Trumped! A Nation on the Brink of Ruin... And How to Bring It Back

by David Stockman

  And that word hardly describes the scandal of it. The program’s budget cost has tripled in real terms just since 1990, mainly due to an explosion of “back pain” and “mental illness” cases. Those dubious diagnoses now account for fully 55% of recipients compared to less than 15% in 1961.

  So here is an entitlement crying out for sweeping statutory reform and faced with a complete cessation of benefits before the 2016 election due to the impending exhaustion of the DI trust fund. But that kind of rare fiscal leverage is never used when you have the likes of Johnny Lawnchair and Faker Ryan negotiating a “responsible” bipartisan deal.

  In any event, sooner or later workers will get socked with another round of payroll-tax increases to bailout the entirety of the OASDI trust fund complex, which we demonstrated in Chapter 8 will be insolvent by 2026. But in the interim, the military-industrial complex has surely been tickled pink by Boehner’s parting betrayal of U.S. taxpayers.

  In fact, the Boehner/Obama deal of 2015 will increase discretionary-spending authority by $112 billion over the next two years. This includes the $80 billion increase in the discretionary-spending caps plus another $32 billion increase for war contingencies and other national-security programs not subject to the sequester.

  Not surprisingly, $72 billion, or nearly two-thirds of that budget-busting add-on, goes to the Pentagon, Washington’s vast intelligence and spy networks and the State Department’s security programs. Apparently all those extra billions were needed to contain the Russian bugaboo.

  Yes, that seemed especially the case after Putin showed how you actually fight terrorists in Syria, and not by spending $500 million on 50 trainees—all of who were captured, shot or deserted within weeks of being placed in the field—as did the CIA.

  But the military-industrial complex always needs more. With this further largesse, total U.S. national-security spending will touch nearly $800 billion next year, including the military, foreign and security aid, and veterans and related spending. That’s two-thirds of Russia’s entire 2015 GDP of $1.3 trillion!

  Of course, we don’t have a real industrial-state enemy in the world that could actually threaten the security and safety of citizens in Lincoln, Neb., and Boston, Mass. But that has not stopped Johnny Lawnchair from folding on the fiscal issue time after time in order to make a deal with liberal big spenders to get more funding for the military-industrial complex.

  Can you say postretirement lobbying, consulting and speaking gigs? Don’t bother. Boehner had been working on that for years.

  HOW THE GOP LEADERSHIP RAN OUT THE FISCAL CLOCK

  At the end of the day, however, the Speaker’s most egregious sin has been to run out the clock on the possibility of fiscal retrenchment. After his parting shot which froze policy for another two years, there was no possibility of a true budget deal until the summer of 2017. That means no real impact on the budget numbers until CY 2019—since its takes several quarters to crank-up any meaningful revenue measures or entitlement reforms.

  At that point in time (October 2019), of course, it would be exactly 123 months since the so-called Great Recession ended. Have we ever had an economic expansion that long—even during the years when the American economy was riding high and when the Fed had not yet exhausted its ability to goose credit and spending with easy money?

  No we haven’t. The longest expansion in history is 119 months and the average since 1950 is on 61 months.

  So, effectively, Johnny Lawnchair and his sidekick Ryan compromised the nation’s fiscal plight right into the next recession and the renewed outbreak of trillion dollar annual deficits. That is, to a point when Washington will once again be paralyzed with fear that actually paying our bills would drive the stumbling U.S. economy further into the drink.

  And what possible excuse did Johnny Lawnchair have for delivering the nation into this absolutely certain fiscal catastrophe?

  He didn’t wish to demand that the president employ his constitutional powers to allocate and prioritize spending in the event Uncle Sam had exhausted his legal authority to borrow.

  That’s why Johnny Lawnchair deserves everlasting infamy—or at least until Paul Ryan comes up with new excuses for burying future generations in terminal debt.

