Three Important Facts for the 2014 Elections

The 2014 elections are nearly on us and three of the most important topics have hardly been covered. At least not in a way that voters can tell who to vote for.

Using the WH OMB Historical Table 1.1 we find we've only had five budget surpluses since 1965. Matching those results with who controlled the House when the budget was passed we find the last time Congressional Democrats were responsible for a surplus was 1969. Our National Debt was only $367 billion at the end of 1969! They've been responsible for 30 of the last 45 budgets, all finishing with deficits. And they continue to fight attempts to bring deficits under control while calling for more spending!

With our National Debt well on the way to $18 trillion, how do voters decide who to vote for? Looking at the how Senators have voted on a Balanced Budget Amendment would help. Senators had the opportunity to vote for one in the 112th session of Congress. Using the NJ Almanac of American Politics as my source, I found that every Democrat Senator voted against it and every Republican Senator voted for it. There just weren't enough Republicans or it would have already gone to the states for ratification.

Since at least 2005 the Social Security Trust Fund trustees have been warning us that Congress needs to act in a timely manner in passing reforms. Democrats stopped reforms from being enacted back in 2005 and again in 2011. Sen. Harry Reid is on record saying that he won't allow reforms to be considered until 2031, just two years before the trust funds run out of money. So as long as Democrats control the Senate and Sen. Reid is their leader, Social Security reforms won’t be passed.

So Democrats have a terrible record in regards to deficit spending, they rejected a Balanced Budget Amendment and they aren't willing to consider reforms to Social Security despite the fact they are desperately needed.
Knowing that makes your decision pretty easy to make, doesn't it?

No Eyes on the Real Crisis?

Have you noticed how no one in Washington or the media has paid any attention to the real crisis lately.  That's the fiscal crisis that our Nation faces.  All the attention is on ISIS, Immigration and Ferguson.  All those are important, but they are meaningless unless we very quickly fix our budget crisis and the crisis in Social Security.

 

Budget Crisis:

We've seen the WH OMB MS, the CBO update and the Social Security Trustee Trust Fund Report all came and went with little attention.  Was there anything worth noting in them?

 

WH OMB Mid Session Review:

When comparing the MSR to the original 2015 Budget we see an increase in the 10 year deficit projections of $594 billion.  That's a pretty sizable increase in just 6 months.  A close look at the summary categories shows Outlays down by $167 billion and Receipts down $761 billion.  So the economy is slowing causing tax receipts to drop sharply, accounting for all but $3 billion of the total.  The drop in Outlays is accounted for by a $180 billion reduction in the projection for Net Interest Outlays and a decrease Defense Outlays offsetting a $39 billion in Appropriated - Non Defense.  What accounts for the drop in Net Interest Outlays?  They're now using 4.8% for the maximum 10 Year Treasuries instead of $5.1 in the 2015 Budget.  Have we really seen the 10 year environment change that much or did they change the assumption for purely political reasons so they wouldn't show such a huge increase in the projected 10 deficit.  I think you know which I would vote for.  Both the Public and Gross debt are projected at over $500 billion more in the 2015 MSR.

 

CBO Review:

The Baseline analysis update shows an even more gloomy picture with a 10 year projected deficit of $7.2 trillion, $1.7 higher than the WH OMB MSR.  The big differences are $1.1 less in Outlays, but also a huge $2.8 billion less in Receipts.  Since the CBO is based on current law, the difference in large part reflects proposed tax receipt increases of $1.9 trillion!

But what is scariest about their update is they put out an Alternative Scenario. Since they call it that, no one pays attention to it.  But they should since I call it the realistic since its based on the assumption that Congress will continue its practices.  The biggest one involves the "doctor fix".  Since law requires a reduction in payments to physicians if the total physician reimbursement under Medicare goes up more than inflation.  There is just one problem.  Each year Congress passes the doctor fix FOR THE COMING YEAR!  That means they don't have to make the required cuts in that year, but the projections assume they will in the following year and each year after.  But they never have allowed the cut to take place and now the required cut is ~30%.  So the last 9 years have the cut in it though they have never allowed it to go into affect?  The CBO Alternative Scenario shows a projection `10 deficit of over $9 trillion and that is using lower than can really be expected interest rate assumption values!  If they used realistic one's and Congress' actual practices the projected deficits would be closer to $12 trillion or an average of more than $1 trillion per year.

 

As is their practice, the CBO does not show Gross (or Total Debt) but rather only Public Debt!

 

So while Democrats talk about the low deficit (~$500 billion) and the media loses interest in covering the topic, the projections are taking a serious turn for the worse!

 

Of course the real problem with fixing our Nation's deficits is clearly shown on Schedules 11.1, 11.2 and 11.3 of the Historical Tables.  They show that "Payments for Individuals" reached 69% of our Nation's Outlays in 2013 up from the previous high of only 66%.  Not that long ago (2005) it was 60% and back in 1970 it was only 33%.  Pretty easier to see that we are bankrupting ourselves by letting Congress buy votes with benefits!

