A $4.4 billion US destroyer was touted as one of the most advanced ships in the world. Take a look at the USS Zumwalt, which has since been called a ‘failed ship concept.’

“Despite their cost, the Zumwalts have been plagued by equipment problems. Soon after its commissioning in 2016, the USS Zumwalt broke down in the Panama Canal. The second ship in its class, the USS Michael Monsoor, failed during sea trials the following year.

As a 2018 report from Military Watch Magazine noted the Zumwalts “suffered from poorly functioning weapons, stalling engines, and an underperformance in their stealth capabilities, among other shortcomings.”

“They have almost entirely failed to fulfill the originally intended role of multipurpose destroyer warships, while the scale of cost overruns alone brings the viability of the program into question even if the destroyers were able to function as intended,” the outlet said.

The Zumwalts lack several vital features, including anti-ship missiles, anti-submarine torpedoes, and long-range area-air defense missiles, the military expert Sebastian Roblin wrote in a 2021 National Interest article. Roblin called the destroyers an “ambitious but failed ship concept.”

And, noted Roblin, their weaponry wasn’t cheap. The ship’s long-range land-attack projectile guided shells cost roughly $800,000 each — about the same price as a cruise missile. The munitions were eventually canceled, considered too pricey to merit producing.

Roblin said the Zumwalt was produced based on “unrealistic” estimates that banked on minimal cost, despite coming in 50% over budget.”

Don’t Wait! The National Debt Is Only Getting Worse

“the Congressional Budget Office (CBO) attempted to attach some math to the difficult policy decisions that lie ahead. Regardless of when lawmakers decide to address the $30 trillion national debt, just stabilizing it (that is, implementing policies to stop it from growing relative to the nation’s economy as a whole) will require that “income tax receipts or benefit payments change substantially from their currently projected path.”

In short, taxes will have to go up and government services—including benefits from programs like Social Security and Medicare, the health insurance program for the elderly—will likely have to be reduced.

That’s hardly a new set of prescriptions. Debt-watchers have been warning for years that benefit cuts and tax increases will likely be needed to have any realistic shot at managing America’s long-term debt. (And, remember, we’re talking about what’s needed to merely stabilize the debt, not reduce or eliminate it).”

“If policy makers wait until the end of the decade to raise taxes and cut spending, the best-case scenario would leave the debt hovering around 120 percent of GDP over the long term. Waiting longer means higher debt levels forever and more severe consequences.”

“A larger amount of debt translates into reduced economic growth in the long run, as the cost of interest payments on the debt consumes dollars that could otherwise be put to productive use. As the CBO notes, persistently high levels of debt can also put upward pressure on interest rates and make it more difficult to combat inflation.”

Hey, Nancy Pelosi: ‘National Debt Should Be a Top Priority’

“inflation and high debt create a trap for policymakers: higher inflation could lead the Federal Reserve raise interest rates, which would increase the payments owed on the debt.”

“the 24 lawmakers who signed [the] letter are asking for two policies that are the lowest of low-hanging fruit. First, they are seeking the creation of a bipartisan debt commission, similar to one implemented during President Barack Obama’s first term that helped trigger modest reductions in annual budget deficits following the Great Recession.
Commissions are a great way for lawmakers to make it look like they’re doing something without actually doing it, of course, but in this case, it might be a helpful exercise. It has been so long since debt and deficit politics have featured prominently in politics that it’s not clear whether there is a workable coalition in Congress to address the debt. A commission may help organize and focus those debates—and may raise further awareness among voters.”

Inflation Will Make Government Budget Problems Worse

“inflation is real. The all-item consumer price index (CPI) was up more than 5 percent on a year-over-year basis for July, August, and September, and now shows a 6.2 percent increase for October—the largest jump since 1990. The Fed considers 2 percent inflation to be its bright-line monetary policy goal. Obviously, there is a large gap between that and what we are seeing on the ground.”