  SPEAKER PAUL RYAN: NEW OCCUPANT, SAME FAST-FOLDING LAWNCHAIR

  Supposedly a new era was to dawn under Boehner’s successor Paul Ryan. But not so. The lawn chair never left—it just got a new occupant.

  After just 51 days in office, Ryan has forced the GOP to walk the plank on what under any honest form of fiscal accounting is a $2.5 trillion addition to the national debt.

  Well, make that any form of accounting at all. This whole stinking pile of backroom deals was pushed through so fast that even CBO did not have a chance to fully analyze and score the bill.

  In that regard, for the first time in his life, Harry Reid told the truth after this Ryan-Obama midnight special was whisked through the House and Senate at year-end 2015.

  Said the man of legendary forked tongue, “Sometime in the darkness, the bill was finalized . . . [N]o legislation is perfect, but this is good legislation.” It should come as no surprise that Paul Ryan is a complete fiscal fake. After all, he has spent years braying about the national debt, but never saw a defense program he didn’t want to fund or a bailout that would help his Wisconsin district that he couldn’t rationalize.

  Fiscal conservative? The man voted for the TARP bailout of Wall Street and the bailout of the GM/UAW thieves, too.

  And year after year he had proposed a “Ryan budget- reform plan that was a complete fraud. He did not remove one dime from Social Security spending, ever.

  Not even for the wealthy retired duffers who live on golf courses in Florida and Arizona.

  Nor did his fiscal plans do anything about the $700 billion in annual cost of Medicare for at least a decade into the future. And he didn’t even bother to balance the federal budget until 2037!

  But what was so obnoxious about this latest pork-festooned betrayal of the taxpayers is that it was totally unnecessary.

  Ryan could have simply announced that there is a new sheriff in the House and that no one would leave town until New Year’s Eve if need be—unless the pork was excised first and the bills $680 billion worth of tax benefits, gimmicks and loopholes were either removed or off-set with honest “payfors.”

  Needless to say, Speaker Ryan had a totally different take. While this year-end fiscal abomination was just water over the damn, there will always another chance: “Congress can now move into 2016 with a fresh start . . .”

  No it won’t and most assuredly it hasn’t. The Ryan/Obama FY2016 omnibus appropriations bill was just another ruse in a moveable fiscal scam that, as I outlined above, has been underway since the debt-ceiling crisis of August 2011.

  Back then, Congress claimed to cut the 10-year deficit by $2 trillion, mainly through $1.2 trillion via the so-called appropriations sequester after the super committee failed to come up with equivalent entitlement and other permanent reforms.

  But here’s the skunk in the woodpile. Congress claimed $1.2 trillion in savings from discretionary-spending caps over a 10-year period through FY 2021, yet appropriations bills are good for only one year. So what it really did was establish a mechanism to have its cake and eat it too.

  Because the future year caps are statutory, CBO must dutifully score them as a reduction in the budget baseline every time it does a ten-year projection. At the same time, during each annual appropriations cycle, Congress can modify or bust the caps entirely for the current year, and then either take a “one-time” hit to the deficit or find gimmicks to off-set some or all of the cost.

  In fact, every year since 2011, Congress has lifted the discretionary-spending caps for the current fiscal year in order to make room for bloated domestic and DOD appropriations. Ryan’s omnibus bill did exactly the same.

  To wit, discretionary appropriations for DOD and domestic agencies during FY 2016 and FY 2017 will be $100 bill
ion per year higher than the annual caps adopted with so much fanfare back in 2011.

  Thus, we are now halfway through the ten-year cycle initiated in the August 2011 crisis—so savings from the sequester caps on the annual appropriations bills should have totaled at least $500 billion by now. In fact, when you cut through all the gimmicks, ruses, re-estimates and program reconfigurations that have been deployed in the interim the actual savings would amount to a rounding error around zero.

  FAKER RYAN AT WORK—CHIMPS AND OCO

  There are two features of the current bill which expose the manner in which this moveable scam operates. The first is something called CHIMPs or changes in mandatory programs. These gems are claimed to be budget authority cuts that offset appropriations which exceed the caps.

