Tangle - The deficit balloons to $2 trillion.

Episode Date: October 24, 2023

The U.S. deficit. In the current fiscal year, the U.S. deficit has effectively doubled from $1 trillion to $2 trillion.You can read today's podcast ⁠⁠here⁠⁠, today’s Under the Radar story ⁠⁠here⁠⁠, and today’s “Have a nice day” story ⁠⁠here⁠⁠. You can also check out our latest YouTube videos, a recording of the “My Take” from Tuesday’s Israel piece ⁠⁠here⁠⁠ and an interview with Christopher Dowling-Magill about conversion therapy here.Today’s clickables: Quick hits (1:11), Today’s story (3:12), Left’s take (6:31), Right’s take (10:11), Isaac’s take (14:14), Listener question (18:13), Under the Radar (20:59), Numbers (21:51), Have a nice day (22:50)You can subscribe to Tangle by clicking here or drop something in our tip jar by clicking here.Our podcast is written by Isaac Saul and edited by Jon Lall. Music for the podcast was produced by Diet 75. Our newsletter is edited by Bailey Saul, Sean Brady, Ari Weitzman, and produced in conjunction with Tangle’s social media manager Magdalena Bokowa, who also created our logo.--- Send in a voice message: https://podcasters.spotify.com/pod/show/tanglenews/message Hosted on Acast. See acast.com/privacy for more information.

Based on Charles Yu's award-winning book, Interior Chinatown follows the story of Willis Wu, a background character trapped in a police procedural who dreams about a world beyond Chinatown. When he inadvertently becomes a witness to a crime, Willis begins to unravel a criminal web, his family's buried history, and what it feels like to be in the spotlight. Interior Chinatown is streaming November 19th, only on Disney+. The flu remains a serious disease. Last season, over 102,000 influenza cases have been reported across Canada, which is Chinatown is streaming November 19th, only on Disney+. yourself from the flu. It's the first cell-based flu vaccine authorized in Canada for ages six months and older, and it may be available for free in your province. Side effects and allergic reactions can occur, and 100% protection is not guaranteed. Learn more at flucellvax.ca.

From executive producer Isaac Saul, this is Tangle. Good morning, good afternoon, and good evening, and welcome to the Tangle podcast, a place where we get views from across the political spectrum, some independent thinking, and a little bit of my take. I'm your host, Isaac Saul, and I want to start off by first thanking John for subbing in the last few days while I was traveling. I was out in San Diego actually coaching during the Club Ultimate Frisbee National Championships. Unfortunately, lost in quarterfinals to my older brother's team, Ring of Fire, from North Carolina. So kind of a tough, tough Monday and Tuesday to get back to work after taking that L. But we are here and we are going to be talking today about the $2 trillion deficit.

Before we jump in, though, as always, we're going to start off with some quick hits. we jump in though, as always, we're going to start off with some quick hits. First up, Hamas militants released two elderly Israeli women, the third and fourth hostages released in the two weeks since their attack on Israel. Number two, House Republicans will have a closed door meeting today to vote on one of their eight contenders for House Speaker. The nominees are currently Tom Emmer from Minnesota, Mike Johnson from Louisiana, Jack Bergman from Michigan, Byron Donalds from Florida, Kevin Hearn from Oklahoma, Gary Palmer from Alabama, Austin Scott from Georgia, and Pete Sessions from Texas. Number three, an off-duty Alaska Airlines pilot who tried to shut down plane engines mid-flight was charged with 83 counts of attempted murder. Number four, the United Auto Workers added a major Stellantis factory to its strike after rejecting a 23% wage increase. And number five,

