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Today on the show, we continue our discussion of federal debt, and let me lay out everything we're gonna cover in the show up front so that you can decide if this particular episode of the show will make a good use of your time or not. Today's show will not feature much personal commentary.

In yesterday's show, I did add some personal commentary and discussion onto the topic of the ticking time bomb that is US federal debt. Today's show, however, will feature very minimal commentary. If you are a reader, one who prefers to absorb information in written form, and/or if you find that reading is a more productive use of your time than listening, then all you need to do is simply reference the two sources cited in the show notes for today's show, specifically a Washington Post article from March 5 called "The Federal Deficit Ballooned "at the Start of a New Fiscal Year, "Up 77% from the Year Before." I will read you some excerpts of that article, and in addition, you can reference the written report that I will be reading to you called "A Comprehensive Federal Budget Plan "to Avert a Debt Crisis" by Brian Riedel.

That is the report that was referenced in yesterday's show. So if you're one who reads, go ahead and just use those written resources to help you make good use of your time and skip the show. If you're one who benefits from podcasts such as mine to turn otherwise unproductive time into something productive, then I think you'll enjoy this because I'll give you an audio version that is fairly balanced and useful, and the commentary will just help you to make good use of some of your audio listening time rather than going and reading these particular resources.

But it won't offend me if you skip this show, so because of your preference to read. Specifically, what I'm seeking to do at this point is after yesterday's show where I talked about the idea, talked about my concerns, I used the metaphor of the fact that the federal deficit is metaphorically a crack in a bridge, and the engineers can look at it and say, "There's a crack here.

"This bridge is going to fail, "but we don't know when the bridge is gonna fail. "We don't know to what level "that catastrophic failure might actually look like. "We don't know if that just means "a little bit is gonna fall off "or the whole thing's gonna crumble." These are all things that are unknown.

Predicting the future is generally a difficult business, and so we're all in that situation. But one of the groups of thinkers that I wish to reach is those who are more in the middle, those who, perhaps like me, are people who say, "Well, I don't wanna be an extremist.

"I don't wanna be an alarmist. "I don't wanna all of a sudden "move into radical alarm territory, "but I do want an honest discussion of the facts. "I don't particularly want it "from a strong partisan perspective. "I'm not looking for a certain right-wing "or left-wing approach. "I want a discussion, an honest analysis "of different discussions "so that I can think things through." And then that way, with that data and with that information, I can just follow my own observations.

I can try to look at the world, and as the years go by, tick by in the coming years, I can start to get a guess on what I think is gonna happen. So if that's you, then this will be useful for you. Now, I was amused to find that after I recorded yesterday's show, I quickly, almost right after I had, a few hours after I'd finished it, I saw this Washington Post article, and I thought it was ironic.

I wish it had come out before I recorded the audio, but it didn't. But let me read you some excerpts from it. This is Washington Post, Dateline, March 5, at 6:51 p.m., from the business section. "The federal deficit ballooned "at start of new fiscal year up 77% from a year before.

"The federal budget deficit ballooned rapidly "in the first four months of the fiscal year, "amid falling tax revenue and higher spending, "the Treasury Department said Tuesday, "posing a new challenge for the White House and Congress "as they prepare for a number of budget battles. "The deficit grew 77% in the first four months "of fiscal 2019, compared with the same period "one year before, Treasury said.

"The total deficit for the four-month period "was $310 billion, Treasury said, "up from $176 billion for the same period one year earlier. "'It's big tax cuts combined with big increases "in spending when they already had big deficits,' "said former Senate Budget Committee Chairman Kent Conrad, "Democrat from North Dakota.

"'So guess what? "'It's craziness,'" close quote. "When Republicans seized control "of the House of Representatives "during the Obama administration, "lawmakers and White House officials "embarked on a number of strained negotiations "to try to reduce the gap between spending and tax revenue. "During the Trump administration, "there have not been any similar discussions, "and President Trump has largely enacted "an agenda of tax cuts and spending increases "that had grown the deficit markedly.

"Tax revenue for October 2018 through January 2019 "fell $19 billion, or 2%, Treasury said. "It noted a major reduction in corporate tax payments "over the first four months of the fiscal year, "falling close to 25%, or $17 billion. "As part of the 2017 tax cut law, "the tax rate paid by corporations "was lowered from 35% to 21%.

"Spending, meanwhile, increased 9% over the same period. "The biggest increases were for defense military programs, "which saw a 12% increase, "and Medicare, which saw a 16% increase. "The Congressional Budget Office has projected "that the deficit this year will reach close to $900 billion, "because the government spends so much more money "than it brings in through revenue.

"The White House next week is expected to propose "a new budget for the fiscal year that begins in October, "and Democrats are working on spending plans of their own. "Pay attention. "So far, there has been little effort "to reconcile differences between both parties, "and neither has shown much interest "in addressing the widening budget deficit.

"White House economic advisor Larry Kudlow on Tuesday "acknowledged that national debt as a share of GDP "has 'inched up a bit,' "but added in an interview on Fox News, "We are making an investment in America's future, "and if that means we incur some additional debt "in the short run, so be it." Kudlow said, "Growth solves the problem," and predicted that the deficit to GDP ratio will come down with growth.

"That will solve all of these problems, "and people will be very prosperous." Close quote. The White House plan will propose cutting a number of domestic programs by at least 5%, including things like environmental protection, education, and foreign aid, according to Trump administration officials who have previewed some of the plans.

It will also propose adhering to caps on military and non-military programs put in place several years ago, but it will simultaneously propose boosting defense spending in an uncapped program as a way to divert more money to the military. Skipping down, quote, or continuing to read but skipping down a few paragraphs.

"There has been a total breakdown in Washington, however, "over how to address the budget deficit. "The White House has walled off popular programs, "Medicare and Social Security from any proposed cuts, "with Trump saying it would be too politically unpopular "to pursue changes to programs used "by tens of millions of Americans.

"Democrats are also split over how to proceed. "The ranks of fiscal hawks have dwindled, "and a newer vocal wing of the party "has called for more deficit spending "to finance social programs. "Some in that wing argue the debt is less pressing "than other social maladies, "such as poverty or inadequate health coverage, "while others argue the debt "is of little consequence at all.

"Instead of trying to resolve their differences, "the White House and some Democrats "are seeking to make the 2020 elections "a referendum on economic policy, "suggesting neither side is looking "to reach a compromise in the coming months." Dropping down again in the story, the quote continuing to read, "The US economy is still the strongest in the world, "and investors have retained a healthy appetite "for US government debt, "because the country has never defaulted "on its obligations.

"But large debt levels have caused financial crises "in a number of other countries, "and forced major economic changes "that have led to recessions, "a phenomenon that some have warned "could happen in the United States "if steps aren't taken." Senator James Lankford, Republican from Oklahoma, was bemoaning debt levels Tuesday, a few hours before Treasury reported the big increase in the deficit.

Quote, "If you take 22 trillion miles, total distance, "you would fly from Earth to Pluto "and back 3,081 times," Lankford said on the Senate floor. "This is a heavy debt." Now, the key thing I wanna draw your attention to is the political dynamics, and this is why I personally don't see a solution that will happen in the future.

All of these news stories, and have been for the past few decades, are basically, well, at some point, something will happen. At some point, something will happen. At some point, something will happen. Meanwhile, the numbers just simply continue to grow. Now, it's possible that at some point, something will happen, but if something doesn't happen soon, it's too late.

Now, I personally am convinced it's already too late, but I'll be watching very carefully in the next few years to see if, in fact, some kind of discussion starts to happen, if, in fact, there is a way for Republicans and Democrats in the United States to come together, have intelligent adult conversations, and start to change spending, start to change deficits, start to change the debt, and it has to happen.

The problem is, in the moment, the discussions that happen are completely immaterial. In order for you to change the structure, you have to attack Medicaid, Medicare, and Social Security, and then also defense spending, and those are considered to be sacrosanct by many of the people who are involved in these various programs.

So how do you change those things? Well, I don't see how it could be possible, especially in the political environment we are in. There are many calls by many people for civility or conversation, et cetera. I don't see how, in the US-American political fabric, I don't see how that those conversations or discussions are possible.

Everyone is basically doubling down on partisanship, and I just don't see it. I don't see how it could happen. And I have lost any confidence that there is a willingness or even an ability on behalf of a broad swath of the US citizenry for people to stop and to think rationally and discuss things and to vote against their own self-interest.

Nobody is going to vote against their own self-interest. So that's my perspective. So watch stories like this as they go on, and here's what I would encourage you to look for in the next coming years as you look at stories like this. First, you will always hear discussions say, I'll always hear this optimistic idea that, well, at some point we need to have a solution.

At some point there needs to be a conversation. I'm convinced it's too late, but I hope to be wrong on that particular thing. But study the data, which we'll get into in a moment, and see if anything could actually possibly be done. Secondly, look for all of these, for lack of a better word, tropes, and you'll see that basically people aren't serious.

You can't, I love tax cuts. I think it's great. I think there'll be some reinvigoration of business happening in the United States, but tax cuts because of the lowering tax levels. We haven't talked extensively about the Tax Cut and Jobs Act here on the show, but it should make some difference.

But you cannot make up for in tax cuts what is happening with the baby boomers retiring and the heavy pressure on Medicare. You cannot make up for in tax cuts what declining birth rates are, the problem that declining birth rates are bringing to the country. You cannot make up for in tax cuts what stagnant and decreasing wages are happening, et cetera.

So you can't, it's not that one or the other, but everyone says, "Well, the tax cut's "gonna solve everything," or just expand spending, and these are foolish perspectives. So at some point in time, the bills are not gonna get paid, and the bills are not gonna get paid in many, many forms.

We don't know what form, which is the problem, which is why we need to be prepared for many forms. Now, at this point, I'm gonna discuss here this paper that I referenced in yesterday's show, and I'm gonna be reading extensive portions of this paper to you, again, to try to make good use of your audio time.

But the paper is titled, "A Comprehensive Federal Budget Plan "to Avert a Debt Crisis," by Brian Riedel, who is a senior fellow at the Manhattan Institute. From his bio here, Brian Riedel is a senior fellow at the Manhattan Institute and a member of MI's Economics 21 focusing on budget, tax, and economic policy.

Previously, he worked for six years as chief economist to Senator Rob Portman, Republican from Ohio, and as staff director of the Senate Finance Subcommittee on Fiscal Responsibility and Economic Growth. He also served as a director of budget and spending policy for Marco Rubio's presidential campaign, and was the lead architect of the 10-year deficit reduction plan for Mitt Romney's presidential campaign.

During the years 2001 to 2011, Riedel served as the Heritage Foundation's lead research fellow on federal budget and spending policy. Skipping some of the other references, Riedel holds a bachelor's degree in economics and political science from the University of Wisconsin and a master's degree in public affairs from Princeton University.

So this report was from September 2018, about six months ago at the time of this recording. And I think it's quite useful to have that six-month context. I'm glad I'm doing this now instead of right when it came out, because now we can think about what's happening in the last six months.

Riedel, of course, from his biography would tend to be more on the conservative direction of the political spectrum, I'm assuming from the institutions that he has represented and the politicians for whom he has worked. But I think you'll assess his work here as fairly well-balanced in the actual report.

