Presidential candidates "grilled" on debt & entitlements
Reader feedback at end.
(E minus 15) Over a year ago, SAFE posed a list of questions for the 2016 elections; the first six of them homed in on the size, scope and cost of government. Questions for presidential candidates, 6/9/15.
There wasn’t much discussion about fiscal issues during the primary season or at the Democratic and Republican national conventions. The topic wasn’t raised in the first two presidential debates. (A good question about stopping growth of the government’s debt was asked in the VP debate, 10/10/16, only to be ducked by both candidates.) But the third presidential debate would be moderated by Chris Wallace of Fox News, reputedly “the best questioner in the business,” so perhaps there would finally be some meaningful discussion.
When Wallace’s choice of topics was published, the first one was “debt and entitlements.” The announcement noted, however, that the topics wouldn’t necessarily be covered in the order listed. Moderator announces topics for third presidential debate, Commission on Presidential Debates, 10/12/16.
In the debate, the “debt and entitlements” questions were moved from first to last. Transcript, 10/19/16. This change had two identifiable consequences, neither of which promoted a good discussion.
#Following Wallace’s convention that Clinton would respond first to the opening question, after which the candidates would alternate as first responder, the onus for explaining why this nation’s debt has been allowed to grow relentlessly (e.g., by more than $9 trillion since 2009) was shifted from Clinton (who served in the Obama administration) to Trump (the outsider).
#Given the possibility that other topics would run long, the time available for this particular topic (which Wallace would characterize during the debate as one that “has not been discussed until tonight”) was potentially (and as it turned out actually) reduced.
Wallace has been credited with doing a fine job as moderator, and perhaps the accolades are merited on an overall basis. A clear winner in the final Trump-Clinton debate, Victor Reklaitis, marketwatch.com, 10/20/16.
We thought the discussion about debt and entitlements was dismal, however, and would blame the fuzzy questions that were asked as well as the candidates’ responses. Here’s an annotated recap (debate questions and responses in black, SAFE comments in blue), plus the SAFE questions (in blue italics) that we would have liked to see asked.
WALLACE: Our national debt, as a share of the economy, our GDP, is now 77 percent. That’s the highest since just after World War II. But the nonpartisan Committee for a Responsible Federal Budget says, Secretary Clinton, under your plan, debt would rise to 86 percent of GDP over the next 10 years. Mr. Trump, under your plan, they say it would rise to 105 percent of GDP over the next 10 years. The question is, why are both of you ignoring this problem? Mr. Trump, you go first.
SAFE: The leadership of the Committee for a Responsible Federal Budget is studded with well-known names from across the political spectrum, including Mitch Daniels, Leon Panetta, Maya MacGuineas, Erskine Bowles, Kent Conrad, Peter Peterson, Alice Rivlin, Alan Simpson, Charlie Stenholm, David Stockman, Paul Volcker, and David Walker.
And the growth in debt vs. GDP data are, what a surprise, supported by an analysis published just before the debate. What would Clinton and Trump have to do to address the debt along with their policy agendas? CRFB, 10/18/16.
In brief, according to the CRFB, Clinton’s plan would raise taxes to cover the added spending that she proposes, but not address growing deficits that are already forecast. As a result, deficits would grow faster than GDP.
Trump would cut taxes while increasing spending in some areas (notably national defense), accelerating the debt growth that is currently forecast.
“Now more than ever,” therefore, “both candidates must tell us how they would confront our growing debt burden. It will take a mixture of spending cuts, tax increases, and entitlement reforms to produce the kind of growth and fiscal restraint necessary to put our debt on a sustainable path.”
Reading between the lines, the CRFB seems to have dropped the idea of balancing the budget in favor of simply “[putting] our debt on a sustainable path.” Compare SAFE question 2, which does not view balancing the budget as an outmoded notion.
2. Should the federal government’s fiscal goal be to (a) run surpluses so as to gradually pay off the national debt (currently over $1819T), (b) balance the budget and keep it that way, (c) run a “sustainable” deficit, or (d) do something else (please specify what)?
Also, it seems quite unlikely that the Trump tax plan would make it through Congress – so the associated revenue loss is basically academic. A more realistic approach would be to pair Trump’s ideas on spending with the House Republican tax reform plan (which is designed to be basically revenue neutral on a dynamic scoring basis). Campaign issues: “a better way,” 7/25/16.