  In the current bill these CHIMPs savings for FY 2016 total $18.6 billion, and they permitted literally hundreds of add-ons to be stuffed back into the 12 appropriations bills.

  But only $0.6 billion or 3% of these CHIMPs savings will actually reduce cash outlays. By contrast, $13 billion represents savings in FY 2016 that get added back in FY 2017. And the remaining $5 billion are technical cuts to budget authority that will never results in a dime of cash savings during any year.

  Likewise, Congress has stuffed $73.7 billion into the OCO (overseas contingency operations) bucket, which in theory was set up to cover the one-time and unusual cost of military operations in Iraq and Afghanistan.

  Apart from the fact that Imperial Washington does nothing abroad on a one-time basis and that wars of intervention are not a contingency but a permanent policy, there was never any justification for exempting these expenditures from the caps in the first place,

  After all, spending is fungible. When it comes to allocating the multi-billion annual operating cost of a carrier battle group stationed in the Persian Gulf between it “peacetime baseline” and its “war contingency” elements, for instance, you can get any answer which is convenient.

  The point is that the OCO has provided a huge cookie jar for spending increases that nullify even the modified appropriations ceilings that Congress has enacted each year since 2011.

  This year (FY 2016) roughly $15 billion of the OCO will go to the State Department for foreign aid and other international-security programs, and this figure is up roughly $6 billion from a similar OCO allocation last year.

  At the same time, the omnibus bill cuts the State Department’s “regular” appropriation by about $5 billion, and re-allocates these funds to a huge smattering of pork and add-ons to the other domestic appropriations bills.

  On a net basis, therefore, everybody wins . . . except the taxpayers.

  That is, the State Department’s available funding will be up by $1 billion as between the regular and OCO buckets, while appropriations for the domestic agencies will be higher by $5 billion. Yet none of this will show up in the $1.066 trillion ceiling on discretionary spending.

  It’s all backdoored through the OCO!

  THE MOVEABLE BUDGET SCAM—PHONY 10-YEAR “BASELINE” PROJECTIONS

  The larger point is that the Fed’s massive repression of interest rates has spawned a fiscal culture of unspeakable deception, duplicity, lies and dysfunctionality on Capitol Hill.

  On the one hand, it means that the $19 trillion of national debt can be serviced on the cheap—currently at a weighted average yield of about 1.8%. Accordingly, debt service costs which would be upwards of $1 trillion under normalized interest rates (5%) are currently only about $350 billion. So the politicians—even self-proclaimed fiscal hawks like Ryan—feel no financial pressure, and become accustomed to blithely kicking the can.

  At the same time, the moveable fiscal scam described above has resulted in an utterly deceptive 10-year deficit forecasts—even after funding the national debt on the cheap.

  The CBO’s so-called baseline projections show out-year spending far lower than what is actually built into the system, and not merely due to the deceptive rosy-scenario economic forecasts I exposed in Chapter 9.

  The long-term deficit outlook is further understated owing to the phony out-year caps and entitlement reforms that CBO is required by Congress to credit.

  That’s right. Congress has no intention of allowing these future-year fiscal curtailments to become effective, but still insists on counting them when summing up completely phony 10-year savings totals. Yet when the “out-years become the current year, they are simply suspended, deferred or covered up with new offsetting out-year savings gimmicks like those in last year’s omnibus bill.

  By the same token, baseline revenues are projected to be far higher than will actually materialize under current policy. That’s due to the operation of the same kind of moveable scam on the income side of the budget ledger.

  In this case, there are literally hundreds of billions per year of tax incentives, subsidies and loopholes that have been in the IRS code for years or even decades that are made to artificially and abruptly expire a year or two down the road. Accordingly, CBO scores a commensurate increase in the out-year revenue base, thereby contributing to the appearance that the long-term deficit is shrinking.