Let's get right into it. Executive summary. Annual budget deficits are projected to soon surpass $1 trillion, on their way to $2 trillion, or even $3 trillion in 10 to 15 years. Social Security and Medicare face a combined $100 trillion cash deficit over the next 30 years, which would push the national debt to nearly 200% of the gross domestic product, GDP.

At that point, interest on that debt would consume 40% of all tax revenues, or more if interest rates rise. Unless reforms are enacted, global markets will, at some point, stop lending to the United States at plausible interest rates. When that event occurs, or even approaches, interest rates will soar, and the federal government will not be able to pay its bills with dire consequences for the US economy.

A debt crisis, in short, looms on the horizon. There is a way to avert this debt crisis. However, lawmakers must act quickly to reform Social Security and Medicare, as every year, four million more baby boomers retire into those programs, and the eventual cost of reform rises by trillions of dollars.

This report presents a specific 30-year blueprint, each element of which is scored using data from the Congressional Budget Office, CBO, to stabilize the national debt at 95% of GDP. The fiscal consolidation in this report calls for some Social Security and Medicare benefits for upper-income recipients to be trimmed. Some taxes would rise, spending on defense would continue to fall as a share of the economy, but anti-poverty reforms would be limited to a slight reduction in the growth of Medicaid benefits, and domestic discretionary spending priorities would be largely protected.

Without reform, runaway deficits will all but guarantee a debt crisis that will profoundly damage the country's economic and social order. There is still time to avoid that crisis, but it will require the nation's fractious political leaders to leave their respective comfort zones and compromise. Thus ends the executive summary.

Now, again, I want to emphasize, your and my job is to consume arguments such as these, such as this one, assess them, and then watch to see if the necessary preconditions are happening in the coming years. So, for example, I repeat, this is a summary of the executive summary.

It's a summary of the executive summary of the United States Constitution. It's a summary of the executive summary of the United States Constitution. It's a summary of the executive summary of the United States Constitution. It's a summary of the executive summary of the United States Constitution. It's a summary of the executive summary of the United States Constitution.

It's a summary of the executive summary of the United States Constitution. Now, if you watch election cycles in the United States, watch what is happening with the proposals. Let's see what happens with the 2020 presidential and congressional elections. Let's see what happens, who's elected president. Let's see what happens with the majorities in the House and Senate, and let's watch over the next few years, and that will give us some idea of whether or not this kind of political compromise and serious reform is possible.

We can hope, 'cause none of us wanna go through a crisis, but I've stated it clearly, I see no path how that happens, but I hope that I'm wrong. Let's discuss the actual data in this report now. A comprehensive federal budget plan to avert a debt crisis, introduction. Annual budget deficits are projected to soon surpass $1 trillion, on their way to $2 trillion, or even $3 trillion in 10 to 15 years.

Social Security and Medicare face a combined $100 trillion cash deficit over the next 30 years, which is projected to bring a $100 trillion national debt. At that point, interest on that debt would consume 40% of all tax revenues, or more, if interest rates rise. Unless reforms are enacted, global markets will, at some point, stop lending to the United States at plausible interest rates.

When that event occurs, or even approaches, interest rates will soar, and the federal government will not be able to pay its bills with dire consequences for the US economy. A debt crisis, in short, looms on the horizon. Yet most lawmakers tasked with the responsibility of averting it, express little interest in doing so.

No recent president has presented a specific plan to stabilize the long-term budget. Congress recently enacted tax cuts and discretionary spending increases that, irrespective of any policy merits, will add trillions in debt. Lawmakers promised cheering crowds that they will never trim Social Security or Medicare, or accept a penny in new tax increases or defense cuts.

Democratic socialists pledged to further increase federal spending by $42 trillion over the decade, and $218 trillion over 30 years. Federal spending rises by $150 billion annually, while bipartisan resistance greeted a proposal this summer to merely rescind a few billion dollars in spending authority that was not going to be spent anyway.

Petty squabbles over petty spending cuts, and the refusal even to discuss the main drivers of debt, reflect a general unwillingness of Congress, the White House, and indeed the citizenry, to face the unsustainability of Washington's current fiscal path. There is a way to avert this debt crisis without major tax increases, or significant cuts to anti-poverty and social spending.

However, lawmakers must act quickly to reform Social Security and Medicare, as every year, four million more baby boomers retire into those programs, and the eventual cost of reform rises by trillions of dollars. This report presents a specific 30-year blueprint, each element of which is scored using the most recent Congressional Budget Office long-term budget outlook, to stabilize the national debt at 95% of the gross domestic product, GDP.

Section one identifies the drivers of the long-term debt. Section two addresses false, easy solutions deployed to avoid real reform. Section three presents the blueprint. Section four defends the blueprint against both conservative and liberal objections. The fiscal consolidation in this report calls for some Social Security and Medicare benefits for upper-income recipients to be trimmed.

Some taxes would rise. Spending on defense would continue to fall as a share of the economy. In short, there is something in this blueprint for everyone to oppose, but letting the country wander into a debt crisis is even worse. To be sure, deficit reduction proposals are common. The problem is that most congressional budget proposals simply assume generic and unrealistic long-term spending and tax targets without spelling out the specific programmatic reforms that could meet those targets.

Across the policy community, long-term budget proposals often reflect liberal or conservative dream scenarios rather than plans that can appeal to both parties. By contrast, the blueprint presented here is specific, scored, and represents politically realistic solutions rather than partisan fantasies. It is intended to revive a serious bipartisan discussion and negotiations.

Section one, why the debt is soaring. From the mid-1950s through 2008, the national debt held by the public averaged 35% of GDP. This level of borrowing could easily be absorbed by the increasingly global financial markets, and it resulted in interest costs averaging 2% of GDP, roughly 10% of a typical federal budget.

Since 2008, the Great Recession and the beginning of the baby boomer retirements have more than doubled the debt to 78% of GDP. If current policies continue, the debt is projected to reach an unprecedented 194% of GDP within 30 years. And if this debt brings higher interest rates, as consensus economic theory suggests, the debt could surpass 250% of GDP.

And servicing the debt could cost 7.5% of GDP, the equivalent of $1.5 trillion in today's economy. Americans of all incomes would face unprecedented tax increases, higher interest rates for home mortgages and car, student, and business loans, and a significant economic slowdown. Unlike Greece's, the US debt would be too large to be easily absorbed by the global economy.

What is causing the debt rise? Not inadequate tax revenues, which since the early 1950s have usually remained between 16.5% and 18.5% of GDP, regardless of tax policies, and which are projected to rise above historical norms to 18.6% to 19.8% of GDP, depending on the fate of various expiring tax cuts and delayed tax increases.

Nor is it driven on the spending side by aggregate expenditures for discretionary and smaller entitlement programs, which are projected to continue falling as a share of the economy. Figure two shows that the entire increase in long-term debt will come from surging social security, Medicare, and other government healthcare spending.

According to the CBO, these costs have risen from 7% to 10% of GDP since 2000, and are projected to reach 15.5% of GDP by 2048, or 21.8% of GDP when the interest costs of Social Security and Medicare's annual deficits are included. Why Social Security and Medicare are going bankrupt.

Between 2008 and 2030, 74 million Americans born between 1946 and 1964, on average 10,000 per day, will retire and receive Social Security and Medicare benefits. Of this group, those retiring at age 66 and living to age 90 will spend one third of their adult life receiving federal retirement benefits.

The combination of more retiring baby boomers and longer lifespans will expand Social Security and Medicare caseloads far beyond what current taxpayers can afford under current benefit formulas. In 1960, five workers paid the taxes to support each retiree, and of course, Medicare did not exist. The ratio of workers to retirees has now fallen below three to one on its way to two to one by the 2030s.

When today's kindergartners are adults, each married couple will basically be responsible for the Social Security and healthcare of their very own retiree. These demographic challenges are worsened by rising healthcare costs and repeated benefit expansions enacted by lawmakers. Today's typical retiring couple has paid $140,000 into Medicare and will receive $420,000 in benefits in net present value, in part because Medicare's physician and drug benefits are not pre-funded with payroll taxes and only partially funded by retiree premiums.

Most Social Security recipients also come out ahead. Thus, most seniors' benefits greatly exceed their lifetime contributions to the Social Security and Medicare systems. By 2030, the 74 million baby boomers will have joined a retirement benefit system that runs a substantial per person deficit. According to CBO, between 2018 and 2048, Medicare is projected to run a $41 trillion cash deficit.

Social Security will run an $18 trillion cash deficit, and the interest on the resulting program debt will be $41 trillion. To adjust these 30-year totals for inflation, trim by one third. Rather than adequately self-finance through payroll taxes and premiums, these two programs are set to add $100 trillion to the national debt.

The rest of the federal budget is projected to run a surplus over the next 30 years. Figure four expresses the same projections in a different manner. By 2048, Social Security and Medicare will collect 5.9% of GDP in dedicated revenues, and spend 12.2% of GDP in benefits, plus 6.3% of GDP in interest costs resulting from these two programs' deficits.

That 12.6% of GDP budget deficit resulting solely from Social Security and Medicare is unsustainable. The fiscal winter is coming, and autumn has already arrived. Since 2008, when the first baby boomers qualified for early retirement, Social Security and Medicare have accounted for 60% of all inflation-adjusted federal spending growth, with Medicaid and the Affordable Care Act responsible for an additional 31%.

The majority of budgetary savings achieved by discretionary spending caps, defense cuts, and rising tax revenues have simply financed growing Social Security and Medicare costs, which will grow by another $130 billion annually over the next decade. That is the equivalent of creating another Defense Department every five years. This will happen automatically, without any congressional votes, and therefore likely with scant media coverage.

And as federal resources further shift to the elderly, Washington is beginning to run out of offsetting spending cuts. This has contributed to the deficit expanding from $438 billion to $666 billion over the past two years. CBO's current policy baseline shows deficits rising to $2 trillion within a decade, or $3 trillion if interest rates return to historical norms.

Unlike the temporary, recession-driven budget deficits a decade ago, these Social Security and Medicare-based deficits will expand permanently. Over the next 30 years, CBO projects that the national debt will grow from $20 trillion to $99 trillion, $54 trillion after inflation, or much higher if interest rates rise from the projected 3% to 4% range to the historically typical 5% to 6%.

President Trump's latest budget proposal shows the impossibility of reining in deficits without Social Security and Medicare reform. By allowing these programs to nearly double over the decade, from $1.6 trillion to $3 trillion, the White House is forced to propose slashing other entitlement spending as a share of GDP by 1/5 over the decade, and cutting both defense and domestic discretionary spending to levels as a percentage of GDP unseen since the 1930s.

Yet even if these implausible cuts were enacted, CBO still estimates a budget deficit topping $1 trillion by 2028. This deficit would continue escalating thereafter because Social Security and Medicare costs would continue growing even after Washington would have run out of other spending to cut. Predictably, most of the popular blame for the rising deficits is currently pinned on the 2017 Tax Cuts and Jobs Act, TCJA.

TCJA will likely decrease revenues by roughly 1% of GDP indefinitely if extended past 2025, when parts of the law are currently scheduled to expire. This does not include additional tax revenues that will arise from the economic growth that lower tax rates will induce. The Congressional Joint Committee on Taxation estimates that these additional tax revenues would offset the additional interest costs of the tax law, though not the primary deficit increasing impact of the tax cuts themselves.

