Currently stands. Welcome to National Economists club, our first event of the year. The National Economists club, for so, im pete davis, Senior Vice President and past president of the club. The National Economics club was started in 1968 by herb stein, pitcher of the council of economic advisers and it has met roughly 40 weeks out of every year since presenting leading economists talk about issues of the day. Today were very pleased to have Marc Goldwein of the committee for a responsible federal budget to talk about the return of trillion dollar deficits. Before introduce marc, levy tell you about some upcoming programs. We have dr. Alice rivlin on february 1 and a luncheon here at chinatown garden talk about said policy and the beloved about the budget come shes a former vice chair of the fed and, of course, the founding director of the Congressional Budget Office. We also have commitments to speak in february, although te dates have been set, by the culture of the council of economic advisers Kevin Hassett and also the Congressional Budget Office director keith hall. Marc goldwein is one of the sharpest, young budget economist deficit hawks at 33 33 years o. Hes had a lot of experience in the budget arena. He worked on the simpsonbowles commission in 2010, and he was deputy staff director of the supercommittee that follow that effort in 2011. Hes got a ba and ms in economics from johns hopkins, and he also teaches there and that university of california d. C. Finally, marc is a new father, and so this topic is very appropriate in hope that his kid and our kids dont pay more than they have to. Marc goldwein. [applause] well, i appreciate you saying that in one of the sharpest budget hawks but it seems like its a free small universe. [laughing] thank you all for having me back again. I didnt eat anything this time, so no risk of anaphylactic shock. Those of you have seen me speak before, when i actually made it past the eating phase of the speech, know that often come with a depressing presentation about our unsustainable longterm fiscal picture and the inability of cars to you anything about it. This one is going to be worse. This was going to be much worse. If i was doing this presentation a year ago, this is probably what i would have shown you, give or take. I wouldve shown you where our fiscal situation was, which was there we go. Which is that President Trump entered office with higher debt as a as a share of the economy than any president in our history, save harry truman. When he entered office that was already 77 of gdp, its about twice the stork average. It is a record outside of world war ii, and there is good reason for having high levels of debt after world war ii. Minor recession that preceded it. We also had a plan to pay it back whereas when President Trump entered office, we have a plan to continue to increase our debt levels. Apologies for the category name i guess in the powerpoint email. We lost a figure here, but this is what our deficit looks like. A few kris kobach drink decaf the Great Recession when were also passing major stimulus bill and the tarp rescue package, deficits peaked at 1. 4 1. 4 trillion. They had been coming down, coming down. But this year in 2017 i guess i should say say, last year they reached 666 million. They started their ascendancy gator beginning of this year i would say this is a bad situation, situation with the deficit that is high, and rising year after year, heads to 1. 4 trillion back to its record by 2027. Now, this is what it would sit at the beginning of this you but, of course, excuse me, i wouldve said we are all major trust fund on a path towards an sovereignty, highway trust fund, the medical hospital insurance, the Disability Trust fund, the so security oldage trust fund. Talk to the trustees and you get slightly different numbers but the is the same. All major trust funds, all major i should take nonfund fund trust fund, all major take a trust funds are on a path toward insolvency. Even if you dont care about the debt per se these need to legally be reconciled, the Revenue Sources with their spending. In our fiscal space was diminishing. Historically, no one knows how much fiscal space is big no one knows what the threshold is what will be able to bar anymore and probably there is a threshold where we wont be able to bar anymore. Theres a time with a bar with will have higher consequences. If we use a proxy that record levels can for most of her history since the 70s we have had about 80 of gdp or 70 of gdp in fiscal space. In other words, we could borrow another 70 of gdp and still not have our debt of those record world war ii levels. That space has declined dramatically as a result of the Great Recession and as a result of continued enactment of tax cuts, conflicts abroad. And its projected to continue decline as a result of the aging of the population, rising healthcare costs and rising Interest Rates. The end of last year we passed legislation that makes all of this worse. We passed a major tax cut deal that, depending on who you ask him for cost somewhere between one and 2 trillion. The official estimates is even on a a dynamic basis after scog this legislation will cost almost 1. 1 trillion over a decade. If you look at other scores from other outside organizations at various versions of this bill they all come to order of magnitude the same conclusions. There is no one says the tax bill, not a single analysis is the tax bill will be revenue neutral, not even from the administration. Pretty much all of them say will cost more than a trillion. I also have to point out this is a trillion dollars with a number of gimmicks bringing down the cost. For example, all the individual provisions pretty much expire after eight years. A number of the business provisions expire or get harsher overtime. If you assumed we kept doing what we are doing, so basically 2018 law was continued, the legislation would cost more like 2 trillion. So thats going to change where we are relative to where we were. And it turns out, i fed my staff and team earned a math, the change is pretty dramatic, moe dramatic than you would think when you consider we only added 1 trillion or 2 trillion to a 14 trillion debt stock. Excuse me for all these values, but in 2017 our deficit was 666 billion. That already should be a bad sign, right . 