  But when we get to the statutory expiration dates, these provisions never happen and the huge revenue drains continue. The culprit is something called that annual “tax extender” bill, which mostly just rolls forward the expiration dates by a year or two so that the CBO can keep projecting sunny fiscal skies ahead.

  This is evident in spades in the $680 billion worth of so-called tax-extenders also contained in last year’s omnibus bill. One of them is the corporate tax credit for research and experimentation, which costs about $12 billion per year in foregone revenue.

  Now that particular item has been “extended” about 16 times over the past decades, meaning that out-year budget projections have always included higher revenue from the expiration of a major tax loophole that the bipartisan majority and their K-Street paymasters never, ever intended to happen.

  In fact, the proof is now in the pudding. In a token gesture of honesty, the current bill actually makes the research credit permanent, and thereby reduces 10-year revenues by $113 billion. So, finally, that particular chunk of phantom revenue will be no more.

  Unfortunately, that can’t be said for much else in the tax components of the package. For instance, the completely unjustifiable and wasteful tax credits for solar and wind energy have been “expiring” almost annually since they were enacted years ago. This time they were extended effectively for three and one-half years at a cost of $26 billion, according to the Joint Tax Committee.

  In truth, the giant lobby behind these boondoggles has demonstrated its insurmountable power so many times over the last few years that there is no chance these “expirations” will ever happen. So the actual 10-year cost of these renewable-energy provisions is more like $75 billion.

  THANKS, SPEAKER RYAN—YOU DIDN’T REPEAL OBAMACARE, YOU DOUBLE SHUFFLED IT

  One of the most egregious cases of this kind of double shuffle pertains to the three Obamacare taxes, which are deferred by several years at an alleged cost of $28 billion. In truth it’s more like $260 billion.

  Here’s why. Recall that the true cost of Obamacare was in the trillions, but it was outrageously disguised as a deficit reducer through a series of huge gimmicks, such as changing the student loan program from an entitlement to a direct loan; and also through a series of stiff taxes on insurers, medical devices and so-called Cadillac medical plans.

  However, these so-called “pay fors” were back-loaded into the middle of this decade in order to pacify the intense political opposition to them and to assemble the razor-thin partisan majority by which the program was enacted in 2010.

  In particular, core Democrat constituencies like the labor unions were violently opposed to the so-called “Cadillac tax” on expensive, gold-plated employer health plans. That was even after the threshold plan value was raised to $27,000 per year for family coverage before the 40% tax kicks in. So the incept
ion date was deferred into the distance future—to 2018.

  Well, the distant future is now getting closer, and like with almost everything else in Obamacare that created intensive political opposition, such as the employer mandate, the time had come time to kick the can.

  So the Cadillac tax was deferred two years until 2020. Likewise, the tax on medical devices was “paused” for 2016 and 2017—an action consistent with previous pauses and deferrals.

  That’s right. They had the audacity to say they paused the thing that they never intend to become effective. In that same vein, in fact, the health-insurers tax that pays for part of the Obamacare subsidies to families up to 3X the median income was also paused for a year.

  The plain fact of life is that none of these out-year Obamacare taxes will ever be collected. Accordingly, the real hit to future deficits is in the order of one quarter trillion dollars over the next 10 years.

  The above matters do not even begin to itemize the fiscal largesse embedded in the omnibus bill. But they do crystalize the underlying moveable fiscal scam at work—a systematic process by which future spending growth is disguised and future revenue collections vastly exaggerated.

  In last year’s omnibus bill alone, the true impact on revenues over 10 years was about $1.2 trillion, not the $523 billion scored by the CBO. After the interest-carry cost even at the low rates assumed by the CBO, the add-on to future deficits is on the order of $1.5 trillion.

  Likewise, the CBO scores the spending increases at $158 billion over the next decade, but for all practical purposes this bill marks the de facto end of the sequester caps that were enacted in 2011. Accordingly, if you eliminate the phony out-year reductions that are still embedded in the CBO baseline, spending would be about $1 trillion higher after interest carry.