“Individuals whose salaries, wages, Social Security payments, and even mortgage interest or rental rates are automatically adjusted for inflation have much less to worry about than their neighbors on fixed salaries, who must cope with ballooning grocery bills or pay twice as much at the pump. On these grounds, inflation may be devastating for some and almost meaningless for others. These gaps widen as inflation gets worse.”

“The rate of inflation gets captured in interest rates that borrowers must pay, especially for longer-term debt. Lenders hope to be paid back with at least as much purchasing power. If they believe inflation will tick away at 4 percent, interest rates tend to rise with this baked-in expectation.
In any case, higher interest rates mean higher interest costs on all forms of public and private debt. As a result, mortgage rates will rise, all forms of construction will suffer, and businesses will postpone making large investments in plants and equipment.

Now consider the public debt—especially the federal debt that ballooned from large deficits in recent years. (In 2020, federal revenues were $3.4 trillion and spending was $6.6 trillion.) The interest cost of the national debt in 2008 was $253 billion and remained at about that level through 2015. Even though the debt doubled in those years, sharply falling interest rates and low inflation worked to contain costs.

But that was yesterday. With today’s higher inflation and rising interest rates (perhaps with more to come), the Congressional Budget Office (CBO) estimates the interest cost of public debt to be $413 billion in 2021. Obviously, any dollar spent on interest cannot be spent on government benefits and services to taxpayers.”

40 Years of Trillion-Dollar Debt

“Rising costs of entitlement programs and the interest on the debt itself are the primary reasons why the debt will keep growing. In other words, even cutting a lot of discretionary spending would have little effect on the debt at this point.

The guilty parties are, well, both parties. It was fitting that the debt hit the symbolic $1 trillion figure during Reagan’s presidency, as the Gipper ignored his own warning. Republicans have spent much of the past 40 years venerating Reagan as an icon of conservative values, including supposedly limited government. And while his successors ran up far larger amounts on the nation’s credit card, Reagan saw the government surpass not only the $1 trillion debt threshold but also the $2 trillion threshold.”

“The guiding principle for today’s Democratic Party is the idea that debt doesn’t really matter if interest rates remain low. So long as the cost of servicing the federal debt stays below 2 percent, policymakers should not be restrained by the “traditional idea of a cyclically balanced budget,” Larry Summers, Clinton’s treasury secretary, and former Obama economic adviser Jason Furman argued in an influential paper published last year.

But the past 40 years would suggest that lawmakers have almost never been restrained by the idea of balanced budgets—a few brief interludes of fiscal sanity notwithstanding.

It took nearly two centuries for America to accumulate $1 trillion in public debt. It took 40 years to increase that amount 28 times over. If we refuse to address the breakneck speed at which America spends money it doesn’t have, how long until Clinton’s warning is realized, and that debt deals with us?

Biden Says $3.5 Trillion Reconciliation Bill Has a Price Tag of ‘Zero.’ That’s Dubious.

“The federal government hasn’t fully paid for its normal, run-of-the-mill spending in a single year since 2001. If you believe the projections of the Congressional Budget Office (CBO), there is not a single year in the next 30 (the longest length of time for which the office projects spending and revenue) in which the budget will balance. Despite that, lawmakers from both parties continue to peddle this line whenever they want to make big policy changes. Democrats promised that Obamacare would be revenue-neutral. It hasn’t been. Republicans promised the Trump tax cuts would pay for themselves. They didn’t.

Now it’s the Democrats’ turn to play this game, and President Joe Biden has dutifully stepped up to the plate. Speaking Friday about the combination infrastructure package and budget reconciliation bills that the House may vote on sometime this week, the president declared that anyone worried about the latter legislation’s $3.5 trillion price tag should calm down.

“We talk about price tags. It is zero price tag on the debt,” Biden said. “We are going to pay for everything we spend.””

“Democrats are proposing to pay for their $3.5 trillion reconciliation package with about $2.3 trillion of tax increases and $700 billion in savings from changing how Medicare and Medicaid purchase pharmaceutical drugs. The rest is written off as being paid for with future economic growth—the idea being that increases in government spending will cause more hiring and greater economic activity, which will cause future tax collections to be higher than projected.