While the government revenues foregone by TCJA will surely worsen deficits, they are a much smaller contributor than Social Security, Medicare, and Medicaid, spending on which will together rise by 2.6% of GDP over the decade and 5.4% over 30 years. Even without the 2017 tax cuts, the annual deficit would still exceed $1.7 trillion within a decade.

In short, TCJA did not create the federal government's large deficits, and even repealing them would not absolve lawmakers of the need to address rising entitlement spending. How a crisis may play out. The national debt's share of the economy cannot rise forever. At a certain point, even large global savings markets will be stretched, and investor confidence in America's ability to finance its debt will evaporate.

The timing of a country's debt crisis depends as much on market psychology as on economic fundamentals. But eventually, as the debt steeply escalates, investors will move from unease to panic and demand higher interest rates to finance the federal government. These higher rates will make it extremely difficult for businesses to borrow and invest, and will make auto loans, student loans, and home mortgages less affordable, while also forcing unprecedented tax increases and/or spending cuts to pay for Washington's higher interest costs.

Such an outcome is highly likely if annual deficits continue growing past 10% of GDP, and the debt continues to approach 200% of GDP as projected in the current policy baseline. On the one hand, America will have some leeway due to its reputation as a safe harbor for investments and status as the world's reserve currency.

On the other hand, absorbing a debt of nearly 200% of America's economy would be much more expensive for the global markets than absorbing, say, 200% of a smaller GDP, like that of Greece. In the absence of fundamental reform, the more likely scenario is a series of minor investor panics, forcing up interest rates, followed by upper income tax increases, and lower priority spending reductions that are insufficient to finance the rising entitlement and interest costs.

Eventually, Washington will run out of such offsets to reduce deficits, leaving only the choice between historically large middle-class tax increases and a drastic reduction in Social Security and Medicare benefits for current retirees. Now, I wanna pause for a moment to insert just a couple words of commentary before we move on to section two.

You will notice here that this particular author omits a discussion of inflation. Inflation, he only uses, he only discusses inflation in terms of standard economic forecasting, the type of inflation that we are all accustomed to, which, by the way, is absolutely devastating. And every time I run numbers on this, I absolutely find it devastating.

In my newest course, I have a whole section on current capital controls, capital controls and currency controls under which we currently all live, because one of the biggest dangers of an economic crisis is capital controls, and especially currency controls for us as individuals. And so I have a whole discussion on capital controls under which we currently live.

And in analyzing those capital controls, I calculated the impact of them on an inflation-adjusted basis, and they are absolutely devastating. And I hate inflation. Anyway, the point is, this author is using just the standard economic forecasting models of built-in normal inflation rates of two, 3%, that type of thing.

Nowhere in this particular paper does he ever address mass inflation, and nowhere does he ever address hyperinflation, with the exception of an argument that showing that inflation doesn't solve the problems of Social Security and Medicare because they are tied to inflation. We'll get to that argument later. They're inflation-adjusted.

But I do think that it's worth your, I wanna point that out to you, because in addition to these problems, which are devastating but practically, but more common, we also need to think about the potential of mass inflation and/or hyperinflation, because that's even more devastating. Now, I think there are strong arguments that would indicate why the United States might seek to avoid those policies, why the US Federal Reserve would avoid that policy.

I think there are strong arguments for it. But I do think it's plausible. In the past years in studying it, I used to think of hyperinflation in the United States as implausible. I used to think of mass inflation as plausible. I have since moved mass inflation in my own mental categorization from plausible to increasingly probable, and hyperinflation from implausible to plausible.

Now, I don't know what will happen the coming years will tell us a lot, but we need to watch that. I just wanna point out that absence to you. When talking about how a crisis will play out, this particular author doesn't use or doesn't factor in the potential of mass inflation, hyperinflation scenarios, the devaluation of the currency.

And this is important for you to remember, 'cause what can happen in order for these things to be solved? Well, you can either have an increase in taxes, which is a real problem for you as an individual who pays taxes, it's a real problem for me. So that can be devastating to your personal wealth.

So we've got a plan to make sure that we escape those higher taxes. Or we can have cuts in spending, but because those cuts in spending are largely devoted to the baby boomers, we have a massive problem there because the baby boomers, yes, some of them have wealth, but many people don't.

And so cuts in spending for Social Security and Medicare will be devastating for many millions of people for whom that's their only asset. And they've been sold this idea that they can just retire and have these programs there for them. And you have the largest motivated voting bloc, which makes the political nightmare just even worse.

And then even if those cuts are enacted, that has a devastating impact on the economy with regard to spending levels and consumption levels. So that's a problem. Or you can have more borrowing, or you can have inflation. Those are basically the only options you just have those levers to push on.

And so for most of us, these are problems. So if we have higher taxes, we've got to figure out a plan to protect ourself from higher taxes. If we have fewer benefits, we've got to have a plan to protect ourselves from fewer benefits. If we have inflation, to inflate the monetary supply, we have to have a plan for that because that affects everything else.

And so it's a tough nut to crack. That's why I wrote the whole course. Anyway, commentary over. Let's move on to section two called the Mirage of Easy Solutions. Standing in the way of making the changes to be outlined in this budget plan or other plausible proposals to avert a debt crisis are a series of false claims that the problem is easily solved.

Economic panaceas, steep economic growth. A strong economy is necessary, but far from sufficient for major deficit reduction. Growth rates will already be limited by the labor force slowdown caused by baby boomer retirement and declining birth rates. That leaves productivity to drive growth. I want to comment also, and just insert one commentary.

The latest arguments and articles that I'm seeing right now is that the potential of declining birth rates is actually, has the potential to be far more catastrophic in the United States than previously anticipated. There has been a major decline in birth rates among white people, but it has previously been assumed that there would be strong, there would be stronger birth rates among brown people, primarily brown people and black people in the United States.

What seems to be happening, however, is there seems to be a much more significant decline in birth rates, not only among white people, but especially among brown people in the United States than previously anticipated. So that is something that you need to keep your eye on as well. And it'll be interesting to see if that trend and that data continues, or if that's just an anomaly.

I have a couple of books I need to read on it, but I haven't been able to dig into them yet. But it's something that I'm paying attention to to see what data starts to come in on the actual societal decline in birth rates. And this could also, additionally, another factor that has to be played into this is there's been a major drop in family formation in the United States.

So in addition, all of the previous discussions, and I'm not a demographer, so it's possible this is baked in. But my suspicion is that with the massive decline in family formation in the United States, and with the fact that the families are formed are simply not stable, that this is going to increase even more to declines in birth rates.

And so I think there's basically a perfect storm with regard to family formation, with regard to children, that is gonna possibly make these things even worse. And I think that perfect storm is still gathering. I think there's some indications, and we'll see what happens in coming years with that.

But I mean, you see it on all sides. People kill their babies, don't have babies, don't form families. The families that are being formed are not stable. Generally, it's better among the wealthy, but family formation among middle-class and poor people has been just utterly devastated. Anyway, that's difficult. And I don't know how much of that is baked into this into these assessments here.

Let's continue on. And I'll just repeat the discussion of the economic panacea of steep economic growth. A strong economy is necessary, but far from sufficient for major deficit reduction. Growth rates will already be limited by the labor force slowdown caused by baby boomer retirements and declining birth rates. That leaves productivity to drive growth.

So, no problem? Let's start by disregarding CBO's 2018 projection that total US factor productivity will continue growing at the 1.2% average rate of the past 30 years, and instead assume the white hot 1.8% rate that prevailed from 1992 through 2005. Most economists would consider this far too optimistic. Nevertheless, the resulting higher incomes and tax revenues from this productivity jet stream would seem to close at least 40% of the cumulative deficits through 2048, until one accounts for the fact that higher incomes automatically result in higher social security benefits when the workers who earned them retire.

Much can be done to increase real economic growth rates above CBO's long-term 1.9% annual projections. In particular, lawmakers should aim to grow the labor force participation rate, continue to refine the tax code to encourage work, savings, and investment, and improve policies in the areas of trade, energy, job training, education, and healthcare.

However, a refusal to address surging spending and deficits would still undermine economic growth by raising interest rates, decreasing business investment, and ultimately forcing up taxes. Lawmakers should aspire to faster growth, but not simply assume it, especially if entitlement costs keep growing. Inflate the debt away. In the short term, higher inflation can dilute some of today's $20 trillion national debt.

However, social security and Medicare benefits and payments are also tied to inflation, so future liabilities would expand. Additionally, Washington would have to pay much higher interest rates when borrowing to finance those benefits. Low interest rates. CBO's 2018 long-term budget outlook assumes that the national debt can rise from 35% to 150% of GDP between 2007 and 2048, with its average interest rate peaking at just 4.4%, which is below even the levels of the 1990s, 6.9%, and 2000s, 4.8%.

By contrast, the economic policy community consensus is that such a large increase in federal debt would raise interest rates. For each percentage point that interest rates rise, Washington must pay approximately $13 trillion more in interest costs over 30 years. That means an even higher national debt. Immigration. Smart immigration policy may, on net, marginally improve the federal budget picture and the economy.

It is not a cure-all. High-skill immigrants send higher tax revenues during their working careers, but their eventual retirement into social security and Medicare would add new liabilities to the system. Low-skill immigrants generally increase costs to the federal government, and especially to state and local governments, at least in the first or second generation, because the resulting education, infrastructure, and social spending exceeds the added tax revenues.

By the way, this discussion on immigration is one of the more important discussions. Obviously, it's not being handled well in the broad-scale United States, and instead we have various factions that are retreating into their corners and not having a rational discussion. Anyway, it's a major problem. Continuing on with conservative fantasies.

Pro-growth tax policy. Economic growth is obviously important to deficit reduction, and tax legislation that depresses savings and investment must be avoided. Nevertheless, the historical record clearly shows that the vast majority of tax cuts do not increase tax revenues, especially by enough to keep pace with federal programs growing 6% to 7% annually.

What about eliminating welfare and lower priority spending? Over the past 15 years, congressional GOP deficit reduction budget plans have typically imposed nearly all the first decade's cuts on anti-poverty programs, Medicaid, ACA subsidies, SNAP, aka food stamps, and others, as well as non-defense discretionary spending, such as education, veterans' health, homeland security, medical research, and infrastructure.

This pot of spending, 7% of GDP and declining, would have to be mostly eliminated to balance the budget a decade from now. These cuts will never be passed by any Congress, as their advocates on Capitol Hill and in top think tanks surely know. While there are any number of failed and unnecessary programs in need of major reform, proposals to eviscerate these entire categories of spending while letting Social Security and Medicare off the hook are a politically delusional distraction.

What about impossibly tight spending caps? Spending caps are a vital tool to enforce realistic spending targets, but absent any achievable underlying programmatic reforms to meet those targets, they are an empty gimmick. Nevertheless, many conservative budget blueprints simply divide the federal budget into five to eight spending categories, and then assume unprecedented cuts in targeted categories, with no underlying policy proposals to achieve those targets.

