenues and I have been asking what percent of that should go to National Defense.

          or I’ll give another option. How much money should we spend in total dollars on national defense?

          the problem we have is this nebulous entitlements vs DOD without ever really getting to real numbers in terms of how much to spend on each.

          because apparently it’s preferable to continue to bash entitlements – no matter the specifics.

          • ” … the problem we have is this nebulous entitlements vs DOD” — Larry G

            Please, let me resolve this for you. Which of these two things – entitlements or DOD – is mentioned in the Constitution and considered to be a core function of goverment?

  4. Larry the constitution specifically stipulates a national defense, not a retirement pension.

    Why go to work, save your money if the government will do it for you. For the people by the people you will never lose an election giving money away, you just can’t run a country that way.

    For every entitlement dollar spent someone else worked for it.

    • @Crispy – your SS comes from when you work. You may have heard of it. It’s called a FICA TAX!

      It’s YOUR MONEY guy!

      what the govt does is mandate that you save it so that later on – others would not end up paying for those who did not save. It’s that Individual Mandate guy and you’ll find it a common feature of every single OCED country on the planet as well as about 100 more countries.

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