It’s a little bit like saying that your drinking habit can pay for itself, as Reason’s Peter Suderman has explained.

The math doesn’t add up. In order to achieve the amount of “dynamic scoring” necessary to offset that last $600 billion or so of new spending, the reconciliation bill would have to boost America’s economic output by about 3.5 percent by 2031. That’s far in excess of what every independent assessment of the package says it will do. In fact, at least one assessment of the package says the bill’s tax increases and borrowing will more than cancel out the benefits of heightened spending, dragging growth lower.

The debate over those projections is pretty esoteric. But regardless of which forecast you believe, there’s no getting around the fact that some of the lawmakers now championing the magic of “dynamic scoring” used to be quite skeptical of it. Democrats on the House Ways and Means Committee—the very committee that put together the details of the reconciliation bill over the past few weeks—blasted Republicans for relying on “dynamic scoring” to make it look like the Trump tax cuts would balance over the long-term. In the Senate, meanwhile, Budget Committee Chairman Bernie Sanders (I–Vt.) used to call dynamic scoring a “gimmick” meant to “conceal” the real cost of legislation. Now, he’s fine with using it because Republicans did it first.

If hypocrisy could be taxed, maybe we’d be able to balance the budget.”

“That isn’t the only dubious assumption behind Biden’s promise that everything will be fully paid for. It doesn’t fully account for the long-term budget impact of the newly expanded child tax credit, which allows Congress to claim $700 billion in “savings” that are unlikely to materialize. The reconciliation bill also calls for boosting IRS enforcement in the hopes of generating $239 billion in revenue from taxes that are currently going uncollected. That is likely an overestimation, as the CBO says the provisions would generate no more than $120 billion from increased tax compliance.”

“If the bill is truly paid for, Democrats in Congress should prove as much by asking the CBO and the Joint Committee on Taxation to provide a detailed analysis of the “dynamic scoring” promises contained in the reconciliation bill. Without that, argues Chris Edwards, director of tax policy studies at the libertarian Cato Institute, Democrats’ claims that higher spending will generate sufficient economic growth have no hard backup.

“There is no magic money tree in Washington,” Edwards says. “Rather, taxpayers will ultimately pay for the spending through current tax increases, debt and future tax increases, and inflation.””

Democrats Are Denying Basic Economics

“The simplest way to understand economics is that it is a reckoning with unavoidable tradeoffs. If you spend money on something, you may obtain something in return—but you lose the ability to use those resources on something else. In the world of politics, economics helps us weigh the merits of those tradeoffs. It answers the question: Do the benefits of a policy outweigh the costs? Sometimes the benefits are larger. Sometimes they are meager or even nonexistent. But there are always costs. To acknowledge this is merely to acknowledge reality.”

“White House press secretary Jen Psaki responded to a question about the tax impact of the $3.5 trillion spending plan now working its way through Congress by declaring that “there are some…who argue that in the past companies have passed on these costs to consumers…we feel that that’s unfair and absurd and the American people would not stand for that.”
When taxes are raised on corporations—the “companies” in Psaki’s response—corporations often respond by passing that tax on to others. In some cases, they pass costs to consumers. In others, as the Cato Institute’s Scott Lincicome wryly notes on Twitter, they reduce the amount they would have otherwise spent on wages. They have to pay more to do business, and so they make adjustments accordingly. Costs create consequences and tradeoffs.

Empirical research has consistently shown that a large portion of corporate tax increases is actually paid by labor down the line. There are some reasonable academic debates about the precise percentage of the tax paid by labor, and how that might change under certain circumstances. But there is little real debate about whether or not some of the costs are passed on. The point is that it happens. Workers, not owners, pay at least some share of higher corporate taxes.”

When Government Spending Hurts the Most Vulnerable

“a review of the literature about the impact of government spending on growth reveals that, generally, such spending crowds out the private sector. This dispels the hope that more spending will produce economic wonders.