former Trump lawyer Jenna Ellis pleaded guilty in the Fulton County, Georgia election fraud case. She's now the fourth of 19 defendants to plead guilty in the Fulton County, Georgia election fraud case. She's now the fourth of 19 defendants to plead guilty in the case, which includes former Trump lawyer Sidney Powell, who negotiated a deal hours before going to trial. The nation's deficit took a dramatic turn for the worse, according to new numbers from the Treasury Department. The gap between what the government spends and what it earns widened to $1.7 trillion in the fiscal year that ended last month, up nearly 25% over the previous year's numbers. The Biden administration says the deficit

effectively doubled last year when factoring out student loan forgiveness, which never took effect. We found out this week that the federal deficit after a year in which it shrunk dramatically is set to increase by $2 trillion next year. We're projecting deficits are about to be 2 trillion. And that's not mostly because of one off things. That's mostly because $2 trillion, unfortunately, is the new normal. In the current fiscal year, the U.S. deficit has effectively doubled from $1 trillion to $2 trillion. A quick reminder, the United States regularly spends more money than it collects in revenue each year.

This annual shortfall is called the deficit. To cover that shortfall, the government borrows money by issuing government securities or bonds. Investors lend that cash with the expectation the government will pay them back with interest. Together, those loans comprise the national debt. Our debt is held mostly by the public and a large portion is owned by foreign governments, the Federal Reserve, U.S. banks, and state and local governments, among others. In 2023, the latest Treasury Department figures show an annual $1.7 trillion deficit up from $1.37 trillion in 2022. However, those numbers are misleading because of the student loan forgiveness program proposed by President Biden last year. Before the program was struck down by the Supreme Court, the Treasury had recorded it as a $300 billion cost in 2022, which inflated the deficit. Then,

in 2023, the Treasury recorded the program's cancellation as a $300 billion savings. That artificially added $300 billion to 2022's deficit and removed the same amount from 2023's. to 2022's deficit and remove the same amount from 2023's. Without that accounting, though, the deficit actually jumped from roughly $1 trillion to about $2 trillion. The total national debt has now reached $33 trillion. Budget deficits also rose when former President Trump was in the White House, thanks to tax cuts and increased spending during the pandemic. The interest payments on the nation's debt reached a record $659 billion in 2023, up from $475 billion last year, making it one of the largest expenses in the federal budget. This year, delays in collecting tax revenue, rising interest rates, and the unexpectedly high costs of some federal programs have driven the deficit up even more. A solution is elusive, as some of the simplest ways

to reduce the deficit, like raising taxes or making cuts to the military, social security, or medicare, are all politically perilous. President Biden has insisted he will leverage the strength of the economy to reduce future deficits by raising taxes on high earners and corporations. A pair of corporate tax cuts Biden signed into law in 2022 did not offset unexpected losses in revenue from the more volatile capital gains, which are accrued after the sale of assets like stocks. Receipts on capital gains were unexpectedly high in 2022, but plunged in 2023. Meanwhile, Biden now faces decisions about how to continue funding allies like Israel and Ukraine

in their respective conflicts, which is expected to draw opposition from many fiscal conservatives in Congress. Biden has formally asked Congress for $100 billion for a package of aid to Ukraine and Israel and spending to secure America's southern border. However, dysfunction in the House of Representatives, where Republicans are still unable to elect a speaker, means any lasting or far-reaching legislation is unlikely to come anytime soon. Today, we're going to break down some arguments about the latest deficit numbers from the left and the right, and then my take. First up, we'll start with what the left is saying. The left is concerned about the deficit, but doesn't see a realistic path to significantly reducing it in the short term. Some say Biden and Democrats should explore regulatory avenues to address the deficit.