For instance, President Trump's latest budget proposal assumes a 60% reduction by 2028 in total non-defense discretionary spending as a percentage of GDP. The budget proposal provides no breakdown of which specific programs would be slashed and how they would operate once all cuts are enacted. The 2011 Budget Control Act has shown that overly tight caps will be canceled rather than force politically suicidal cuts.

Devolution to state governments. There is a strong policy case for allowing states to have more control over poverty relief, education, infrastructure, economic development, and law enforcement spending. However, counting the federal savings from devolution as the centerpiece of a deficit reduction strategy is disingenuous because it simply shifts the deficits and taxes to the state level, minus modest efficiency gains that might come from better state fiscal management.

The purpose of deficit reduction is to limit government borrowing and tax increases and to limit economic damage, not merely to change the address where the taxes are sent. What about liberal fantasies? What about just tax the rich? Liberal advocates often vastly overstate the degree to which upper income tax increases can finance the ever expanding government.

In the first place, the US already has the most progressive tax code in the OECD, even adjusting for differences in income inequality. And setting aside the moral questions that would be raised by the government seizing the vast majority of any family's income, basic math shows that large tax increases on high income Americans cannot close most of the long-term budget deficit.

Start with an extreme proposition, a 100% tax rate on all income over $500,000. Result, this would raise barely more than 5% of GDP, at least for year one. After that, one needs a heroic, if not absurd projection that this tax would have no effect on working or investment. Next, try a slightly more realistic doubling of the top 35% and 37% tax brackets to 70% and 74%.

Result, this would raise only approximately 1.6% of GDP. And even that figure ignores all revenues lost to the economic effects of 85% marginal tax rates when, including state and payroll taxes, on work or investment, as well as tax avoidance and evasion. And by the way here, you should go and look at figure five in this particular report, where each of the various proposals, including that doubling, talks about, is calculated in terms of its actual savings and how far it would actually get you towards these goals.

Popular proposals to impose a 30% minimum tax on millionaires and to more aggressively tax banks, hedge fund managers, and oil and gas companies would raise a combined 0.1% of GDP, or lose revenue if they trim the economic growth rate by even 1/20 of 1%. The 0.4% of GDP raised by a $25 per metric ton carbon tax would be passed on to households through higher energy bills.

The top earning 5% of families and pass-through businesses currently account for 30% of all income. That means that 70% of this tax base comes from those outside the top 5%. Furthermore, that top 5% already pays 42% of all federal taxes, including 61% of all federal income taxes, which leaves less room for additional taxes.

So while some upper income tax increases are possible, the idea that America can close an $18 trillion Social Security shortfall and $41 trillion Medicare shortfall, and even pay for additional spending proposals on the liberal agenda solely by sticking it to the rich, is a fantasy that finds no support in budget math.

Nor can corporate tax hikes close much of the gap. America's total corporate tax revenues are generally in line with other developed nations. Although modest reforms may be on the table, major changes, such as a 10-point rate increase, would raise less than 0.5% of GDP, while giving more companies an incentive to relocate abroad.

Repealing the 2017 Tax Cut and Jobs Act would not significantly raise corporate tax revenues either, as that portion of the law was almost entirely paid for through a combination of tax offsets and additional revenues from projected economic growth. An inescapable reality gets lost in this country's intractable budget debates.

If America wants to spend like Europe, it must also tax like Europe. This means, in addition to federal and state income taxes, a value-added tax, VAT, essentially a national sales tax, that affects all families. Lawmakers who pledge to stabilize the debt without touching government spending would need new tax revenues equivalent to a value-added tax that rises to 17% by 2030 and 34% by 2048.

Alternatively, lawmakers could raise the payroll tax from 15.3% to 33.5%. Rather than concentrating all the revenues within one tax, Figure 5 shows that a combination of large income, payroll, capital gains, corporate, and value-added tax increases would likely be needed to raise 6% of GDP and stabilize the debt without touching Social Security, Medicare, Medicaid, and anti-poverty and social spending.

While it is easy to say major spending decreases are a non-starter, the all-tax alternative is even less plausible. Now I wanna pause here just to point out a couple of thoughts for your personal planning. Before we move on to deep defense cuts, I want you to think about what you would do if the top marginal tax bracket were doubled from 37% to 74%.

I want you to think about what you would do if a national sales tax were added to the tune of 20 to 35%, if you had a national sales tax on all purchases in the United States for up to 20 to 35%, and/or I want you to think about if your payroll taxes increased from 15% to 33.5%.

What would you do? Because one of the scenarios that we have to plan for is tax planning, is what would happen if the United States goes down this road. Now, is it possible? Possible. Is it plausible? Plausible. Is it probable? It's hard for me to see it right now, but demographic changes might change that.

I commonly hear people say, "Hey, I'm willing to pay more taxes." Okay. Maybe we go down that road. So you need to think about what you would do in that situation. Consider it. We'll see. I'll tell you this. I'll teach you how to eliminate all those taxes, and I wouldn't be around for it.

Deep defense cuts. What about deep defense cuts? Since the 1980s, the Pentagon budget has fallen from 6% to 3% of GDP, not far above Europe's target of 2%. Cutting US defense spending to the levels pledged by European members of NATO would save 1% of GDP, or roughly 1/7 of the Social Security and Medicare long-term shortfall.

And Europe's target level is possible only because its leaders can count on protection from a larger superpower, a luxury that the United States would not enjoy. A healthy portion of America's higher defense budget comes from spending $100,000 per troop in compensation, salary, pension, housing, healthcare, and other benefits, which lawmakers are not eager to cut.

Some long-term budget savings are possible, though it should be noted that President Obama did not propose reducing the Pentagon budget to anywhere near the levels of France or the UK. What about single-payer healthcare, which is, of course, quite the current discussion as we move into the 2020 election season, which, by the way, my one political jab, which I'll make the rules close your ears.

Does anybody notice how the fact that the Affordable Care Act, Obamacare, was passed, and it was failed to be repealed by the Republicans who promised that they were going to do it, and then they failed, has anybody noticed how that's just basically disappeared now and now the push is, well, we gotta have single-payer, that's the whole goal, all the energy is there?

Let me tell you just a brief bit of historical fact from me, Joshua, because these are a couple of things that have contributed to my own personal struggles with all this stuff. When the Affordable Care Act was proposed, I was a, I sold health insurance. I had gotten my insurance license and I sold health insurance.

And my favorite kind of health insurance to sell was just individual health insurance policies. I didn't do much group health insurance work, I just didn't enjoy it. I came to the conclusion that nobody liked their health insurance agent because they were, the money, the premiums were always going up, just wasn't fun, I didn't care for it, so I didn't wanna do it.

Although I knew many successful advisors that would always keep a small health insurance practice and they'd make $100,000 a year from their health insurance book in addition to all their financial planning work. So I always thought it could be done, but I just, I wasn't interested in it. But I got appointed with a number of different health insurance companies, and basically if somebody wanted health insurance, I would just simply go to one of those companies and we could get just inexpensive, catastrophic, individual health insurance policies.

That approach has always made sense to me, it's always what I wanted, I'll just pay out of pocket for all my medical bills. I just want health insurance where if I have a $100,000 medical bill, then everything from 10 to $100,000 is picked up by insurance. And you used to be able to buy that stuff.

The policies were inexpensive, I sold quite a few of them and I enjoyed it. When the Affordable Care Act was proposed, I started to pay attention and I really wondered about it. And in time, I came to the perspective of just simply saying, this is not gonna work, it cannot work, it doesn't make any sense.

It doesn't make any sense financially. But I would hear people advance the theory that the whole goal of the Affordable Care Act was to disrupt and destroy the health insurance marketplace so that it would usher in single payer healthcare. It always sounded like a conspiracy theory that didn't have a lot of support.

And I just thought, no, it's probably not. But over time in watching it, I started to come to the conclusion, I said, this can't, nobody can think this will actually work. The data is too clear, nobody can actually think that this is actually work. Well, the Affordable Care Act was passed middle of the night, all kinds of chicanery to make it pass, no bipartisan consensus, all Democratic paid for, sorry, Democratic voted for policies.

When that happened, over the next year or two, health insurance premiums started to go up. And then systematically, I just, I came, I stopped selling health insurance. Over time, all the policies that I had sold, the companies massively increased their rates, all the people that were on those policies were forced off and forced onto the exchange.

Now, obviously, this did offer an interesting financial planning opportunity, because previously, it had always been very important that a prudent planner maintained their own health insurance coverage. But when the requirement of pre-existing conditions was eliminated, then there became no reason to have to maintain coverage if you didn't want to, and if you could work out the tax issues.

But most of my clients were not in that situation. I liked it, many people were happy, many sick people started signing up, people that had had trouble getting health insurance. So I just kind of moved on. Then I started to watch, after the day, then I started to watch all the data that came out from President Obama's team that had been the architects of the health insurance.

And the lies that they had said were basically exposed. And I started to think, you know what? I bet you there was more to this idea that the whole thing was designed to fail from the beginning. 'Cause when you would have the tapes of the architects talking about the lies, not just the president's lies, not just if you like your doctor, you can keep your doctor, not if you like your plan, you can keep your plan, not just that nonsense, but the actual architects, the behind the scene people.

I came to the point, I said, you know what? That theory now makes a lot more sense. Now, as we watch what's happening in 2019, that theory that I used to resist, that just sounded too crazy to say, oh, Obamacare was designed to fail to usher in single payer, watch what happens in the next few years.

My crystal ball is broken, but that theory makes a lot more sense than it ever did. So it's a frustrating bit of historical analysis. Just 'cause I was involved in that. It was all stuff that I did in the last 10 years. I saw it up front and I've had to admit that I was wrong 10 years ago.

And now we'll see what happens in the next couple of years. Moving on now back to the article. I hope you enjoyed that commentary and my liberal friends, you can unplug your ears now. What about single payer healthcare? When confronted with rising Medicare and Medicaid costs driving federal deficits, a popular response on the left is to propose single payer healthcare.

The theory here is that a fully socialized health plan would drastically slash costs to families and the federal budget. There is some debate over whether single payer would slightly increase or decrease total national health expenditures. The most generous analysis of Senator Bernie Sanders Medicare for All Act performed by the Mercatus Center shows a 3% reduction in projected national health expenditures.

Although those savings charitably rely on the bill's assumption that private health insurance can be nationalized with reimbursement rates for its health providers cut by approximately 40%, a massive reduction that the Mercatus Center analysis notes is wildly implausible. Analyses that assume more realistic payment rates, such as those performed by the politically liberal Urban Institute, show a notable increase in national health spending under a single payer healthcare.

Regardless of whether total nationwide health spending would slightly rise or fall, it is obvious that transferring the entire healthcare system to the federal government would substantially increase federal spending. Thus, virtually all analyses of single payer healthcare from the politically liberal Urban Institute to the conservative Mercatus Center have estimated a first decade cost of $24 trillion to $29 trillion to the federal government.

That is on top of current federal health spending that is already growing at unsustainable rates. And if the large provider payment rate reductions prove to be unrealistic, the cost will rise by trillions more. Some suggest that these new federal costs would be fully paid for by the health savings to families, businesses, and state governments.

This response leaves unanswered the rather large question of how to convert every dollar of current private sector and state government health spending into a nearly $30 trillion single payer tax. Single payer advocates have still not provided a tax proposal that covers more than half of the exorbitant federal cost.