TRUMP: “Well, I say they’re wrong, because I’m going to create tremendous jobs. And we’re bringing GDP [growth] from, really, 1 percent, which is what it is now, and if she got in, it will be less than zero. But we’re bringing it from 1 percent up to 4 percent” - or maybe quite a bit more - by having our smartest business people make this country’s trade deals instead of political hacks. In summary, “we will create an economic machine the likes of which we haven’t seen in many decades.”
SAFE: While more robust economic growth could no doubt contribute to cutting deficits/controlling debt, an expectation of 4%+ annual growth seems unrealistic.
One question for Trump might be along the lines of what would you do, specifically, to cut spending – if you believe that’s something the government should do. See SAFE question #1.
1. Do you agree the federal government should do a relatively few things and do them well, instead of trying to do everything for everybody and quite possibly winding up with subpar performance across the board? If so, what current functions or units of the government would you propose to eliminate? If not, are you basically satisfied with the status quo or do you believe the scope and reach of government should be further expanded (please specify what expanded or new programs you envision)?
It might also be interesting to ask about the success of the War on Poverty, SAFE question 3.
3. Over $19T (in constant 2014 dollars) has been spent on the “War on Poverty” since this effort was announced by LBJ in 1964. War on Poverty turns 50: Are we winning yet? Cato Institute, 10/20/14. Government data show little reduction in the poverty rate, however, and there has been continued or worsening social unrest in inner cities around the country, e.g., Baltimore. Do you believe the War on Poverty has (a) been a well-meaning but costly failure, serving to foster dependency instead of ending poverty, (b) served its intended purpose, or (c) fallen short due to inadequate support? As president, what policy changes would you propose?
CLINTON: After going off on a tangent about Trump paying for a New York Times ad in 1987 criticizing the trade policies of the Reagan administration, the implication being that her opponent is an inveterate complainer, Clinton responded to the question about debt. The new spending that she is proposing would be paid for by “going where the money is” and asking “the wealthy and corporations to pay their fair share. And there is no evidence whatsoever that that will slow down or diminish our growth.”
SAFE: Further tax increases on the wealthy and corporations would reduce funds available for private sector investment. According to the Tax Foundation, over half of the $1.4 trillion in tax increases that Clinton has proposed over the next 10 years would be negated by slower economic growth. Details and analysis of Hillary Clinton’s tax proposals, Kyle Pomerleau, taxfoundation.org, 10/12/16.
Also, the claim that the wealthy and corporations are not paying “their fair share” deserves examination. See SAFE question 5.
5. Do you agree the tax system should be simple, efficient and fair? And re fairness, do you believe that (a) everyone should pay tax at the same rates based on their income or consumption, (b) graduated tax rates are appropriate, but all earners should pay some income tax so they will have a stake in the overall cost of government, or (c) lower level earners should pay essentially zero (or even negative) income taxes? How well do you think the current tax system measures up against the simple, efficient and fair criteria? And assuming there is room for improvement, how should the system be changed?
The aggregate tax and regulatory burden on the US population currently averages about 44%, which raises obvious questions about proposals to further increase taxes. See SAFE question 6.
6. Governments collect about 31% of the nation’s income as taxes (Federal $3.3T, State & local $1.5T). Tax Foundation, 3/30/15. In addition, the estimated annual cost of complying with government regulations (federal only) is about $1.9T. Competitive Enterprise Institute, May 2015. In total, then, the tax and regulatory burden on the US economy is some 44%. Do you believe this burden is (a) excessive, (b) about right, or (c) not high enough? If your answer is either (a) or (c), how much should the burden be reduced or increased and how would you propose to do this (please specify changes in tax or regulatory policies that would be involved)?
WALLACE: All right. The one last area I want to get into with you in this debate is the fact that the biggest driver of our debt is entitlements, which is 60 percent of all federal spending. Now, the [Committee for a Responsible Federal Budget] has looked at both of your plans and they say neither of you has a serious plan that is going to solve the fact that Medicare’s going to run out of money in the 2020s, Social Security is going to run out of money in the 2030s, and at that time, recipients are going to take huge cuts in their benefits.