666 billion is certainly bad luck. Prior to the tax cuts 2020 202s going to reach about 800 billion. Deficits were growing but slowly about the pace of economy, a bit faster. This is what the deficit looks like when you add in the tax cuts in jones act as rendered by 2020 we will have about a 20 deficit. Thats two years from the tax bill will be a toy dog deficit based on the seabed baseline. But, of course, congress isnt than adding to to the deficit with this tax bill. We already know for certain, almost for certain if theres interest passing it is actually package and in dramatically increasing the defense and nondefense capstan, socalled sequentially for there is tough for offsetting abortion but those would most likely be well into the future and if you read most press reports it sounds it will be phony or nonexistent. Let them add in the sequestered and disaster relief. Assuming 100 million of Budget Authority a year, which i think is a conservative estimate if you read some of the articles yesterday. It looks like theyre looking for more than 100 billion of sequestered relief. That takes a little while to trickle out but even with the trickling out by 2019, next year, we will have trillion dollar deficits just bypassing sequestered and disaster relief. Theres more on top of that. Remember how in 2015 we had the past act that would and all tax extenders . No longer were we going to budget for the tax code one year, two years at a time . Remember last year 2017 when he said, we need to allow for 500r 500 billion of tax cuts because we wouldve done anyway by extending these extenders even though we said they are supposed to expire. It turns out after that tax act, members of congress, particularly the senate, to want to fast and extenders package and that would be about 20 billion a further tax cuts on top of what we already have a year. Then on top of that theres legislation out to continued delay various obama cut taxes, medical device tax, Health Insurance tax. Added to the legislation is also a hiatus on the employer mandate to match the mandate repeal of the tax code. Add all this together and make sure were not at 1. 1 trillion of deficits. Bottom line, trillion dollar deficits are not something in the future. Distant future. Trillion dollar deficits are likely to occur next year. I cant tell you this with certainty. The economics will be different than what cbo projects. Who knows how people are going and already have tax plan the first year of the tax code but pretty definitively trillion dollar deficits are on the way back and with high likelihood he will be here next year. What about the longterm . As they said by 201919 will have 1. 1 trillion of deficits. If we assume all these things, to your sequentially package, temporary extenders, temporary Obamacare Tax relief, the tax bill, et cetera, we are at 1. 5 trillion in 2027. Notice other than the tax bill all the things i said were two years. Two years of sequentially then all of a sudden spending will be cut 100 billion. Give me a break. Were not going to suddenly let defense fall 55 billion. I assume the tax extenders were for two years. I assumed the tax bill as written, even though it has the individual provisions expire after eight years. It randomly decides will amortize research and expectation after four years and theres a number of other changes that sort of sunset and sunrise in an arbitrary way that unlikely to be sustained. Lets assume all of this is extended it basically Congress Continues to act as the active last you and i suspect go act visscher, a current policy baseline. Now we are at 2. 1 trillion of deficits by 2027. 2. 1 trillion, scarier when have the right number. 2. 1 trillion deficit by 2027. Thats basically the cost of continuing on our current path with these tax cuts, with extenders, with the light Obamacare Taxes, with sequestered relief. I didnt assumed it would be continued disasters each year, although i dont think its unreasonable to assume that would be further deficit increases as result of future disaster on top of this. So to trillion dollar deficits is where were headed. Under something very close to current law, current law but in the blood will be headed to trillion dollar deficits next year, to trillion dollar deficits within a decade. Thats not something weve ever faced before. The highest deficits weve had was 1. 4 trillion in the heat of the Great Recession, and a lot of that was onetime payment we recouped, fannie mae, freddie mac, tarp, things like that. So what does this mean to jet to gdp . Its already higher than any of the event since world war ii. Its already about twice the stork average. Even prior to the tax cuts, debt to gdp was rising from 77 of gdp today the 91 . After a decade. That might not sound like a lot to you but it sure sounds like a lot to me. That really would be unprecedented to start, have debt that is so high and continue to rise. As result of this tax cut bill alone, that is likely to rise than 96 of gdp, if we add in these other policies were talking about 98 . If we assume everything is extended, the snare i showed you, if we assume everything is extended that would reach 108 of gdp by 2027. In other words, we would exceed that world war ii record. Not because of the work of not because of the Great Depression but because of her own choosing. Because congress continued to spend more and tax less without consideration of the fiscal consequences. Remember, i said its a lonely universe of budget hawks out there. Some might say the tax cuts will create tremendous growth, and this is a static estimate. I added in dynamic scoring and we ran the numbers. Its better. Will he go 100 of gdp. We might not it the world war ii record until 