Fiscal Pol: Deficit/Debt Dormancy (Jan. 28)

Mike & Co. —

Ordinarily this time of year, you would perhaps start to spot leaks or hear scuttlebutt about the president’s spending plans for the next fiscal year, in anticipation of the statutory February White House budget rollout.  No one noticed when the administration announced it would miss next week’s legal budget submission deadline.

With FY17 toplines set in the omnibus bill passed last month, you may hear little in the Beltway about the budget anytime soon (although the Chair did announce plans yesterday to introduce a budget resolution this year, to the surprise of many, including Majority Leader McConnell).  

 

Even on the campaign trail in the Granite State, with its famously flinty tax-o-phobes, nary a word is heard about the debt, let alone defaulting it, not this year.  

 

The federal budget, deficits, and the debt have not yet gotten much air play yet this campaign.  But if we lifted up the car hood, what would we see?  What is our medium-long term fiscal outlook, what would the impact on it of the candidates’ proposals be, and what fiscal issues are most likely to arise in the primary debate?

 

Best,

Dana

 

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CBO 10-year Deficit Projections

The CBO reported last week that it expects the annual deficit to grow from its current $450 billion to $1.3 trillion by 2016. Candidates issuing calls for increased spending, against this backdrop, may be called to account.

 

Perhaps in recognition of this, both HRC and Sen. Sanders have recently and admirably detailed how they would use executive actions to enact parts of their revenue packages without Congressional support.  Both have proposed extensive new spending plans as part of their primary platform. however, it may be time for the candidates to get serious about the fiscal viability of these plans from a fiscal perspective.

 

Clinton — Fiscal Stimulus?

 

HRC has proposed a tax package that will raise federal revenue by $500 billion over ten years, to be used for a $350 billion “College Compact” plan, for tax deductions on health care spending, and to fund an ambitious infrastructure investment package.  Her spending plans are split between those which provide short-term economic stimulus and those which are aimed at providing longer-term boost.  Her $250 billion plan to increase infrastructure investment in the country – paid for by reviving the “Build America Bonds” program and federal revenue —  works on two fronts.
First, hiring middle-class workers in construction, engineering, and the trades the plan puts more money into the hands of people who tend to spend that money quickly.  Second, improving roads, bridges, and tunnels in America the plan will make future transport of goods more reliable, speedy, and safe, all calculated to spur economic growth.

 

The “College Compact” aims to forgive student loans, lower college tuition, and make community colleges tuition-free.  By removing the burden of debt from young graduates, HRC hopes to free those people up to begin consuming at a higher rate.  The current home-ownership rate for young Americans is distressingly low largely due to their debt burden after college, HRC would rather young Americans take debt on in an equity-building purchase than spend thirty years repaying their college degree.

 

The Sanders Health Care Tax Bill

 

Sanders’ $14 trillion spending plan, his “Medicare for All” proposal, would require the single largest tax hike in the nation’s history, bringing taxes on the wealthy to levels not seen since Reagan.  These taxes, the size of which already makes them non-starters even among Democrats in Congress, are to be used to enact single-payer healthcare legislation – legislation which didn’t even get a vote during a Democratic majority in Obama’s first term.

 

Sanders must hope that the economic efficiency of a single-payer health care plan, which finds its savings in the reduced role of middle-men and insurance companies, will result in savings passed onto Americans – Americans who will, in their turn, spend those savings in the economy at large.

 

He has found political success in his promise to make colleges and universities in America tuition-free.  The impetus behind this plan is similar to that of Mrs. Clinton – students with lower debt burdens are going to spend a greater portion of their income on food and entertainment, as well as on equity-investments like homes.
Campaign Impact
The CBO’s federal budget projections released last week indicated that the annual federal deficit will grow to $1.3 trillion by 2026.  It’s unlikely that the CBO report will be linked to the candidates’ spending plans in any meaningful way.  And to be fair, each candidate has put forward proposals to raise revenue equivalent to the costs of their plans (or at least to the extent that their own analyses can be trusted); this is often a rarity amongst politicians running for office and they should be applauded for doing so.  Because of this, both campaigns can claim that their proposals will not raise the federal deficit – it’s unlikely that those claims will remain unchallenged in the future.

 

Tax Foundation Analysis

 

Recent analyses by the Tax Foundation, a group which uses dynamic scoring methods to judge revenue, have found that Clinton’s plan will reduce economic output by 1 percent over a decade, while Sanders’ proposals will lower GDP by a staggering 9.5 percent.  Dynamic scoring is a

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