SAFE: There is no money in either the Medicare or Social Security trust funds, only government IOUs, so the remarks about when the money will run out are irrelevant. The real issue is when the government’s overall fiscal position (based on actual revenues and outlays) will become untenable, which is likely to happen well before the 2030s.
To the extent that corrective action will be needed, it should be started on a timely basis to minimize the pain and cost that will be involved. Compare SAFE question 4.
4. With an aging population, the cost of Social Security and Medicare benefits (not considered part of the War on Poverty) will grow rapidly in coming years. The resulting outlook: (a) outlays for traditional government functions will be under pressure, (b) taxes will be raised, and (c) deficits will soar. Fiscal experts have been warning for years that adjustments must be made, and that there will be a disastrous fiscal meltdown if action is not taken in time. See, e.g., Comeback America, David Walker, 2010. Instead of addressing this problem, our political leaders have kept kicking the can down the road. Are you prepared to change this, and how would you go about it?
WALLACE: So, in effect, the final question I want to ask you in this regard is — and let me start with you, Mr. Trump, would President Trump make a deal to save Medicare and Social Security that included both tax increases and benefit cuts, in effect, a grand bargain on entitlements?
SAFE: This ignores Medicaid, another big entitlement program, plus growing healthcare outlays, e.g., subsidies for GovCare [aka Obamacare] policies purchased on exchanges.
TRUMP: “I’m cutting taxes. We’re going to grow the economy. It’s going to grow at a record rate of growth.” And we also have to “repeal and replace the disaster known as Obamacare,” which is “bad health care at the most expensive price.”
SAFE: Trump has been rather fuzzy about what the replacement plan would look like (or cost). But it doesn’t sound like he favors a “grand bargain” on entitlements.
CLINTON: “[We] need to put more money into the Social Security Trust Fund,” which could be done, for example, by raising the cap on payroll earnings subject to FICA tax. I will not cut benefits. I want to enhance benefits for low-income workers and for women who have been disadvantaged by the current Social Security system.”
“But what Donald is proposing with these massive tax cuts will result in a $20 trillion additional [?] national debt. That will have dire consequences for Social Security and Medicare.”
“And I’ll say something about the Affordable Care Act, which he wants to repeal.” The ACA extended the solvency of the Medicare Trust Fund, so repealing it would be counterproductive. “What we need to do is go after the long-term health care drivers. We’ve got to get costs down, increase value, emphasize wellness. I have a plan for doing that. And I think that we will be able to get entitlement spending under control by [providing] more resources and [making] harder decisions.
SAFE: Clinton doesn’t seem interested in a grand bargain either; she is simply demanding more money to fund and/or expand existing entitlement programs. To the extent that any healthcare cost savings were realized, they would predictably result from de facto healthcare rationing versus real efficiency gains.
Trump cannot commit to trim entitlements and such because that would be political suicide. So, we will continue on until entitlements eclipse all tax revenues, with the expected consequences. Hillary has no intention in trimming anything in entitlements and falsely claims that she will not add “one penny to the debt,” which implies that the deficit will be zero after her first year in office. The debt will keep rising, and drag us down into economic stagnation, inflation and chaos. Politics in action as usual. Whatever we had is now gone. – SAFE director
I’m skeptical about the tax cuts that Trump is proposing. Who would benefit most from a 20% tax reduction? Not just the business community but what about the wealthy wage earners? How would they improve the economy by having less federal taxes to pay? Same question but separately answered for the middle and lower income wage earners? How would investment / Wall Street folks improve the economy by them and their employees paying 20% less taxes? - Retired financial executive
Comments: (1) The current tax system is a complicated mess, and it needs to be vastly streamlined – with lower tax rates and elimination of the majority of existing tax preferences. This could be done on a revenue neutral basis, with a solid boost for overall economic performance. For specifics, please see SAFE’s SimpleTax proposal. Neither candidate is proposing our tax plan, of course, but Trump’s plan is a bit closer to it than Clinton’s. (2) The biggest problem that we have with the candidates’ fiscal proposals is that neither one has acknowledged the need to balance the budget, which could only be accomplished by making major spending cuts and pruning entitlements.