The most likely option, a payroll tax, would need to be set at 30% on top of the current 15.3% rate. There is no indication that Americans would accept tax increases this large even if they no longer pay premiums for health insurance. Furthermore, these new taxes would finance only the added federal costs of the new single payer system, not the underlying cost of current federal health spending.

In other words, Medicare for all would not address Medicare's projected $41 trillion cash shortfall over the next three decades. It would simply make Medicare more generous and then expand it to everyone under age 65. Perhaps lawmakers should figure out how to pay for the current Medicare system before pledging nearly $30 trillion per decade to expand it.

Now we move on to cross-partisan fantasies. Social Security Trust Fund to the rescue. Some suggest that redeeming the $3 trillion in assets held by the Social Security Trust Fund will shield taxpayers from the cost of Social Security's deficits. In the first place, this $3 trillion accounts for a small fraction of the system's $18 trillion cash deficit over 30 years.

More important, the Trust Fund contains no economic resources with which to pay benefits. It consists of a pile of IOUs in a filing cabinet in Parkersburg, West Virginia. This $3 trillion in Social Security assets reflects a $3 trillion liability for taxpayers who must repay the bonds with interest over the next 16 years.

All future Social Security benefits will be financed by future taxes and borrowing. Long-term budget projections are just theory. Americans otherwise inclined to be skeptical of 30-year projections should nevertheless take these seriously. Future inflation rates are indeed anyone's guess, but the 74 million baby boomers retiring into Social Security and Medicare are an actuarial and demographic reality.

These present and future retirees exist, and the payment formulas have already been set. Furthermore, any future uncertainties are an argument for caution and prudence. What about the argument that there's no hurry? Some assert that lawmakers can wait 10 or 15 years to address this challenge. Unfortunately, every year of delay raises the eventual cost of a budget fix because, one, on average, four million more baby boomers retire into Social Security and Medicare, and lawmakers have generally avoided reducing benefits for those already receiving them.

Two, benefit levels rise further above an affordable level, and three, the larger national debt locks in permanently higher interest costs. The blueprint in this report assumes that most reforms are implemented in 2023, which means that stabilizing the debt at 95% of GDP requires the sum of annual tax increases and non-interest spending cuts to rise to 6% of GDP by 2048.

Those required 2048 savings rise to 9% of GDP if reforms are delayed until 2030, and 12% of GDP if reforms do not begin until 2035. Now, I want to insert just a moment of commentary into this. Remember, this paper is all predicated upon the idea that in five years, these things will be put into practice, and if put into practice, these comprehensive massive cuts, which we'll get to in a minute, if put into practice, this will stabilize the debt at 95% of GDP.

Not pay it off, but stabilize it at 95% of GDP. That's the very best, most optimistic scenario. But everything in this is built upon the idea that in five years, by 2023, these reforms will be implemented. Now, here's the problem. In 2019, looking forward, let me ask you this.

Do you have any confidence that these reforms, or anything close to these reforms, could be implemented in the coming years? I cannot possibly see it in the current political scenario, no matter what happens with the 2020 election. At the moment, of course, just a bit of political analysis, at the moment in 2019, we have a strong and ascendant Democratic Party in control of the House of Representatives, and there is a decent chance that that energy in the House of Representatives could continue with increasing gains in the Democratic majority.

It's possible. Now, of course, the opposite is also possible, but it's possible. In the Democratic Party, we have a strong and ascendant, hyper left-wing, very, very big-spendy group of people. And the massive move in the Democratic Party has been to the left. Somebody like Bill Clinton looks like a Republican at this point in time, in terms of the massive move to the left.

Just this last week, as I record this, Senator Sanders has officially launched his campaign. Now, of course, he faces major challenges, but if anybody got massive traction in the 2016 presidential campaign, it was unexpected. Of course, President Trump's traction was unexpected, but then, of course, you had Senator Sanders' traction that was absolutely huge.

So time will play out in the next year. We'll see what happens with the Democratic nominee for president. But there is a very, it's hard to imagine that a centrist fiscal hawk gets elected as, or gets nominated as a Democratic candidate for president. Now, what about on the Republican side?

Well, it looks like it's almost hard to see how anybody except President Trump is the Republican nomination. Now, in theory, if there were some kind of massive impeachment process, or some kind of massive illegal activity that were proved, for example, by the results of the Mueller report, et cetera, in theory, perhaps there could be another Republican candidate.

But first, I don't see how, and even if there were a Republican candidate other than Trump, I don't see how a Republican other than Trump could get reelected. And all indications are that no such argument would, no such data is going to come out at this point in time.

Now, of course, the Mueller investigation should be issuing its report soon, but I don't see any good evidence that would indicate that we should expect any kind of massive upset to the political equilibrium right now. Now, will President Trump get reelected or not? How would we, how can we know?

But I don't see how a non-Trump Republican could get elected. I don't see how any kind of other moderate fiscal hawk Republican, kind of the same old stayed conservative person. I don't see how any person like that could get elected, even if they were nominated. So you either have, as far as I can tell, in the presidency, you either have a President Trump, again, for a second term, going through 2024, or you have a strongly left-wing, very spendy Democrat in the presidential office.

Now, what's the only restraint? The only restraint would seem to be that there's a decent chance that the Senate, the fiscal restraint, I mean, is that it seems almost impossible in under current projections that the Senate would lose its Republican majority for right now, for the coming election cycle, at the minimum.

So you could have, very plausibly, you could have a very left-wing, Democrat-controlled House of Representatives, and a left-wing Democrat in the president. You could have a Republican still in the presidency, and a Democratic House of Representatives, and a Republican Senate. Now, who knows with any of these things, right?

We'll watch and see. But here's the point. Notice what is entirely absent in any of those scenarios that I think are plausible. There are no fiscal conservatives. There are no fiscal hawks, as they are known. They're a vanishing breed. They're disappeared. Paul Ryan, that was his big claim to fame, and he's gone.

He slunk out of office, he's gone. Who, in any case, is actually out there advocating, saying we should spend less money? The president that was the most restrained on spending was President Obama. And it wasn't because his ideology indicated that he should be restrained on spending. It was because he was stymied on every side by a Republican majority in the House and the Senate, and that's what kept him from being able to spend much money.

So he was the biggest fiscal hawk of any presidency going back for a long time. So I know this is a lot of political analysis, but my point is, where does it come from? Now, let's say that you said, well, even with a whomever, maybe President Trump is reelected into the US presidency, but there is a Democratic majority in the House, and there's a strong centrist majority in the Senate.

Okay, maybe that's possible. It certainly is possible. But where does some coalition come together that says, we're gonna tackle this budget problem, we're not actually gonna talk to each other? When the issues that are at hand in terms of legislation are so divisive and seem so much more important in terms of the culture war issues versus trying to figure out how to rein in the budget, and when you have such an entrenched political majority of the baby boomers and their voting bloc, how on earth does any meaningful reform get enacted?

Now, if I'm missing something, you tell me, but you watch it over the next few years, as I will be watching it as well, and understand that these dire scenarios discussed in this report are all predicated on, by 2023, being able to come up with a political solution that is bipartisan.

At the moment, it looks to me as though it is impossible. I can't see the event that would change it. The most likely course of action in my mind is that the US starts another major war, or a war is started with the US, and then that would just be the worst because everything goes out the window then, but time will tell.

We'll see what happens. One more cross-partisan fantasy back to the paper. Let the kids deal with the problem. The final argument against reform asserts that Social Security and Medicare benefits represent an unbreakable, unamendable promise to the elderly. Consequences be damned. In reality, retirement benefits have been repeatedly expanded, far beyond what current retirees were promised while they were working.

For example, President George W. Bush and Congress decided in 2003 that current taxpayers would pay 75% of the prescription drug costs of the current typical senior. This benefit was never earned through payroll taxes, and today's teenagers never signed up for this budget-busting deal. One more commentary on this bit of thing.

All of this assumes some kind of nationalistic identity, some kind of patriotism, the sense that, oh, we're Americans and we're going to just stick with it. I see that as eroding. So you have two major cultural issues with younger generations. Number one is very few younger people seem to exhibit much particular care for older generations.

In the US American society, you have a general disdain on younger people on behalf of older people. Age is not something that is appreciated and honored. Rather, it's something that is generally looked down on. People write about how they don't want to do it. Women make stupid comments about, "I'm not going to tell you my age," and it's supposed to be impolite to ask somebody their age.

There is this general societal disdain for the elderly. This disdain is continually being expressed in social changes. So American parents institutionalize their children, and then they turn around and wonder why their children institutionalize their parents. And then in addition, you have a massive worldview conflicts that don't seem to be able to be cared for and worked out in the society at large.

You have massive differences between older generations and younger generations in terms of political ideology, in worldview, and even just basic considerations of morality, of what's right, what's wrong, in lifestyle decisions, lifestyle choices, et cetera. So when you put all this stuff together, why on earth do you think that children, or so, you know, kids in this context, why would young people want to pay for all the stuff that old people did?

The disdain, even in the political space, of younger people to the old people, who view many younger people, especially more liberal left-wing political perspectives, basically view that everything that the past did was wrong, that the United States was just a bunch of imperialistic Nazis, and now everything was wrong.

So why on earth would we expect younger people to say, "I'm going to buckle in, "and I'm going to pay this "to support the older generations." In addition, you assume that in this case, that children can't just simply leave. And now you have a major change, where there once was a stronger nationalistic identity of what it meant to be a U.S.

American in the United States of America. You had this context, "Well, I'm American, "and we get through this together." But in the current fractured U.S. American culture, I don't see much of that. I do not see much of that at all. And so the people like me, who have an affinity for what the United States has been, and what it has stood for, I have an affinity for that, but I don't recognize the country that I live in now.

And so why should I, and so I'm much more committed to those principles and ideals, no matter what country they are expressed in, than I am the actual particular country. Now, many people have a much more liberal, but instead of my appreciation for so many things in the American past, many of my friends and peers have nothing but disdain for what happened in the past.

So why on earth would that set of people stick around to pay much higher taxes for a bunch of old people? At some point, the kids are gonna stiff the old people. I don't see any other way around it. And those are just some of the reasons why I think that's a rational point of analysis.

I hope that makes sense to you, but I am far more conservative, politically, for whatever that means, but I'm much, I'll just use it 'cause it's a commonly understood term. I am far more conservative than almost anybody that I know. And yet my plan at this point is to prepare my children to never have to live in the United States, to never have to deal with this stuff.

Now, if they choose to, or if we choose to, fine. But at this point, I'm establishing the infrastructure so that none of us ever have to be in the United States to do these problems. And I wanna make sure that their wagons never hitched to the future of the United States if they don't choose it to be.

Now, I'm pretty extreme. I take action more than a lot of people. But if that's for me, who's a fairly extreme conservative, much more conservative than many people that I know, then how does that same theory not press through for people who are less conservative than me? About the thing that I don't have is I don't have the same kind of jingoistic, blind nationalism that a lot of people have.

But I don't see why many other parents wouldn't do what I'm doing, which is to say, okay, well, if the United States continues to provide a good value proposition 20, 30 years from now, fine. But I'm not gonna stick around and deal with the problem. I didn't create it.

