Updated August 10, 2024 –
The economy has been weak and is doomed to worsen as Democras’ tax and spending plans are out-of-control.
It’s a major reason Why ‘Regret Voting for Biden’ Trends on Google.
Now, Democrat presidential nominee Kamala Harris wants to pay for massive spending with new taxes. But scholarly reports from the National Bureau of Economic Research (nber.org) show America has a problem with too much spending because it’s outpacing skyrocketing revenue.
Prior to the pandemic, three years of strong economic growth thanks to President Trump resulted in the best American economy ever.
However, the debt situation is bleak for the federal government and governments at all levels. It’s distressing to most business people.
Why? Just like your personal or business budget, high debt is dangerous.
Economic growth is vital. Tax revenues are up but in addition to the federal government’s COVID-19 spending, governments have been too hesitant to cut expenditures.
Indeed there are permanent scars thanks to poor government policies and high government debt ratios.
Government debt greatly accelerated under the Biden and Obama administrations as a share of the nation’s GDP was close to 76 percent. That was nearly doubled after President Obama took office in 2008.
The skyrocketing debt is owed to the Federal Reserve, the central bank of the United States, and to countless other nations — from China to England.
The nation’s massive debt increases every split-second and the red ink is best illustrated by the U.S. Debt Clock: https://www.usdebtclock.org/.
Therefore, the Democrats’ economic policies have not been adequately geared to solve the enormous costs as a result of massive debt and increasing economic pressures from aging baby boomers.
It’s worth noting that the nation’s debt increased during the Trump tenure, as well. Despite the president dramatically growing the economy and gross domestic product, liberal politicians continue to spend and adding wasteful earmarks to spending bills.
State and local government debt
The federal government is not alone. Skyrocketing pension costs pose dangerous threats to most state and local governments.
The Hoover Institution has released a report, Hidden Debt, Hidden Deficits, which shows that practically no state or local government has a balanced budget because of enormous unfunded public-employee pensions.
The Hoover Institution at Stanford University is a public-policy research center devoted to the advanced study of economics, politics, history, and political economy – domestic and foreign, including international affairs.
Covering 564 state and local governments, the study reveals there were $1.91 trillion in unfunded pension liabilities.
“The problem of unfunded pension liabilities has become too big to ignore,” says Joshua D. Rauh, a senior fellow at the Hoover Institution and the Ormond Family Professor of Finance at the Stanford Graduate School of Business.
“State and local governments promise guaranteed pensions based on targeted returns that are far from certain,” he explains.
“In reality, assets in the pension systems will be insufficient to pay for these promises to retirees, resulting in a heavy burden being placed on taxpayers to make up the difference,” adds the researcher.
Professor Rauh says the new Governmental Accounting Standard Board guidelines aren’t likely to help.
By way of explanation, he indicates the majority of public pension systems in the United States still calculate their pension costs and liabilities using the assumption that their contributed assets will achieve returns of 7 to 8 percent a year, ignoring the extent of public sector liabilities.
To target these investment returns, Professor Rauh warns systems have taken increased positions in the stock market and other risky assets, including private equity, hedge funds, and real estate.
The targeted returns may or may not be achieved, but public sector accounting and budgeting proceed as though they will be achieved with certainty.
“This study shows that unfunded pension liabilities are devastatingly widespread and only getting worse,” asserts Professor Rauh.
“With hundreds of state and local governments drowning in retiree benefit debt, the need for bold structural reform has never been so pertinent,” he warns.
We need to bring local and state governments’ retiree benefits back to solvency before we see this vast epidemic limit the ability of state and local governments to provide adequate services in areas such as public safety and education,” concludes the professor.
Amen.
P.S. Here at The Biz Coach, you can see authoritative Op-Ed analyses by Peter Morici, Ph.D, economist and emeritus business professor at the Smith School of Business, University of Maryland, former chief economist at the U.S. International Trade Commission, and multiple winner of the MarketWatch best forecaster award.
From the Coach’s Corner, editor’s picks:
Why a 1960s’ Beatles Protest Song is Still Relevant — Have you ever wondered why British groups like The Rolling Stones, The Who and The Beatles spent so much time touring abroad? To sell music for sure, but there’s another reason: Abusive taxes.
Biden’s Tax Ideas Threaten Prosperity, Opportunity and Hope — A review of President Joe Biden’s tax plan is mind boggling. His plan would damage the recovering economy, hurt America’s competitiveness in the world and would not decrease the burgeoning federal debt.
“Last year we said, ‘Things can’t go on like this’, and they didn’t, they got worse.”
-Will Rogers
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