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Happy Tax Day!

 

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Fortunately for the procrastinators, the deadline to file taxes is extended a couple of days. Because April 15th fell on a Saturday this year and the next business day happened to be Emancipation Day, today—April 18th—is the deadline.

 

Though many Americans will breathe a sigh of relief that their check to Uncle Sam will not be late, a lot of people will still be unhappy to see the hefty amount they have to hand over to Washington. Though the federal government will collect about $3.5 trillion in taxes, it will spend about $4 trillion, leaving a deficit that must be made up through borrowing or inflation—both of which then take more of a toll on taxpayers.

 

To make up the gap, the government will likely continue to borrow money, adding to the debt and thus the interest we pay on it.

 

Does the government have any other fiscally conservative options? Well, yes, but then politicians would have to do one of their least favorite things: Deal with spending.

 

If Washington is serious about tax reform—as many conservatives have stated—then spending reform has to be on the table as well. President Trump has advocated modest cuts to federal agencies in his recent budget plan, but the big-ticket items, like the Pentagon and entitlements, have to at least be discussed. Refusing to do so harms soldiers and seniors just as much as everyday taxpayers.

 

On Tax Day, it’s important to remember why we are forced to endure this dreaded holiday every year: Because the government spends and spends and spends. In order to make this day a little more bearable in the future, Congress should do more to try to slow the spending train.

Raising the Debt Limit Is Just a Temporary Fix

 

Again and again on the campaign trail, President Donald Trump pledged that he would “drain the swamp”. He used it as a tagline alluding to how he would fix many of the problems synonymous with the federal government. Unfortunately, there are recent signals that newly appointed Treasury Secretary Steven Mnuchin is at risk of following the same old Washington norms—at least when it comes to the debt limit.

 

In an interview with Axios cofounder Mike Allen, Secretary Mnuchin said, “Everybody understands we need to raise the debt limit … and that the full faith and credit of the United States is the most important thing.” This line of thought is nothing new – in fact, former Treasury Secretary Jack Lew had a similar, if not identical, solution to the debt limit debate.

 

Secretary Mnuchin is correct that the faith and credit of the nation is important, and like his predecessor before him, he is not wrong to criticize the process. No one would suggest simply defaulting on payments, but continuing to kick the can down the road is also irresponsible. A quick fix is not a solution. There are credible debt limit alternatives, that are both meaningful and politically achievable solutions, if the experience of other countries is any guide.

 

Ignoring this debate and just constantly raising the debt ceiling – on average, we do so more than once per year – is the epitome of procrastination and will not solve our nation’s spending problems. The United States cannot continue on this path of spending without scrutiny, and with the $20 trillion debt lurking just around the corner, now is a better time than ever for reform.

CBO Releases 2017 Long-Term Budget Outlook

 

New year, same fiscal warnings. The Congressional Budget Office has released their annual long-term budget outlook for 2017 and, likely to nobody’s surprise, the results are eerily similar to their previous predictions.

 

In the new report, CBO estimates that the federal debt will reach 150% of GDP by 2047, nearly doubling the 77% of GDP that it is at currently. The main driver behind this massive increase is the growth of the deficit. With the growth of retirees trending upward, the outlays for Social Security and Medicare are projected to vastly outpace the government’s revenues. This—in combination with the growing costs of healthcare—will only make the problem worse for the U.S economy.

 

Though these projections are similar to the numbers from the July 2016 report, their estimates this year have a slightly more dismal outlook. They now project debt in 2046, measured as a share of GDP, to be 5 percentage points higher than they did in last year’s estimate.

 

In addition, CBO predicts that the growth of federal debt will reduce federal savings and increase the cost of interest on the debt—forcing more pressure on other parts of the budget. CBO points to two potential problems with accumulating high debt. First, they predict it will lead to a decreased ability to respond to problems both domestically and internationally. Additionally, it may lead to a greater chance of a fiscal crisis because investors will be unwilling to finance federal borrowing.

 

There is uncertainty with these projections, of course. They are directly related to the labor force participation rate, growth of productivity, interest rates on the debt, and costs of mandatory spending. Any large changes to these parts of the economy will result in different outlooks—which, depending on the circumstances, could be a good or bad thing.

 

In order for the government to get spending under control, there will have to be massive changes to political habits. If lawmakers aimed to decrease the debt to equal 40% of GDP by 2047—which is the 50-year average—they would have to cut non-interest spending by 15%. Even more frightening, if politicians want to keep debt at the current levels of 77% of GDP, they would still have to cut by 9%, or $1,100 per person. For a federal government that continues to grow year after year, this is a tall order.

 

Currently, the United States is headed down a road of fiscal insolvency. If changes aren’t made, the likelihood of an economic crisis grows exponentially. CBO has been warning Congress for years to take spending cuts seriously and only a few Members have taken action toward change. It is going to take some serious leadership to attempt to shrink the budget, but as CBO warns again, it must be done before we face severe problems not too far down the road.

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