 

Social Security:

The WH OMB MSR updated the projected shortfall of SS Payroll Taxes shortage compared to the SS Outlays.  Just to remind you in the 2010 Budget the shortfall was $200 billion.  By the 2015 Budget it had grown to $2 trillion.  And the 2015 MSR is now projecting it at $2.1 trillion.  It's been a steady growth in the shortfall and one the Department of Treasury told me I should expect to see continue until Congress tackles and passes reforms.  The problem will come to a head in 2015 as the Disability Trust Fund is projected to run out of funds in 2016, just two short years from now!  some fix will be needed or benefits will be cut.  But Sen. Reid is on record that he won't act on legislation to reform SS until at least 2031, just 2 years before the combined funds are due to run out of funds.

 

Wake up America!

The Nation's Real Crisis

The summer updates to the Federal Budget are out and once again it looks like the WH OMB is playing games to keep from admitting the real status of our Federal budget.

2015 MSR vs 2015 Budget:

The WH OMB's MSR showed an increase in the 10 year projected deficits of $594 billion ($$5,524 vs $4,930).  That's not good news, but the news gets worse when you look at the details.

First, the increased deficit comes from a combination of lower Receipts ($761 billion) and lower Outlays ($167 billion).  The lower Receipts is spread among the three tax categories reflecting slower economic growth and personal incomes.  This follows recent news.  The decrease in Outlays is more than accounted for by a decrease in Net Interest Outlays ($180 billion) offset by an increase in Non-Defense Appropriated ($39 billion). 

Unfortunately it appears the WH OMB is back to playing games with the economic assumptions to achieve the savings.  They have decreased the maximum interest rate assumptions for both the 10 Year and 91 Day Treasuries.  The 10 Year rate was decreased from 5.1% in the 2015 Budget to 4.8% in the 2015 MSR.  Since 1961 (last 52 years) there have only been 17 years in which the 10 Yr Treasury averaged under 5% for the year.  5 of those years occurred in the early 1960's and the remaining 12 occurred since 2001.  Not one year in between (34 years) averaged 4.8% or lower.  In fact the average for those years was 7.9%.  Taking out the extremely low and high years the average since 1961 would be between 6.5% and 7.0%.  So how do those in Washington think 10 year Treasuries won't exceed 4.8% in the next 10 years when it was never that low from 1967 - 2001?  (The same problem exists with the inflation assumption values!)  When you use higher interest rate assumption values, the Interest Outlay projections increase significantly because of our high levels of debt.

 

2015 MSR vs CBO August Update:

The CBO put out an update to their Baseline estimates that is quite different from the 2015 MSR projections.  The 10 year deficits for the two are $7.196 billion (CBO) and $5,524 (WH OMB MSR).  The CBO projections have $1.1 less in Outlays, but $2.8 trillion less in Receipts.  So the WH is counting on significantly higher tax revenues to offset somewhat higher spending?

 

CBO Alternative Scenario:

The CBO put out an "alternative scenario" in which they projected what the 10 deficits would be if Congress followed their past actions, rather than what current law requires.  (I would call that scenario the REALISTIC SCENARIO.)  That scenario shows projected deficits for the next 10 years of over $9 trillion!

 

"Debt to GDP" and Others:

Washington continues to attempt to fool the world regarding its fiscal crisis.  The WH OMB, CBO and CRFB all quote that our debt to GDP level is currently ~73%.  That's the level of Public Debt to GDP and totally ignores the debt owed to the trust funds.  They also talk about the debt being at post WWII levels.  However following WWII, 90% of our total debt was Public Debt while at the end of 2013 only 71.6% of our debt was "Public" debt.  The Federal Government has used the trust funds to finance a much greater portion of its spending that it had at the end of WWII.

 

Finally, the WH OMB continues to include meaningless ratios in their presentation.  Just how meaningless?  If I told you that they show a deficit of only $128 billion over the next ten years you'd be confused AND MISLED!  But that's what they did when they included the ratio labeled "Primary Deficit".  They've began including that ratio in their summary presentations in the 2012 Budget projections.  It  had become clear they had no intention of eliminating the deficit, so they began using a ratio that would do it for them.  The "primary deficit" eliminates the Net Interest Outlays from the calculation.  This is important as Net Interest Outlays are ready to increase dramatically in future years exploding the size of our deficits.  Coming up with a ratio that takes Net Interest Outlays out of the picture takes the focus off of the real crisis, the size of our debt!

Unfortunately the Illegal Immigrant, ISIS and  Ferguson, MO crisis have taken the Nation's focus off of our pending financial crisis.  That makes it easy for all politicians, both Democrat and Republican!