It's not my fault. It's not my kids' fault. I'm gonna help them get out. To me, that seems practical and pragmatic. So you assess for yourself. But I see a small portion of the US American population that ascribes to this intense nationalism, to the point of jingoism, that this, you know, salute the flag and God bless America and all this stuff.

But I don't see how that stands because that's only a small wing of the Republican Party. And I think most thoughtful people look at that and say, you know, I don't stand for this. I mean, why should I salute the flag when it stands for all these things? And as you have an increasing rise and surging of more left-wing cultural issues in the United States, for most of us who are on the right, who tend to have that more nationalism perspective, that just increasingly adds to the shame and embarrassment of being associated with the United States rather than any kind of nationalistic pride.

I don't know if that's helpful or not. It's extended commentary here on this idea of let the kids deal with the problem. But you have a generational problem. And I think you can't ever get away from that. So I'm smack dab in the middle. I'm a leading millennial and I'm smack dab in the middle.

And I would just say, you know, take that because there's a big cultural difference between baby boomers versus me as a millennial versus our children. And the problems are going to be presented as my fellow millennials, as our children arrive at working age. And so I think, this sounds very millennial, but pay attention to what's happening in my generation.

And the most obvious thing you should watch is the data that my generation's not having children. So you can't depend on our children to do that. A few of us, of course, try to break those trends and single handedly reverse the birthing statistics, but that's a heavy load to bear.

We'll talk about that more another time. It's not easy, as you hear in the background of today's show with my young children doing their very best to stay quiet while I record this show. Moving on to section three, a bipartisan plan to stabilize the long-term federal budget. Let's get to the actual proposals of this long proposal.

A realistic path to averting the country's future debt crisis will require lawmakers to reject gimmicks, slogans, and empty budget targets in favor of plausible changes to the current arc of federal spending and taxes. Specific changes whose effects on the federal budget can be scored by CBO methodology. And because deficit reduction policies are never popular, major reforms need to be enacted on a bipartisan basis, much like the 1983 Social Security reforms.

Any attempt to pass these major changes on a party-line vote would undermine their public legitimacy, would be politically suicidal, and would likely be repealed when the opposition party returns to power. The path put forward in this report is meant to achieve these objectives. Number one, long-term fiscal sustainability. Moving to a fully balanced budget is probably not possible.

However, stabilizing the national debt around 95% of GDP, near the level projected in 2023, when most policies would be implemented, would likely stabilize the cost of interest on the national debt and the debt's effect on the economy. This means annual budget deficits gradually decline to 3.2% of GDP over three decades.

Sustainability also means that both spending and tax revenues stabilize as a percentage of GDP rather than continue to rise in tandem. Finally, long-term sustainability means that showy reforms, such as across-the-board discretionary spending cuts, are less important than subtle entitlement reforms that produce larger savings over time. Number two, achieve most savings from major mandatory programs.

There are three reasons for this objective. First, it's the only solution that addresses the underlying problem. Mandatory spending is the primary factor driving the debt upward. CBO's long-term baseline shows that 100% of the long-term increase in annual budget deficits as a share of the economy comes from the rising cost of Social Security, Medicare, and other health entitlements, as well as the resulting interest on the debt.

Remaining federal spending is projected by CBO to continue falling as a share of the economy. Tax revenues are projected to rise above average levels. It is not sustainable to chase ever-rising entitlement costs with ever-rising tax rates or to eviscerate all other federal programs. The second reason is generational equity.

Drowning younger workers in ever-rising taxes is no more moral than drowning them in debt, particularly when the entire additional tax burden will finance the largest intergenerational wealth transfer in world history. Retirees are typically wealthier than working-age men and women, and over the years, Social Security and Medicare benefits have been enacted that far exceed retirees' lifetime contributions to the programs.

Rather than passing this burden on to their kids, they have a responsibility to pare back their benefits to affordable levels. The third reason is economic. The level of tax increases that would be necessary to keep pace with escalating entitlement spending, including a 33% payroll tax rate or a 34% VAT, would retard economic growth.

Across other countries, the most successful fiscal consolidations, such as Finland and the UK in the late 1990s, have averaged 85% spending restraint and 15% new taxes. Consolidations that failed or significantly harmed the economy were typically split more equally between new taxes and spending restraint. Three, specific and plausible changes only.

Most other long-term budget proposals show larger and more immediate budget savings than this blueprint. Unfortunately, those savings usually rely on some combination of overly optimistic economic growth assumptions, the immediate implementation of extraordinarily complicated and controversial reforms to major programs that in reality would take several years to draft, pass, implement, and phase in, aggressive spending cut or tax increase targets along with sample policy proposals that add up to only a small fraction of the required budgetary savings, heavy reliance on unrealistically tight spending caps without showing how to meet them, and combining various tax increase proposals that collectively result in unrealistically high tax burdens for certain groups or that generally duplicate or contradict one another.

Additionally, many long-term budget proposals are based on liberal or conservative pieties, such as taxing the rich at ultra high rates or eliminating most welfare and domestic discretionary spending. This blueprint attempts to thread the needle of effective policy and the political reality that any major lasting deal must be bipartisan.

This budget blueprint works within the current structure of government rather than proposing complete rewrites of major programs or the tax code. It divides reforms into four tiers and seeks maximum savings in a given tier before moving on to the next. Tier one, squeeze out inefficiencies from the major health programs driving spending upward.

Tier two, trim Social Security and Medicare benefits for upper income retirees. Tier three, trim other federal programs to the extent feasible on a bipartisan basis. Tier four, close the remaining gap with new taxes in the broadest and least damaging manner possible. The blueprint also provides that the lowest income 40% of seniors are protected from any Social Security or Medicare cuts, although the Social Security full benefit retirement age would largely rise.

Spending cuts to anti-poverty programs are largely avoided. Parity between discretionary defense and non-defense spending is maintained. Washington structural budget deficits are not passed on to the nation's governors. Tax increases are kept within reasonable limits. Policy changes are phased in gradually, mostly beginning in 2023, and economic growth is assumed to be no faster than in CBO's long-term projection.

The first step towards scoring a long-term budget is a credible 30-year baseline. Regarding this blueprint's baseline, it begins with CBO's June 2018 long-term budget outlook, which projects the 2018 to 2048 baseline based on current law. Next, CBO's current law baseline is converted to a current policy baseline by assuming that expiring tax cuts and tax moratoriums are made permanent for reasons explained in the following paragraph.

Spending on discretionary and smaller mandatory programs level off at their projected 2028 percentage of GDP. I'm going to skip forward here 'cause this is extremely technical. This is important, but this is the very most, this is the most difficult thing to pass forward with regard to audio, this audio format.

So I'm going to skip all of the baseline discussion here and move on to what actually needs to happen. Up to now, I have read the entire paper, but at this point, it's just too unwieldy for audio. So let me just give you a couple of these suggestions. So here is the first set of suggestions.

Social security benefits, 1.2% of GDP trimmed from the CBO's 2048 baseline. The Social Security Reform Act of 2016 authored by the House Ways and Means Social Security Subcommittee Chairman, Sam Johnson, Republican from Texas, provides the starting point. While the plan is not perfect, it provides significant long-term savings from wealthier retirees.

Instead of rising from 4.9% to 6.3% of GDP through 2048 and CBO's baseline, outlays under the Social Security Reform Act would rise to 5.8% of GDP by 2030. Forgive me, I thought I could read this stuff. It's still too complex for this audio format. So let me just give you a summary of the proposals.

The author suggests a wide tightening on Social Security, Medicare, Medicaid, and various other discretionary and non-discretionary spending programs. In addition, let's move on to the tax section. And see how that would be affected. Getting from here to there with regard to taxes. Relative to an updated current policy CBO baseline, the spending reforms in this blueprint would produce budget savings equal to 4.5% of GDP annually by 2048.

To reach the blueprint's overall 6.0% of GDP in non-interest savings, the final 1.5% must come from new taxes. A current policy CBO baseline already assumes, even if the 2017 tax cuts are made permanent, that revenues will still jump by 2% of GDP over this period because of real, meaning CPI adjusted, bracket creep, and the deluge of taxable retirement distributions from retiring baby boomers.

So the 1.5% of GDP tax hike proposed in this blueprint would bring the total 2018 to 2048 revenue increase to 3.5% of GDP. The 1.5% of GDP in proposed legislative tax hikes consists of phasing down the tax exclusion for employer-provided healthcare, yielding additional revenue of 0.72% of GDP by 2048, raising the Medicare and Social Security payroll tax by one percentage point each while adding a one percentage point income tax surcharge above the level where the Social Security tax on earnings maxes out, yielding additional revenue to 0.73% of GDP, and allowing various so-called December tax extenders to be offset or expire, yielding additional revenue equal to 0.05% of GDP.

Starting in 2023, the employer healthcare tax exclusions would be capped at the 75th percentile of health insurance premiums paid by employers that year, replacing the Obamacare Cadillac tax that was never implemented. The cap level setting a maximum deductible premium would then grow annually at the rate of the CPI.

Capping the exclusion will reduce business incentives to overspend on health benefits and to downplay cost containment and thus contribute to broader efficiency savings in healthcare. It will also increase take-home pay for many workers because more of their compensation would go toward wages rather than health insurance premiums. The exposure of more employee compensation to payroll and income taxes means more revenue collected by the federal government under this proposal equal to 0.2% of GDP.

Raising the Social Security and Medicare payroll tax by one percentage point each is recommended for two reasons. First, as stated above, the Social Security and Medicare systems face a combined $100 trillion cash deficit over 30 years. So it makes sense to concentrate budget savings in those two systems. Second, any tax increases should be widely dispersed to minimize economic disruptions.

The alternative of imposing enormous tax hikes on one industry or group of people would significantly decrease incentives to work, save and invest and thus harm economic growth, which would also decrease the resulting new tax revenues. A simple two percentage point payroll tax increase split between Social Security and Medicare will affect nearly all workers while crippling very few.

The Social Security payroll tax maxes out at certain income levels, 128,700 in 2018. The blueprint proposes adding a one percentage point tax to income above that level so that the new tax remains proportional. Those who would prefer that all new taxes come from upper income taxpayers should note that these taxpayers would already bear nearly the entire cost of 3% of GDP in Social Security and Medicare reforms, as well as most of the cost of scaling back the employer health exclusion.

Replacing the two percentage point increase on the Social Security and Medicare payroll tax with a 20 percentage point income tax hike on families earning above $400,000 would raise a similar amount of revenue yet significantly damage the economy and raise equity concerns. Alternatively, eliminating the 12.4% Social Security earnings cap, raising 0.8% of GDP, would combine with the benefit changes described above to leave Social Security with a large surplus and Medicare with an enormous deficit, while also pushing combined federal and state marginal tax rates as high as 62%.

Under this blueprint, the bottom income 40% of retirees would already see no reduction in Social Security benefit formulas and no hike in Medicare premiums. And there are no significant cuts to anti-poverty or social spending. For many who are working, the modest payroll tax increase would be their only cost of this substantial fiscal consolidation beyond a future higher Social Security full benefit retirement age.

Now, what about sticking to the blueprint? To maintain a balance between tax and spending changes, lawmakers would need to codify the spending and tax proposals in this blueprint with 30-year targets. Every five years, lawmakers should be required to ensure that Social Security, Medicare, Medicaid and tax revenues each remain on their original 30-year path and to enact further reforms for any category whose savings are not materializing.