Others offer unique solutions, like a national sales tax that could put a to address the deficit. Others offer unique solutions, like a national sales tax, that could put a dent in the deficit. In Bloomberg, Matthew Iglesias argued the federal deficit matters now more than ever. Current unemployment is very low and has been for a while. Inflation is moderated considerably but remains above the Federal Reserve's 2% target. And curbing inflation requires interest rate increases that are putting real stress on the markets for housing, renewable energy, and other capital-intensive goods. So why the reluctance to talk about the deficit,

much less do something about it, Iglesias asked? Merely recognizing the significance of the deficit is a big deal. President Joe Biden was a strident deficit hawk for most of his career before pivoting to favor aggressive stimulus in the wake of the pandemic, but his administration sometimes acts as if it doesn't realize economic circumstances have changed. In the New York Times, Paul Krugman wrote about why we should but won't reduce the budget deficit. In a better world, we'd be taking action to bring interest rates down in a sustainable way. In particular, now would be a good time to rein in budget deficits. However, the chances of serious action on the deficit anytime soon are near zero, Krugman said. The deficit is very high for an

economy close to full employment, and there's a big difference between obsessing over the budget deficit in, say, early 2013 and believing that we could use a lower deficit now. Back then, the interest rate on bonds protected against inflation risk was negative, so that investors were in effect paying the federal government to take their money. Now that rate is 2.4%, so it makes much more sense to be worried about borrowing now. While we needn't panic over budget deficits, a lower deficit would really help with the economic management right now, but it isn't going to happen. Why not?

If you listen to Republican politicians, you might think that major deficit reduction is easy. Just cut out wasteful government spending, a category that MAGA types think includes aid to Ukraine in fighting Russia's invasion, and a majority of voters say that the government spends too much in general. But ask voters about specific spending, and there's almost nothing they want to cut. But ask voters about specific spending, and there's almost nothing they want to cut. The fundamental point, as always, is that the federal government is essentially an insurance company with an army. In the Washington Post, Fareed Zakaria made the case that the U.S. needs a national sales tax to address the deficit. For almost a generation, policymakers have been able to avoid seriously confronting deficits because interest rates were so low and financing debt was easy. But with interest rates where they are now, the party might be over. Fortunately, there is a simple solution staring us in the face. However, both

parties refuse to accept it. Adopt a national sales tax like every other advanced economy in the world, Zakaria said. According to the Congressional Budget Office, a broad 5% tax of this kind could raise $3 trillion over the next decade, massively reducing the United States fiscal hole. It has become a partisan article of faith in the United States that most of the federal budget cannot be cut and that the taxes of 98% of income earners cannot be raised. This is why we are on an unsustainable path. We need to both cut some spending and raise some taxes, and future tax increases cannot come from one source

from which most new revenue has come in the past few decades, high-income earners. It distorts the economic and political system and makes people feel that they have less of an investment in the federal government. All right, that is it for what the left is saying, which brings us to what the right is saying. The right is sounding the alarm about the deficit and thinks substantial spending reforms are needed to tackle the issue. Some criticize lawmakers on both sides for failing to meaningfully address the deficit, even as the problem is worsened. Others say straightforward initiatives like a push to collect unpaid taxes

would help to reduce the deficit. In the dispatch, Brian Riedel said it's a mistake to shrug off the historic deficit. This year's budget deficit is the largest in American history, equaling 7.7% of GDP. Those earlier emergency-driven deficits could each be justified as an unavoidable yet temporary one-time cost that a growing economy could absorb gradually. However, today's deficits are structural. Simply put, never before has Washington run such large deficits during relative peace and prosperity, Riedel wrote. The culprits should be well known by now. Social security costs rose by 11% last year, and Medicare spending, adjusted for timing shifts, leaped by 18%. And that is just the beginning. Politicians are pandering to the large majority of voters who have responded to trillion-dollar deficits, but amending that Congress expand Social Security and Medicare, as well as hike spending on education, broader health care, infrastructure, poverty relief, border security, and child care. And yet polls also show that a

