By: Jeffrey Winograd
Key Points
- Janet Yellen is avoiding underlying problem.
- GAO says U.S. facing unsustainable growth in debt.
- JCT tax expenditures act as direct spending programs.
- Bloomberg Tax reports tax expenditures cost $1.5 trillion annually.
- CBO offers 76 options for reducing budget deficit.
Treasury Secretary Janet Yellen is engaging in a “dog and pony show” unworthy of her lofty position and the gravity of America’s financial position.
Dog and pony show is an apt description of what Yellen is up to – a heavily promoted, over-the-top performance, presentation, or event designed to sway or convince opinion for political reasons.
On Jan. 19, she announced via a letter to congressional leaders that the U.S. has reached the statutory debt limit of $31.381 trillion and Treasury has started to implement so-called “extraordinary measures” to continue paying its bills. Congress must “act promptly to protect the full faith and credit of the United States,” she declared.
Yellen then graced the AP with an interview while flying off to Africa during which she spouted that spending cuts to get a debt limit increase are “very irresponsible” and it is “about paying bills and not new spending,”
She was quick to assure the fickle public that White House and Treasury officials “will have discussions with members of Congress to try to understand what they see as a path forward. Congress has to do it. It’s can’t be something that’s contingent on cuts.”
Is it fair to opine that Yellen is performing like a political hack hiding behind the aura of being a former president of the Federal Reserve Board and lacks the fortitude to push the White House and Congress into action?
GAO Says Act Now
On Nov. 9, 2022, the Government Accountability Office released a report on the federal debt, which – not for the first time – unequivocally declared that valuable time is wasting as Congress and the White House procrastinate. “Absent action to address the growing imbalance between spending and revenue, the federal government faces unsustainable growth in the debt,” GAO said.
There are almost no serious declarations from Capitol Hill, the White House and the Treasury Department for immediate and specific actions to reduce federal budget deficits and taking the requisite steps to begin paying down the federal debt. Only a shedding of crocodile tears that Treasury is now resorting to extraordinary measures!
However, there are several convenient and invaluable roadmaps to guide budget cutting. Admittedly, they involve negotiating political minefields of epic proportions even while leaving aside the red herrings of cuts in Social Security and Medicare.
JCT and Tax Expenditures
The congressional Joint Committee on Taxation provides an explanation of tax expenditures as well as specific details.
Tax expenditures are defined in the Budget Act of 1974 as “revenue losses attributable to provisions of the federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability.”
According to JCT, tax expenditures include any reductions in income tax liabilities that result from special tax provisions or regulations that provide tax benefits to particular taxpayers. Special income tax provisions are referred to as tax expenditures because they may be analogous to direct outlay programs and may be considered alternative means of accomplishing similar budget policy objectives. Tax expenditures are like direct spending programs that function as entitlements to those who meet the established statutory criteria.
The Treasury Department has its own discussion of tax expenditures on its policy page website.
While they may sound innocent, tax expenditures – which according to Bloomberg Tax carry an annual price tag in the neighborhood of $1.5 trillion – are a continuing gold mine for K Street lobbyists, Wall Street and a variety of stakeholders whose livelihoods depend on them.
So, reasonable thinking may well conclude that cuts in tax expenditures are likely to translate into increased tax revenue flowing into federal coffers, thereby lowering the need to borrow at unsustainable levels.
CBO Enters The Fray
On Dec. 7, 2022, the Congressional Budget Office published two documents which should have a profound role in the current debt limit brouhaha.
The first, Options for Reducing the Deficit, 2023 to 2032 – Vol. I: Large Reductions, contains detailed discussions for 17 large options. “Each of those options would either reduce the deficit from 2023 to 2032 by more than $300 billion or, in the case of Social Security options, have a comparably large effect in later decades,” CBO said.
The second, Options for Reducing the Deficit, 2023 to 2032 – Vol. II: Smaller Reductions, provides estimates of the budgetary savings from 59 options that would each decrease federal spending or increase federal revenues over the next decade by less than $300 billion.
According to Phillip Swagel the CBO director, based on certain assumptions about taxes and spending, federal debt held by the public rises from 98% of gross domestic product (GDP) in 2022 to 110% of GDP in 2032 and 185% of GDP by 2052. The cost of interest on the debt doubles as a share of GDP over the next 10 years and continues to increase thereafter.
“To put the federal budget on a sustainable long-term path, lawmakers would need to make significant policy changes – taking actions to cause revenues to rise more than they would under current law, reducing spending to amounts below those currently projected, or adopting some combination of those approaches,” Swagel said.
However, unlike the GAO, Swagel may be a bit more optimistic. “The nation has time to implement these changes,” he opined.
Time will tell!
Spineless Janet
Meanwhile, the treasury secretary is expected to continue her dog and pony show.
Can Janet Yellen, for the good of the country, abandon partisan politics and candidly speak to the issue as an eminent economist?
If she chose to do so, it is likely she would find allies in GAO, CBO, and even on Capitol Hill.
Don’t hold your breath.
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This article originally appeared on Jan. 26 at https://unamericanactivities.substack.com/p/debt-ceiling-janet-yellen-pitches.
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