Failure to return any veering categories to their present path would trigger automatic reforms to the given category. Pay-go laws and statutory discretionary spending caps can help keep the rest of the budget on its preset path. Statutory caps would be useful because they would reflect a bipartisan consensus and specific underlying reforms.

If lower deficits should emerge, such as from higher tax revenues thanks to faster economic growth or lower healthcare spending due to more expanded efficiencies, lawmakers should first be required to offset any recent budgetary losses from recessions or emergency spending. If lower deficits should emerge, such as from higher tax revenues thanks to faster economic growth or lower healthcare spending due to more expanded efficiencies, lawmakers should first be required to offset any recent budgetary losses from recessions or emergency spending.

Once that is done, the next 1% of GDP and savings should remain unspent as a down payment on future emergencies or recessions. Only after that should lawmakers consider temporary new tax cuts or spending increases. Congress should avoid enacting permanently expensive policies in response to temporary savings windfalls, especially consider that even with a stabilized debt, the annual budget will still be in deficit.

Now, I wanna skip past the group impacts. I just wanna say this. I appreciate reading articles like this because they show that in theory, if you have certain preconditions, there are solutions to big problems. And I appreciate that. However, some of those preconditions are pretty substantial. For example, I would say this assumes that you have an educated and intelligent electorate willing to disregard self-interest and things that are personally gratifying in favor of voting for people who are virtuous representatives of what's in the long-term best interest of the people.

Sounds nice. I don't see it. I just don't see it. We don't have an intelligent and educated electorate. We have a stupid and distracted electorate. We don't have people who understand or can even concede of the intricacies of this kind of thing. We have people who are motivated by slogans and foolish things.

The average audience of radical personal finance is in a very high echelon of the general population. The fact that I use words, I mean, I'm using an advanced, this entire paper is written in advanced college vocabulary. This entire discussion is complex. It's dealing, you need a high degree of numeracy to sustain these things.

I'm an hour and 40 minutes into this discussion, which means that I have no doubt lost 80% of the radical personal finance listening audience, which is in a tiny fraction of the general population. The US American electorate is not educated, is not intelligent, and is not virtuous enough to vote for things that are against their self-interest.

Even those who are virtuous and willing to conceive of voting for things that are against their self-interest, their own personal self-interest, do not trust the system. They simply do not trust. I would be willing to vote for something that would be against my own personal self-interest. I think of myself as a fairly virtuous person.

Whether that's true or not, who knows? You have to judge that. But I think of myself that way. I'm willing to sacrifice. I would be willing to sacrifice. So forgive me for pushing myself forward. Just simply saying that I appreciate that sometimes difficult decisions have to be made. I don't trust the system to think that a vote that's against myself would in any way work, because then I would have to trust the virtue of the politicians.

I would have to trust that the system is going to be worked out equitably. And all I see on any hand is nothing but favoritism, crony capitalism. I have no trust whatsoever. So first you need a virtuous, educated, intelligent electorate that would be willing to vote against their own self-interest rather than to vote in tribalism.

Ain't gonna happen. The average American citizen is destroyed. The average American citizen cannot pass just the most basic level of civic understanding. It's absolutely not gonna happen. And to get it back would require, will require, would require generational change. You have to completely transform the educational system, which means you have to, I mean, it's impossible.

It's absolutely impossible. Next problem. It requires a virtuous and trustworthy political class, which nobody thinks is gonna happen. Who is the virtuous and trustworthy politician that you can name to me? Who? I think we could probably, in discussion, we could probably come up with a handful of people, maybe five to 10 that we would agree on from various political persuasions.

We would say, okay, this person believes what they say, their life is consistent behind it. But you look at almost any person, and there is so much hypocrisy in their approach, you look at almost any politician, and you don't trust them a bit. You know that they're liars, whether they're on the conservative side and you've got this leading former speaker of the house, spends years fighting drug legislation, and now is a major person involved in a drug pro-marijuana lobbyist organization.

Come on. You have leading conservative figures who say, well, I'm all about capitalism and free markets, et cetera, and then they move right out of office and they move right into lobbying for the real estate industry or the insurance industry. You have leading liberal figures who say that everybody should pay their fair share, and yet they have multiple houses that are expensive.

You have leading so-called environmental activists who propose all kinds of ideas and all kinds of ways to trim back, but you go and they're living in a mansion that consumes more electricity and more energy than anything else. Or they don't take public transportation, they drive a car, or they take Uber or taxis everywhere instead of actually doing the stuff that they do.

Where is the non-hypocrite that is in office? Where? Now again, I think that the point is, I think there may be five. Maybe there's 10, I don't know. I doubt it. But the point is, even in difficulty of coming up with a few, you cannot tell me that you have a majority of the political class in the United States that aren't thieves and hypocrites, just simply saying what they wanna say to get elected.

And then the rest of them are stupid. They don't have any context for these things. And so all of the political class is basically driven by intelligent policy wonks who try to find a politician who'll grab onto that, and then sometimes votes get through. But the entire thing is broken.

When you have 1,000-page bills that are submitted 24 hours before a vote, nobody can read them. If you try to read them, you can't read them 'cause they're written in legalese. You cannot expect any of these changes to happen realistically. I can't see how anybody could be optimistic about some of this stuff happening.

It's, sloganeering is about the very best that can be accomplished by today's political class. So when you add those problems to the fracturing tribes in the US-American culture, the fracturing people, whether it's political ideology, religious ideology, lifestyle decisions, et cetera, there is no possibility of bringing this electorate together in a homogenous way.

If there's a solution, the only solution I could come up with that could, in theory, work out would be an increasing federalism. But the trend is not in the direction of increasing federalism. The trend is in the direction of increasing national homogeny. There's no solution. There's no, it doesn't, it's not realistic.

So you have an elegant, articulate plan like this, which doesn't try to make much progress except to stabilize things in a bad place. And then you expect Congress to vote and put 30-year caps and actually stick to them. You expect that the government wouldn't find some way to spend and reward some other class of people when there's a budget surplus.

It is absolutely, completely implausible. It's academically possible, but when compared to real life, it's utterly implausible, in my opinion. Now let's finish up just by reading this author's defense of his plan. And I wanna apologize, I had to skip through that section where it's just so deep. If you're a policy wonk, go read it.

I'm sorry you don't have a full description of every single one of those things, but there wouldn't be a single person listening to my voice if I read through the whole thing. In defense of the plan, answering conservative critics. At first glance, many conservatives will dismiss the proposals in this report as overly timid, specifically raising taxes by 1.5% of GDP rather than aggressively lowering anti-poverty and non-defense discretionary spending may be considered a weak need surrendered to big government.

Instead, it is an acknowledgement of political reality. State governors will not accept or absorb Medicaid caps that grow no faster than the inflation rate. ACA will not likely be replaced with nothing, as proved in 2017. The 1.5% of GDP spent on non-health, anti-poverty entitlements, which includes conservative supported policies like the refundable earned income tax credit and child credit, as well as generally untouchable programs like child nutrition and SSI, can gradually decline as a share of the economy, but they will not be eliminated or even halved in any foreseeable political future.

Other mandatory and non-defense discretionary spending is dominated by veterans income and health benefits, military and federal pensions, unemployment benefits, highways and infrastructure, the National Institutes of Health, Homeland Security, disaster relief, and K-12 funding. They are here to stay. The argument of this blueprint, simply put, is that 4.5% of GDP represents the likely outer bounds of plausible long-term spending cuts, relative to the 2048 baseline, and that the voting public would not accept the additional 1.5% of GDP evisceration of the safety net and domestic spending just to keep tax increases completely off the table.

This blueprint essentially freezes federal program spending at the 19.5% of GDP 2018 to 2022 pre-reform average, despite 74 million Americans retiring into Social Security and Medicare, and despite rising healthcare costs. It is easy to come up with a conservative dream budget that would show greater spending savings, but even a hypothetical Republican congressional supermajority would find it politically suicidal to fully overhaul Social Security and Medicare without Democratic buy-in.

The political model should be the bipartisan 1983 Social Security reforms, not the 2010 ACA. Conservatives are in an especially perilous position. Delay likely guarantees that an eventual budget deal will be increasingly tax-heavy. Each year, four million more baby boomers retire, while Social Security and Medicare benefits automatically increase, essentially closing the window on reforming those programs.

Additionally, delays bring permanently higher interest costs on the growing national debt. Together, these two developments means that the savings needed to stabilize the budget will continue escalating at exactly the time when baby boomer retirements and rising benefits make Social Security and Medicare more difficult to reform. Consequently, if lawmakers wait another five to 10 years, they will likely have missed the window on entitlement reform and tax increases, including a 15 to 20% VAT, will become nearly inevitable.

This VAT would probably be enacted at a low 1 to 2% rate, but like the income tax a century earlier, would quickly grow into a massive federal cash machine to finance continued government expansions. It is no longer possible to stabilize the national debt with revenues at 17 to 18% of GDP.

Conservatives can either concede 1.5% of GDP in limited broad-based taxes now and begin concentrating spending reforms on wealthy seniors rather than vulnerable populations, or wait 10 years and end up with a European-size VAT. What about answering liberal critics? Many liberals will also dismiss this proposal at first glance. Medicare premium support, significant income relating of Social Security and Medicare benefits, and state Medicaid per capita caps may be considered non-starters, especially when paired with just 1.5% of GDP in tax increases that are not limited to so-called millionaires.

However, tax hikes on upper income earners and defense cuts alone cannot close a budget gap equal to 6% of GDP by 2048. Even raising the top four income tax brackets, currently 24%, 32%, 35%, and 37%, to 30%, 40%, 50%, and 70% would raise just 1.6% of GDP. Or lower when deducting lost revenues to macroeconomic effects, while leaving little room to expand the 12.4% Social Security tax to higher earnings.

Restoring the developed world's highest corporate tax rate would raise at most 0.7% of GDP. Proposals popular on the left to significantly raise taxes on capital gains, banks, hedge funds, multinational corporations, and oil and gas companies would barely register in the long run accounting. The unforgiving budget math shows that heading off a debt crisis, mostly through taxes, must require a huge burden on the middle class.

Even a 15% VAT, which is anything but progressive, would raise just 2.6% of GDP. Nor will other fashionable ideas put the long-term budget on a sustainable path. The blueprint already assumes that defense spending eventually falls to 2.6% of GDP for the first time since the 1930s. Single-payer healthcare has been scored as adding nearly $30 trillion in federal spending over the decade.

And even somehow converting all current family, business, and state government health savings into a single-payer tax to finance the initiative would still merely break even from a budgetary perspective. It would not significantly affect Medicare's projected $41 trillion shortfall. Significant savings to the federal budget must come from the spending side.

Who should bear the burden? Presumably, protecting low-income families and discretionary social spending are top liberal priorities. Defense spending is already projected to continue falling. That leaves healthcare inefficiencies and well-off seniors to provide the remaining spending savings. For liberals who believe that the rich should pay for their fair share, trimming their large Social Security benefits and Medicare subsidies accomplishes the same redistribution as raising upper-income taxes, but without the economic damage.