strong majority of voters refuse to accept paying even one dollar in new taxes to close the deficit or finance their exorbitant spending demands. To put it gently, these demands are untethered from reality. Therefore, it was no surprise that last month's initial reports of a staggering $2 trillion budget deficit elicited a collective shrug from the White House, Congress, and voters. In Fox News, Wesley Hunt wrote that it's time to save the American dream by addressing the deficit. It's become clear to me that if Congress does not rein in spending, move towards a more balanced budget, and adopt a tradition of single-subject spending bills, then your children and mine will be condemned to a lifetime of inflation, debt, and economic ruin. We have an obligation to make sure that does not happen. Without a solution to the $33 trillion federal budget deficit, massive tax increases, skyrocketing

inflation, increasing unemployment, and soaring interest rates will all be consequences our children will have to confront, Hunt said. For the past 30 years, Congress has been addicted to passing continuing resolutions that have funded the entire government in one up or down vote. Congress was not designed to function in this way, and that's precisely why we've gone from budget surpluses in the 1990s to federal budget deficits not imaginable decades ago. The only path forward is to consider and pass 12 individual appropriations bills each year that are focused on the health and prosperity of our nation, and not humanitarian pet projects in places most Americans can't find on a map.

Based on Charles Yu's award-winning book, Interior Chinatown follows the story of Willis Wu, a background character trapped in a police procedural who dreams about a world beyond Chinatown. When he inadvertently becomes a witness to a crime, Willis begins to unravel a criminal web, his family's buried history, and what it feels like to be in the spotlight. Interior Chinatown is streaming November 19th, only on Disney+. The flu remains a serious disease. Last season, over 102,000 influenza cases have been reported across Canada, which is nearly double the historic average of 52,000 cases.

What can you do this flu season? Talk to your pharmacist or doctor about getting a flu shot. Consider FluCellVax Quad and help protect yourself from the flu. It's the first cell-based flu vaccine authorized in Canada for ages 6 months and older, and it may be available for free in your province. Side effects and allergic reactions can occur, and 100% protection is not guaranteed. Learn more at flucellvax.ca. In Bloomberg, Carl W. Smith said the U.S. should figure out how to get its hands on the almost $700 billion it's owed, but hasn't been paid. The latest Internal Revenue Service estimates are that almost $700 billion in taxes went unpaid in 2021.

This estimate, however, is based on an outdated assumption about how the economy runs. Former IRS Commissioner Charles Reddick puts the true tax gap at more than $1 trillion, which is more than half of what the U.S. needs to close the budget deficit, Smith wrote. About half of this tax gap comes from pass-through entities such as sole proprietorships, partnerships, and LLCs, and the reasons probably range from outright cheating to issues related to complexity and filling out returns. The Biden administration has passed legislation that gives the IRS increased funding for audits and the technology necessary to catch tax cheats. But that's like applying a band-aid to a gushing wound. By plugging the pass-through leakage and

embracing the simplicity of automatic filing, the U.S. government could transform the tax-paying experience, making it less, well, taxing while shrinking the deficit. All right, that is it for the left and the right are saying, which brings us to my take. So in some ways, this whole thing is pretty simple, but that does not mean that it's easy. There are only two ways to reduce the deficit. You raise taxes or you cut programs. While politicians like to squabble over a few hundred million dollars here or there, our budget is so large that meaningful change requires saving hundreds of billions of dollars each year. Given the current state of world affairs, there is precisely a zero percent chance any military funding cuts happen, which might be a good thing.

Perhaps in lieu of that, we could force the Pentagon to reckon with its massive waste problem. Either way, the fact we aren't cutting military spending reduces the options to cutting or reforming Medicare or Social Security or raising more revenue in taxes. I want to be crystal clear that at the end of the day, these really are the only two ways out. I've written about the need to reform Social Security, and I will re-emphasize again here what I've said before. Anyone who is willing to engage honestly on the issue can see both Social Security and Medicare are barreling toward insolvency. That would result in drastic cuts both sides of the aisle say they want to prevent. If we don't want to have to lop those programs down the road when the money runs

