NEW YORK | GOP Passes "Decimating" Budget

October 26, 2017 – This morning, the House of Representatives passed a budget that the bi-partisan Committee for a Responsible Federal Budget describes as using "gimmicks", increasing debt and exercising "Zero Fiscal Restraint".

For New York State residents, the bill is especially threatening because it eliminates the deductibility of State and Local Taxes (SALT) from taxable incomes.

When this idea was introduced under President Reagan, it was described as "double taxation". The CEO of American Express predicted that the value of the company's new building would drop by 25 percent, from $1 billion to $750 million. The proposal was defeated.

Under President Trump, the idea was resurrected and has passed both the Senate and the House.

On Long Island, two Republican Congressman opted to vote against the bill:

• One of them, Rep. Peter King, said: "Why should I vote for something that would end up decimating my district?" 
• The other, Lee Zeldin, represents most of Suffolk County. 

The bill has passed by a few votes and now goes back to a House-Senate conference for reconciliation.

New York voters are watching carefully. If King and Zeldin think that they will be forgiven for this "decimating" GOP budget because they voted against it, they may be in for a surprise. 

BUDGET 2017 | House Chooses "Zero Fiscal Restraint"

The House today just passed the Senate-approved Budget for FY 2018, which the bi-partisan Committee for a Responsible Federal Budget describes as a choice of "Gimmicks and Debt" and "Zero Fiscal Restraint".

Newly Passed Budget Chooses Gimmicks and Debt over Fiscal Restraint October 26, 2017 For Immediate Release The House of Representatives passed the Senate-approved budget today. The following is a statement from Maya MacGuineas, president of the Committee for a Responsible Federal Budget: Republicans in Congress laid out two visions in two budgets for our fiscal future, and today, they choose the path of gimmicks, debt, and absolutely zero fiscal restraint over the one of responsibility and balance. While the original House budget balanced on paper and offered some real savings, the Senate’s version accepted today by the House fails to reach balance, enacts a pathetic $1 billion in spending cuts out of a possible $47 trillion, and allows for $1.5 trillion to be added to the national debt. Make no mistake – this is a defining moment for the Republican party. After years of passing balanced budgets and calling for fiscal responsibility, the GOP is now on-the-record as supporting trillions in new debt for the sake of tax cuts over tax reform and failing to act on the pressing need to reform our largest entitlement programs. Although Congress just took a radical detour, there is still time to reverse course. As the legislative process unfolds, we urge members of Congress to produce legislation that does not add to our already near-record high national debt, and to reject the use of gimmicks, including rosy economic growth assumptions, that hide its true cost. Tax cuts do not pay for themselves; they can create growth, but in the amount of tenths of percentage points, not whole percentage points. And they certainly cannot fill in trillions in lost revenue. Relying on growth projections that no independent forecaster says will happen isn’t the way to do tax reform. Lawmakers should instead return to the principle of fiscal responsibility by enacting pro-growth tax reform that doesn’t add to the debt. ### For more information contact Patrick Newton, Press Secretary, at newton@crfb.org.  Committee for a Responsible Federal Budget 1900 M Street, NW Suite 850 Washington DC 20036 United States If you believe you received this message in error or wish to no longer receive email from us, please  unsubscribe.

More on U.S. Debt

In two previous blogs I have presented U.S. national debt data showing that it is high and growing relative to other countries. In The Growing Price of U.S. Debt, I estimated the debt at $67,000 per U.S. taxpayer, with the number about six times bigger if we add unreported U.S. liabilities. In The U.S. 10-Trillion-Dollar Debt Limit I noted that the debt limit has been raised an average of $500 billion per year since President George W. Bush came to office and noted that our state and local officials don't have the luxury of running deficits. NYC Mayor Bloomberg has assailed the continuing huge U.S. budget deficits as "lunacy" in a speech to British conservatives.

My concerns focus on the fact that the debt is (1) growing fast, (2) understated, because it does not include social insurance liabilities, and (3) leaves a legacy for our children of a burden of taxes (especially, as the U.S. tax system is now structured, payroll and income taxes) that will reduce their standard of living. The other concern I have is that continuing current-account deficits mean that the debt is being financed by overseas accumulations that could be de-accumulated under conditions that will tie the hands of the United States internationally.

Now I would like to add to the pile of evidence against current practice an interesting summary of the growth of the U.S. national debt since 1938 by Steve McGourty, who takes a partisan approach - he lays the blame for the bulk of the growth of the debt at the feet of tax-cutting Republican Presidents Reagan and George W. Bush. Actual reductions in the national debt occurred in the last 50 years only under under Presidents Kennedy and Clinton (adjusted for inflation). His charts are interesting. I would be interested in seeing (1) his numbers adjusted for inflation, (2) an addition for unfunded health and Social Security liabilities, and (3) a link between the current-account deficits and the budget deficits.

Predatory Credit Card Issuers?

Who's at fault for the high level of credit card debt and the high fees that are being charged? The credit card issuers, who make it so easy to borrow, or we American consumers who run up five and six-figure credit card bills we can't afford, until the credit stops?