2020. Not exactly a favor. Debt to gdp is the measure that is most benefited from higher gdp. If you think about it revenue and spending, revenue will go up but so will our gdp. Even the most generous measure look at an increasing gdp, not a major change. Why not an a major change . A big reason is that, even good tax reform can only do so much to grow the economy. The reform we got, let me step back for a second. When we started embarking on this tax reform conversation, say in 2016 when the house released their better way plan, their plan was something i think most economists would say is incredibly progrowth. They wanted to effectively replace the Corporate Income tax with a basis consumption tax of sorts, effectively creating the marginal tax rate on new investments at virtually zero. Zero for regular returns. They wanted to dramatically reduce individual rates. They wanted to do this in a revenue neutral way, at least over the longterm, and they limited most tax breaks in the process, and what we ended up, it was proven. What we ended up with, instead of moving the Corporate Income tax to a consumption tax, moved into a smaller Corporate Income tax. Instead of reducing and simple fight individual rates they modestly reduced and didnt at all simple fight and the fact complicated the individual rates. Instead of eliminating most tax expenditures and paring back when the big ones they eliminate one tax expenditure, pared back one of the big one and then made a number of smaller changes to various tax expenditures and nontax breaks. They did it all at a 1. 5 trillion debt which will add to the debt. They did it in a way that was temporary. For all these reasons when jct analyzing the tax plan what they found is what would boost economy significant in the first copy of whom might get a gdp that is 1 higher but by the end of the tenure when they found gdp only. 1. 2 hybrid meaning not the point for some folks are saying we would achieve a ratheg growth of you. This jct no exact with going to happen to the economy . Absolutely not. If you look at other models, most come to the same conclusions, the conclusion that the tax bill is going to grow the economy by at best. 1 a year. Those models that ignore the Economic Cost of debt or assume the tax bill is make permanent even if its not get us a little higher,. 2 or. 3, maybe. Its not going to model. The highs with got from any model is. 3. No one thinks this tax the will dramatically change the economy. Its going to have a modest positive effect that it would a better effect if it something that was more revenue neutral, cut more tax breaks, lower the rate on consumption tax. That was a long diatribe to basically say dynamic scoring is likely to matter that much because the tax bill is not going to change fundamentally the size of the economy that much. Even if it did it would net huge effects because higher growth results in more revenue and results in more spending, more Social Security spending, et cetera. But especially at the stems we dont see a big dynamic effect. We do see a fiscal situation that is now way harder to get out of. I know many folks have talked about balancing the budget. That was technically the goal of the president. It has been the goal of house and senate republicans. A much more modest goal, the golda president obama had put forward, a goal that it think its probably insufficient for the longterm is just to stabilize our current debt to gdp ratio where it is. In other words, keep the gdp at 77 of gdp. That means we can run deficits feature so long as economy growth at the same speed. That insufficient because thats basically saying we want to keep debt at its Current Record high levels. What if we have another recession or more . Even to stabilize the debt under current law, now would require 5. 4 trillion of deficit reduction. This is after dynamic scoring, after taking back the money from the tax cuts and Economic Growth we would need 5. 4 trillion of deficit reduction, up from 4. 1 prior to the tax bill. For some context, the president s fiscal your 2010 budget included 3. 6 billion and spending cuts. A lot of this cuts theres no way they are happening. A lot of didnt have enough detail they couldnt happen. For medicaid it you said save 610 billion in medicaid. No policy. Even if we take all of that as a given the president s budget only had 3. 63 of deficit reduction, only 2. 9 billion on that. The house version, the version that one to move forward with the spending cuts reconciled 203 billion of them. You can see how far away we are from 5. 4 trillion. President obamas final budget at some spending cuts, a lot of tax increases, his most tax heavy budget by far, the combination, just the gross number not the net was 4. 1 trillion. Again, not enough to get to 5. 4 children. Its hard to see the path to even stabilize that at its current level. Then if we take this a a step further and assume theyll continue to pass this quest relate to extend tax cuts, the obamacare hiatus. Rather than 5. 4 billion we need 8. 7 trillion in order to stabilize the debt at current levels. In other words, if we continue to do what it seems Like Congress and the president want to continue to do, theres basically no plausible possiblo stabilize the debt at current levels, at least not over a tenyear period. This may we can stabilize it at a much higher level. I ran 90 just for fun and for what told that 90 of gdp, 91 is a scary number were we were headed to before the tax cuts, it would cost between 1. 7 and 5 trillion. We just made a tough job of deficit reduction will not tougher. I didnt even get into politics but are a complete disaster deficit reduction right now frankly. Heres our new reality. Spending and revenue which we are already diverging are now diverting rapidly. If we continue down the path where we extend everything, by the end of the decade we will have spending at 24 plus gdp and revenue below 17 of gdp. In other words, revenue well below historic average, spending four points above historic average. 7.