Deficit spending will eventually result in higher taxes for future generations. That’s a profoundly unfair burden. Debt is also expansive in and of itself, as interest payments on an enormous amount of debt—even when interest rates are low—will result in a larger and expanding deficit. According to Brian Riedl at the Manhattan Institute, Congressional Budget Office data reveal that by 2049, “Interest payments on the national debt would be the federal government’s largest annual expenditure, consuming 42% of all projected tax revenues.”

Eventually, growing debt will also slow economic growth. Lower growth means fewer innovations, lower wage growth, and higher unemployment. It’s all-around bad news. Finally, higher debt could result in a debt crisis. These are good enough reasons for me to want to restrict the size of government and impose fiscal prudence.”

“Interestingly, recent concerns over inflation have highlighted one additional reason why higher debt is problematic. You see, when it comes to inflation, people’s expectations about the price trajectory in the next few years are what really matters. So, it matters less than we think that the current inflationary forces are likely transitory. If people believe that inflation is here to stay, they will try to protect themselves from it today, and we will indeed have inflation today.

Under that scenario, to get inflation under control, the Federal Reserve will have to raise interest rates. And this is where your debt levels matter. Higher interest rates result in a large increase in overall interest payments fairly quickly, as so much of our debt needs to be rolled over on a short-term basis. A sudden increase in interest rates would slow down the recovery, too, which hurts lower-income Americans.

If the Fed were immune to political pressures, this reality might not matter. However, we can expect that political pressure to be enormous. No administration would be happy to see a large increase in interest payments suddenly show up on its balance sheet followed by a large increase in the size of the deficit, especially if that administration is already planning to spend a larger amount of money in the first place. This pressure only grows under an administration that will resist any rate change that could hurt growth. The Fed may also be slow to act because it has made addressing inequality one of its priorities.”

“Do I know what expectations are and how long inflation will stick around? I don’t. But in truth, no one really does. That’s part of the point. In that context, fiscal prudence now is the best course of action, because with so much political pressure in the worst-case scenario, there will be fewer opportunities when the Fed must actually raise interest rates.”

The Bipartisan Infrastructure Bill Will Add More Than $250 Billion to the Deficit. Does Anyone Care?

“The Congressional Budget Office (CBO), the legislature’s nonpartisan number-crunching agency, says the bipartisan infrastructure bill would add about $256 billion to the deficit over 10 years. The real figure is likely to be higher, because the package contains a few gimmicky elements that are designed to trick the CBO’s forecasting metrics.

The biggest of those gimmicks is the promise that Congress will reallocate more than $200 billion of COVID relief funds to cover infrastructure costs. It remains unclear exactly what unused COVID funds will be redirected, and the bill only rescinds $50 billion in actual budget authority from previously passed COVID relief bills, according to an analysis by the Committee for a Responsible Federal Budget (CRFB).

Other proposals to save and redirect federal dollars to pay for the infrastructure bill are also unlikely to materialize. Take the $49 billion lawmakers plan to “save” by further delaying an already-delayed Trump administration regulation altering how prescription drug discounts are applied by health insurers. “Because the Congressional Budget Office projected that the so-called rebate rule would increase federal spending in Medicare and Medicaid by about $177 billion over a decade, due to a rise in Medicare premiums (and therefore, taxpayer-funded subsidies for Medicare premiums), lawmakers get to count a further delay in the rule (beyond the Biden administration’s one-year delay) as ‘savings’ for the federal government,” explains the National Taxpayers Union.”

“When you filter out the gimmicks designed to game the CBO score of the infrastructure bill, the CRFB says the package will probably add $340 billion to the deficit over 10 years.”

“But as the CBO’s report makes clear, actually paying for the infrastructure makes those benefits bigger than they otherwise would be. A fully offset infrastructure package would boost GDP by an estimated 0.11 percent over the next 30 years while a deficit-financed package would barely break even. That’s because, as the CRFB notes, running higher deficits to pay for infrastructure spending will reduce private investment over the long term and, thus, lower future economic growth as well.”