out, we need to reform them incrementally now. There are plenty of options for how to do this, and any action we choose would also help address the deficit. The other piece, tax revenue, is a little more complicated for two reasons. First, raising taxes can take many different forms, and second, we may not actually need to raise taxes, but instead just get better at collecting the tax revenue that is actually owed. Again, much like cutting military spending, I see almost zero chance that we raise taxes anytime soon. In normal times, it's one of the least politically popular things to do, but we are heading into election season and already in an era of inflation and high interest rates. Biden is going to

continue to try to find ways to get more tax revenue from the ultra-wealthy and corporations, but I don't see any way Congress, particularly this Congress, moves on a bill to increase taxes on your more typical earners. Which brings me to collecting more revenue. As Carl Smith wrote under what the right is saying, the latest Internal Revenue Service estimates are that we missed $700 billion in taxes in 2021. We have good reason that number is closer to $1 trillion, which would be enough to wipe away nearly half of the entire deficit. The fact that we are not properly collecting taxes in the year 2023 is a little hard to fathom, but it remains true. Biden has tried to address this by beefing up funding for

the IRS, which is a policy proposal I had mixed feelings about, but one I'm warming up to given the current state of affairs. So, if I am Congress and Biden, those are the two areas I am focusing on. Beefing up tax collection before raising more taxes that we can't seem to properly collect, and finding a way to reform Social Security and Medicare that prevents them from going insolvent. At the same time, there's some nuance in the latest numbers that's worth acknowledging. Jim Tankersley has examined the Treasury Department's data, and his reporting has been some of the most illuminating that I've read. Tankersley noted that the federal tax receipts in fiscal year 2022 actually fell despite economic growth, which is a historical anomaly. The reason? There was a surge in claims for pandemic-era tax

credits, a surge in fraud, the magnitude of which we still don't know, and a major delay in tax filing deadlines thanks to natural disasters, which push many tax payments into the next fiscal year. All of that makes the numbers pretty noisy, but the fundamental issue remains the same. We are spending way more money every year than we bring in through tax revenue. This is not sustainable. It's nice to see the right and the left coming to some consensus on that, but now it's up to the government to actually, finally, make some difficult choices and do something about it. All right, that is it for my take, which brings us to your questions answered. This one's from Jane in Clarksdale, Mississippi. Jane said, one question that is never asked or answered is how other Western countries finance college for their

citizens. What countries offer free higher education for their students? How do they select those students? What institutions provide the education? How are those institutions financed? And how do other countries that do not provide free higher education finance or not it for their citizens? So this is a great question. Actually, it's a handful of questions, but I'll focus on how European colleges are funded and who gets in. As a preface, if you're curious, US News and World

Report has a very good breakdown of how universities in Europe differ from those in the United States. We'll drop that link in our episode description today. The upshot is that there are some differences in what you're paying for between the two countries, with European schools offering more structured degree programs, generally less centralized campuses, and fewer cultural traditions like major sports and social clubs. Most applicably, however, schools in Europe tend to offer three-year programs as opposed to the standard of four years in the United States, and fewer services like professional development, health services, or dining hall options. or services like professional development, health services, or dining hall options.

This all goes into the cost of college being generally lower in Europe, even when it isn't offered for free, as it often is not for Americans looking abroad for school. Furthermore, a larger percentage of American students enroll in college education after high school than Europeans. Both the number of services offered and lower demand help to keep costs down. The elephant in the room, though, is the publicly funded free colleges in Europe. As you may know, member nations in the EU offer free college to their citizens and typically extend that privilege to citizens of all EU countries. And the simple answer for how the government gets this funding is higher taxes. That's not to throw in one way or another on taxation. On the one hand,

a government that can provide extra services is a huge boon, but on the other, the freedom of choice you give up on your own dollars can be galling. It is, however, a statement of fact. In France, a person making 85,000 US dollars gives 41% of their income to taxes. That's about the same as it is in the United Kingdom and about the same as it is in the United Kingdom and about the same as it is in Finland when you include a separate tax for the EU. In the United States, it's 22%. Lastly, there is some controversy over why college costs in Europe are lower. According to a 2019 report from the Heritage Foundation, the European funding model is exactly what results in lower services and less participation in college. At the very least, that relationship is somewhat bi-directional, and of course, it will vary from country to country.

