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Title : Why “Entitlement” Cuts and Not Tax Increases Again?
link : Why “Entitlement” Cuts and Not Tax Increases Again?
Why “Entitlement” Cuts and Not Tax Increases Again?
John Cochrane has to remind us that he co-authored a really bizarre oped:Unless Congress acts to reduce federal budget deficits, the outstanding public debt will reach $20 trillion a scant five years from now, up from its current level of $15 trillion. That amounts to almost a quarter of million dollars for a family of four, more than twice the median household wealth. This string of perpetually rising trillion-dollar-plus deficits is unprecedented in U.S. history.Oh good grief! Can one say relative to GDP? We are also about to see a $20 trillion per year level of national income – “unprecedented in U.S. history”. But yea – they did begin with mocking this Trump nonsense:
President Trump's recently released budget is a wake-up call. It projects that this year, a year of relatively strong economic growth, low unemployment and continued historically low interest rates, the deficit will reach $870 billion, 30 percent greater than last year.Relatively strong economic growth is not exactly the same as Kudlow’s forecast of 5% growth is it? Oh wait – Cochrane and company have been touting strong growth effects from the Trump tax cuts. Never mind. Back to Cochrane the new found deficit alarmist:
In recent months, we have seen an inevitable rise in interest rates from their low levels of recent years. Rising interest rates and increasing deficits threaten to build upon each other to send public debt spiraling upward even faster. When treasury debt holders start to doubt our government's ability to repay, or to attract future lenders, they will demand higher interest rates to compensate for the risk. If current spending and tax policy continue unaltered, higher interest costs will have to be financed by even more debt. More borrowing puts more upward pressure on interest rates, and the spiral continues. If, for example, interest rates were to rise to 5 percent, instead of the Trump administration's prediction of just under 3.5 percent, the interest cost alone on the projected $20 trillion of public debt would total $1 trillion per year. More than half of all personal income taxes would be needed to pay bondholders. Such high interest payments would crowd out financing of needed expenditures to restore our depleted national defense budget, our domestic infrastructure and other critical government activities. Unchecked, such a debt spiral raises the specter of a crisis. Some may think that such concerns are overblown, as there is no current evidence in financial futures markets that a crisis is on the horizon.Let’s stop right there and note that the interest rate on 30-year government bonds is only 3% not 5%. But of course Cochrane knows so much more than the market knows – I guess. But yea there is a long-run government budget constraint so let’s get to the policy prescription:
To address the debt problem, Congress must reform and restrain the growth of entitlement programs and adopt further pro-growth tax and regulatory policies. The recently enacted corporate-tax-reform plan is a good first step, as it sharply increases the incentive to invest and grow businesses, which will increase incomes. The revenue loss, which amounts to about 0.4 percent of gross-domestic product in 2025, is not by itself a budget buster, considering both the offsetting revenue reflow from higher incomes and the far larger long-run entitlement explosion.Yea – that Laffer curve! Kudlow is a genius! PLEASE! Their message is that tax cuts for the rich as fine and dandy but we cannot afford to honor your Social Security benefits. Didn’t we cover this already?
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John Cochrane has to remind us that he co-authored a really bizarre oped:
Unless Congress acts to reduce federal budget deficits, the outstanding public debt will reach $20 trillion a scant five years from now, up from its current level of $15 trillion. That amounts to almost a quarter of million dollars for a family of four, more than twice the median household wealth. This string of perpetually rising trillion-dollar-plus deficits is unprecedented in U.S. history.Oh good grief! Can one say relative to GDP? We are also about to see a $20 trillion per year level of national income – “unprecedented in U.S. history”. But yea – they did begin with mocking this Trump nonsense:
President Trump's recently released budget is a wake-up call. It projects that this year, a year of relatively strong economic growth, low unemployment and continued historically low interest rates, the deficit will reach $870 billion, 30 percent greater than last year.Relatively strong economic growth is not exactly the same as Kudlow’s forecast of 5% growth is it? Oh wait – Cochrane and company have been touting strong growth effects from the Trump tax cuts. Never mind. Back to Cochrane the new found deficit alarmist:
In recent months, we have seen an inevitable rise in interest rates from their low levels of recent years. Rising interest rates and increasing deficits threaten to build upon each other to send public debt spiraling upward even faster. When treasury debt holders start to doubt our government's ability to repay, or to attract future lenders, they will demand higher interest rates to compensate for the risk. If current spending and tax policy continue unaltered, higher interest costs will have to be financed by even more debt. More borrowing puts more upward pressure on interest rates, and the spiral continues. If, for example, interest rates were to rise to 5 percent, instead of the Trump administration's prediction of just under 3.5 percent, the interest cost alone on the projected $20 trillion of public debt would total $1 trillion per year. More than half of all personal income taxes would be needed to pay bondholders. Such high interest payments would crowd out financing of needed expenditures to restore our depleted national defense budget, our domestic infrastructure and other critical government activities. Unchecked, such a debt spiral raises the specter of a crisis. Some may think that such concerns are overblown, as there is no current evidence in financial futures markets that a crisis is on the horizon.Let’s stop right there and note that the interest rate on 30-year government bonds is only 3% not 5%. But of course Cochrane knows so much more than the market knows – I guess. But yea there is a long-run government budget constraint so let’s get to the policy prescription:
To address the debt problem, Congress must reform and restrain the growth of entitlement programs and adopt further pro-growth tax and regulatory policies. The recently enacted corporate-tax-reform plan is a good first step, as it sharply increases the incentive to invest and grow businesses, which will increase incomes. The revenue loss, which amounts to about 0.4 percent of gross-domestic product in 2025, is not by itself a budget buster, considering both the offsetting revenue reflow from higher incomes and the far larger long-run entitlement explosion.Yea – that Laffer curve! Kudlow is a genius! PLEASE! Their message is that tax cuts for the rich as fine and dandy but we cannot afford to honor your Social Security benefits. Didn’t we cover this already?
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