A blog posted on the Motley Fool web site says that both are at fault. Americans borrow too much, it is made too easy for them, and the implications of their borrowing are not fully understood.

This is a broader perspective on the subprime loan crisis. The predatory subprime lenders focused on housing-secured loans. Predatory credit-card issuers make up in high fees what they may lose in credit-card debt that is not repaid.

What do you think?

U.S. DEBT | If and When It Matters

October 2, 2007–Congress has just approved raising the U.S. federal debt ceiling to a tad short of $10 trillion. What happened to the virtue of thrift and foresight exemplified by the fable about the ant and the cricket? The ant works all summer to save for the winter, while the cricket just sings his heart out. Come fall, the cricket begs in vain for food and starves to death, not having figured out the America Buys on Credit solution – buy what you want and put it on Uncle Sam's credit card until it maxes out at $10 trillion.

The debt ceiling had held at under $6 trillion from August 1997 to June 2002, when after 18 months in office President Bush asked for a higher ceiling. Three more increases took the ceiling to nearly $9 trillion, which was reached on October 2, according to the national debt clock, i.e., nearly $30,000 per U.S. citizen. The latest increase raises the ceiling more than 60 percent above what it was when the President took office in 2001.

A CIA table updated as of September 20, 2007 shows the national debt of France, Turkey and the United States clustered around 64.7 percent of GDP.

Debt, External Debt and Deficits. If Americans owe $30,000 to one another, some argue, it's just a wash. Perhaps the burden of the debt is shifted to the next generation. Perhaps the debt service encumbers future budgets. Perhaps the President is setting a bad example as Borrower in Chief. That's the way Mayor Bloomberg feels: “Too many of our conservatives in the United States want to run up enormous deficits and hope that some way, somehow, someone else will pay for it. That’s not conservatism, that’s alchemy at best, or if you like, lunacy.”

On the other hand, if the money is spent for investment, the next generation is benefiting from this investment and U.S. debt itself provides the buyers with a low-risk asset. The problem is that the money is not being spent for investment. The increases are for wars in Afghanistan and Iraq that are not going well and are dubious investments. The U.S. debt has been bought heavily by foreign central banks, allowing them to neutralize the extra dollars and keep the local currencies strong, at the expense of the dollar. A weaker dollar is not necessarily bad, because it means Americans can export more overseas. It also means that imports will cost more. This could well contribute to inflation. It also provides some hope that U.S. consumers will spend a smaller share of their income of imports and the enormous annual U.S. current account deficit will start to shrink.

U.S. external debt, i.e., public and private debts repayable in foreign currencies, shows the extent of the cumulative overhang. Debt obligations are calculated in U.S. dollars at current exchange rates. While U.S. external debt is the highest at $10 trillion, it isn’t much higher than the $8.3 trillion figure for the UK.

Top Five Cricket Nations by External Debt
1. United States $10.0 trillion
2. United Kingdom, $8.3 trillion
3. Germany, $3.9 trillion
4. France, $3.5 trillion
5. Italy, $2.0 trillion
Source: CIA, The World Factbook , updated as of 9/20/07.

To rank the cricket nations on a current basis, we can use current-account deficits, i.e., a country's net imports in goods and services, less net earnings from rents, interest, profits, and dividends, and less net transfer payments (such as pension funds and worker remittances) from the rest of the world during the year, calculated on an exchange-rate basis. The U.S. current account deficit in 2006 of $862 billion is nearly 15 times the UK's $58 billion.

Top Five Cricket Nations by Current Account Deficits, 2006
1. United States, -$862.3 billion
2. Spain, -$98.6 billion
3. United Kingdom, -$57.7 billion
4. Australia, -$41.6 billion
5. France, -$38.0 billion
Source: CIA, The World Factbook , updated as of 9/20/07. The Trade Balance is the net exports of goods and services, i.e., exports less imports. Examples of services would be legal and consulting services to overseas clients. The Current Account Balance (ranked for 163 countries) is the Trade Balance + net factor income from abroad (such as interest and dividends) + net unilateral transfers from abroad (such as foreign aid, pension payments from overseas or workers’ remittances from overseas). When the trade or current account balance is positive it is called a surplus. When the balance is negative it is called a deficit.

Why Do Debts and Deficits Matter? Americans owing money to one another is not worrisome. But Americans selling public debt to foreign countries, and adding to the debt at a rapid clip, is worrisome. Those who are holding dollar securities must be noticing that the value of these securities has declined seriously.

Meanwhile, U.S. consumers must eventually pay substantially more for imports. That must put an upward pressure on the CPI. We could be back to the 1970s problem of simultaneously rising unemployment and rising inflation, and therefore a rising Misery Index. The U.S. Misery Index hit a high of 22 percent in June 1980. Right now it is down to 5.6 percent.

Postscript - October 2008. One year later, asset values have plummeted. That should take care of the inflation pressure for a while, until balance sheets of financial institutions, businesses and individuals are back in some kind of order.