All right, that is it for our reader question today, which brings us to our under the radar section. The Biden administration is proposing a major rule change to the H-1B visa program for high-skilled foreign professionals. Currently, the system works by allowing applicants with an eligible job offer to submit an entry into the lottery. 85,000 recipients are selected at random at the end of the lottery entry window, but the government found some companies were colluding with individual applicants, funding as many as 10 entries into the lottery to increase chances of winning. This drove the number of entries in each lottery up from 270,000 three years ago to 780,000 this year. Under the new proposal, each person applying will be weighed equally no matter how many entries they submit.

The Wall Street Journal has the story and there is a link to it in today's episode description. Wall Street Journal has the story and there is a link to it in today's episode description. All right, next up is our numbers section. The amount of money spent on Social Security in fiscal year 2022 was $1.2 trillion. The amount of money spent by Congress in 2022 was $5.8 trillion. The estimated cost of Social Security in 2033, according to a Congressional Budget Office estimate, will be $2.3 trillion. The amount of money the former IRS Commissioner Charles Reddick said the agency fails to collect every year is $1 trillion. The amount of money spent on defense in the United States is $877 billion, the most in the world. The amount of money spent on the defense by China, Russia,

India, Saudi Arabia, the United Kingdom, Germany, France, South Korea, Japan, and Ukraine combined is $849 billion. That is about $30 billion less than the United States. And finally, the number of financial audits the Pentagon has passed since 2017 is zero. financial audits the Pentagon has passed since 2017 is zero. And last but not least, our have a nice day story. Many people know the late great Steve Irwin as the crocodile hunter, but he was beloved for his interest in all kinds of animals. A rare species of freshwater turtle, the Alsea Irwini, or Irwin's turtle, takes its name from the famous Australian zookeeper and media personality who discovered the species while on a boating trip with his father and fellow naturalist Bob Irwin. The appreciation for nature runs in the family. Steve's son Robert, now 19

years old, continues the Irwin legacy as a naturalist and TV personality who's also active on social media. This past Saturday, Robert shared an emotional video of himself at the Australia Zoo, where they became the first to breed and hatch a baby Irwin's turtle. I think dad would be pretty proud that we've become the first to successfully breed the turtle that he discovered, Robert wrote. A rare and unique species under threat in the wild has just been given a second chance. The Independent has a story and there's a link to it in today's episode description. All right, that is it for today's podcast.

As always, if you want to support our work, please go to readtangle.com and consider becoming a member. And don't forget, we got a new YouTube video up from last week. We did a very interesting interview with someone who had experienced conversion therapy and is now speaking out against it. If you have not checked out our YouTube channel, Tangle News on YouTube,

I highly recommend you go do that. We'll be right back here at same time tomorrow. Have a good one. Peace. Our podcast is written by me, Isaac Saul, and edited by John Long. Peace. was produced by Diet 75. For more on Tangle, please go to readtangle.com and check out our website. Based on Charles Yu's award-winning book, Interior Chinatown follows the story of Willis Wu, Thanks for watching! buried history, and what it feels like to be in the spotlight. Interior Chinatown is streaming November 19th, only on Disney+. The flu remains a serious disease. Last season, over 102,000 influenza cases have been reported across Canada,

which is nearly double the historic average of 52,000 cases. What can you do this flu season? Talk to your pharmacist or doctor about getting a flu shot. Consider FluCellVax Quad and help protect yourself from the flu. It's the first cell-based flu vaccine authorized in Canada for ages six months and older, and it may be available for free in your province. Side effects and allergic reactions can occur

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