Furthermore, paring back their benefits avoids the intergenerational redistribution of burying today's workers in taxes to finance baby boomer benefits. Within a decade, the wealthiest half of seniors, in other words, the wealthiest members of the wealthiest age group, will otherwise collect $300 billion in annual Medicare Part B and D subsidies that were never earned with payroll taxes.

That would exceed total federal anti-poverty outlays on SNAP, EITC, SSI, child nutrition, and the child tax credit. The Medicare premium support policy proposed here is generously set at the level of funding of the average bid plan, rather than the more common, let me skip on, let me just skip on to the conclusion.

If you're interested in liberal arguments, if you're a liberal, read those. Conclusion, for decades, economists and policy experts warned that a budgetary and economic tsunami would come when the 74 million baby boomers retire into Social Security and Medicare. Nevertheless, a parade of presidents and congresses did nothing to avert the crisis.

To the contrary, both parties added a new Medicare drug entitlement in 2003, after which the Affordable Care Act further expanded federal health obligations for Medicaid and new subsidized health insurance exchanges. Today, one third of the baby boomers have already retired, and another one third will retire over the next six years.

Annual budget deficits will soon pass $1 trillion on the way to $2 trillion, and possibly $3 trillion in 10 to 15 years. Overall, the Social Security and Medicare systems face an unfathomable $100 trillion cash deficit over 30 years. Without reform, runaway deficits will all but guarantee a debt crisis that will profoundly damage the country's economic and social order.

There is still time to avoid that crisis, but it will require the nation's fractious political leaders to leave their respective comfort zones and compromise. And thus endeth the paper. I hope that you made it through, and apologies for burying you with the data, with all the numbers. I know it's hard in audio format, but it's important, and I want you to pay attention to it.

And I decided to go ahead and bury you with two hours of data and policy wonk discussion, because I thought it was well done. I thought it was fairly balanced, but I thought it did a good job of showing the basic problem. I don't see a solution for the macro economy.

I don't see a solution for the macro budget, et cetera. To think that, and here's just one more comment. I've inserted, of course, a lot of commentary. I didn't intend to, but I'm a talk show host. I can't help it. Just even the closing point. There is still time to avoid that crisis, but it will require the nation's fractious political leaders to leave their respective comfort zones and compromise.

The biggest reason why I think that is impossible is from my observation, it seems to me that political leaders have stopped trusting one another, and I think they have good reason to stop trusting one another. If I were in politics, I would have a very hard time believing that I'm negotiating in good faith with another politician.

I think there are political leaders who would be willing to negotiate these things if they believed that the opposition was in good faith. I think most adults, especially adults who have a little bit of experience, recognize that in life, you don't always get what you want. Sometimes you get what you need.

You don't always get what you want. And so, although I would argue for a hardline position, all of us, even when we argue for a hardline position, we would concede that I can't get there overnight, and in fact, it's not good for me to get there overnight. Almost any person in almost any issue that you look at who would make a hardline argument would concede that you need time for things to adjust.

But how much trust would you have, if you were a political leader, that your opposition is in good faith? I don't think anybody on any side of the political issue thinks that their opponents are acting in good faith. I've tried to read activists on all sides of the political debate, and what I observe in my reading is nobody thinks the other side is genuine.

Nobody thinks they're acting in good faith. And I think everybody has substantial evidence that would say that they're right. Being of the more conservative political bent, the more freedom-oriented political bent, I would like to believe that my side is better, but I would have to concede that that could just be my own desire to see that confirmed.

I think it might be true, but I see enough that I can understand how people who would be night and day different from me would say, "You're not acting in good faith." I can see that. So what do I have to defend? So if you can't even trust on the simplest of issues that your opponents are gonna act in good faith, that they're gonna speak in good faith, that they're gonna debate in good faith, on the simple issues, how on earth do you solve something as complex as this budget nightmare?

How do you get there? Now, I hope I'm wrong. I desperately hope I'm wrong, 'cause friends, we don't wanna go through a budget, an economic crisis. It is a nightmare. It is a nightmare. We don't wanna do it. It is not, if it's your fantasy that you think, "Well, there's gonna be no rule of law.

"Without rule of law, I'm gonna be able to do what I want." Nonsense, it is a nightmare. It is an absolute nightmare. We don't want to go through it. It will be pain, depression, dissolution, suicide on all hands, death on all sides, massive decline in lifestyle, massive decline in safety, massive increase in violence and the risk of violence.

It's not, you don't wanna go through it. I don't wanna go through it. So I desperately hope I'm wrong. And if I can find evidence that says that I'm wrong, I will share that with you. But at this point, the data seems pretty clear. And when I add all the little bits that I've inserted here into what I've already shared with you, I don't see how a political solution is possible.

I do not see it. I hope I'm wrong again. I don't see it. Which means it's time for you and me to prepare. Here's what I do observe. Although the national and international solutions to me seem impossible, the personal solutions are not. You may not be able to do anything about the level of debt in the United States of America, but you can do something about your family's level of debt.

You may not be able to do anything about the impact of taxes on the broad citizenry, but you can do a massive change on your level of taxes. You may not be able to do anything at all about trying to develop a virtuous citizenry of knowledgeable people who understand civics and who are willing to vote for the things that are in the best interest of their fellow citizens.

But you can do something about your own positions, your family. You may not be able to do anything at all about the Department of Education, either doubling it if that's what you wanna do or eliminating it if that's what you wanna do. But you can do something about your family's Department of Education.

And so as with many things, while broad-based collectivist solutions seem impossible, individual solutions are very, very possible. There is time for you to establish the necessary individual solutions. There is time for you to leave the United States. There is time for you to get out of debt. There is time for you to educate your children.

There is time for you to get in better shape. There is time for you to be in a situation where you're wealthy enough that you never need a dime from Social Security and that you don't need anything from Medicare. I wanna be a solutions-oriented guy. I don't see any solutions in this world of political, collectivist, statist nonsense.

All I see is reaping the problems of the past. And that's basically what happens. Why are we in this nightmare? Well, because past politicians got elected by promising that they could give away other people's money. That's how it happened. Why, the bulk of this is not due to the fact that the federal government builds roads.

It's the most, you know, the most being of a more libertarian perspective, the thing that libertarians laugh at every time they've said, "Well, if you eliminate the government, "who's gonna build the roads?" The roads aren't the problem. And the answer is the people are gonna build the roads 'cause the government doesn't build the roads.

All they do is take from one person to pay to a company that builds the roads. Anyway, the roads are easy. But you can keep the road department. I don't know any libertarians who are that upset about driving on roads. What you can't keep is this nightmare. You can't keep Social Security.

You can't keep Medicare. You can't keep Medicaid. You can't keep a defense spending that spends, this is right, what? The US government spends more money on the military than the next, what, 25 countries combined? Something like that? Check me on that. That's, I shouldn't. Anyway, something like that. You can't keep a global empire.

You can't keep it all propped up with fake money borrowed from other people. You cannot do it. You can't destroy the families that form the bulk of a society. You can't destroy the children by sticking them into mandatory educational, compulsory schooling systems that are designed to destroy them. You can't destroy the family unit that holds a society together.

You cannot destroy those things and expect it to go on. So keep the roads. I'll pay taxes for roads. But the rest of this, we're getting our just desserts. But you can't unravel 80 years of, 90 years of this progressivist utopia and expect it not to be painful. It's gonna stink.

It's gonna be painful. I forget why I started that rant. Just simply that we're going to pay for our sins. You always pay for sins. You cannot steal and then create a whole class of voters whose entire political ideology is stealing against the people that don't deserve it and who has nothing related to their own virtue.

Everybody wants to steal from everyone else. Well, that doesn't work. I thank God he set up a system in which morality and virtue rule. Now you can reject that all day long, but when you build an empire based on theft, at some point in time, that empire will come crashing down.

It will. That's what we're gonna see, in my opinion. So the point is, I see zero political solutions. I feel like these problems are comprehensive. Although I concede that it's possible that solutions could happen, I don't see the necessary preconditions for those solutions. For all the reasons previously discussed, no virtuous electorate, no knowledgeable electorate, no virtuous politicians, a system that rewards crony capitalism, theft, corruption, rather than virtue.

It's impossible. So I'm done. I'm not gonna waste my time on it. I will watch it over the coming years and see. And if something happens, I will be optimistic and I hope I am wrong 'cause I don't want us all to suffer. But in the meantime, I see solutions individual galore.

(audience member coughs) Guess what? If you don't wanna be wrapped up in this nightmare, you don't have to. And one of the big things that I said in this new course that I've just launched, why did I tell you guys I'm no longer in the United States? Simplest way to remove yourself from all this, just leave.

Because while the United States is destroying itself, there are places in the world that are not. And you can put together solutions. Now, I don't think that's the right solution for everyone. There are a lot of things that are wonderful about the United States. In many ways, it's the best place to be right now in the world.

But don't fall prey to this idea that it's just always gonna be that way. It ain't. And we'll talk more about that. I hope that this has been helpful to you. I know that it's long. If you find an error in my thinking, if you can present to me an argument that would indicate that I'm wrong, I would ask you to do so.

It has taken me years to come to this perspective. I don't expect it to you, if this is your first time, I don't expect you to believe it all of a sudden. I would expect, but I would encourage you to just argue with it, argue with me. If you find something where you think I'm wrong, then go ahead.

Just don't fall prey to the same old, I don't know a better word than tropes, the same old lies, the same old myths that make you feel good. Don't think, if you're a liberal, if you just tax the rich that everything will fix it. Don't think, if you're a conservative, that if we just rework welfare that everything will be better.

It ain't. You got big systemic problems. But if you do see a flaw in my thinking, please show me, because I don't wanna be a fear monger. I wanna be accurate. But by going through this, I hope I've presented to you enough data to just help you to start to see where, it's sobering reality.

Don't be depressed. Just start making your plans and work out individual plans. And those plans are probably not that different than what you already face. Don't be poor. Be stable. We'll talk about the solutions another time. Thank you for listening. If you would like my initial salvo in this foray, I would invite you to come by and sign up for my newest course.

Go to radicalpersonalfinance.com, click on store. And there you'll see my newest course available, which is called How to Survive and Thrive During the Coming Economic Crisis. Right now I'm doing a pre-launch sale on that, a pre-order. Pre-order sale. That course will go live on March 15. In the meantime, if you sign up between now and March 15, 2019, you can save 25% by using the discount code, prelaunchdiscount, 25% discount, by using that coupon code, prelaunchdiscount.

I would invite you to come by and buy that course. It will help you go a long way towards giving you some practical and realistic solutions that I've come up with for my family towards solving some of these problems and giving you options in the future, no matter what the future holds.

I believe there are some good leverage points where you can take certain actions that are inexpensive, not difficult, and yet can make a massive difference now and benefit you if everything goes well, and yet be of massive benefit if nothing goes well at all. So it's a win-win either way.

And that's the stuff that I'm focused on because there are a lot of those things that you can do that are a benefit either way. So come on by radicalpersonalfinance.com, sign up for my newest course, How to Survive and Thrive During the Coming Economic Crisis, and save 25% using the code, prelaunchdiscount.

That's just me helping to have some money coming in while I finish up the last bit of the course. And it will help you by giving you a discount. It helps you to be patient with me while you wait for March 15. Thank you for listening, and I'll be back with you very soon.

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