1 00:00:05,949 --> 00:00:09,449 Speaker 1: Hello, this is Kobe Time, a podcast series on Markets 2 00:00:09,460 --> 00:00:11,799 Speaker 1: and Economies from D BS Group Research. I'm Tamur, be 3 00:00:11,939 --> 00:00:17,430 Speaker 1: chief economist. Welcoming you to our 137th episode. Ok. Time 4 00:00:17,440 --> 00:00:20,370 Speaker 1: to travel to Washington DC. Today we will talk about 5 00:00:20,379 --> 00:00:25,110 Speaker 1: all things us fiscal with Shai Aas, the executive director 6 00:00:25,120 --> 00:00:28,329 Speaker 1: of the bipartisan Policy Center's Economic Policy Program. 7 00:00:28,639 --> 00:00:32,089 Speaker 1: If you Google Shay's name, you'll see a string of 8 00:00:32,098 --> 00:00:35,979 Speaker 1: articles and interviews on us fiscal policy, retirement and financial 9 00:00:35,990 --> 00:00:39,810 Speaker 1: security tax policy and yes, lots of hits on debt 10 00:00:39,819 --> 00:00:42,340 Speaker 1: ceiling shy. Aus. Welcome to Kobe Time. 11 00:00:43,130 --> 00:00:45,939 Speaker 1: Thanks so much for having me. It's great to have you. 12 00:00:45,950 --> 00:00:48,729 Speaker 1: Uh I want to start with some setting the background 13 00:00:48,740 --> 00:00:51,389 Speaker 1: type stuff shy if I may. Uh So at the 14 00:00:51,400 --> 00:00:55,509 Speaker 1: beginning of this century, as the Clinton Gore team handed 15 00:00:55,520 --> 00:00:59,799 Speaker 1: over the reins to Bush and Cheney, the US essentially 16 00:00:59,810 --> 00:01:02,709 Speaker 1: was running a balanced budget, net debt to GDP ratio 17 00:01:02,720 --> 00:01:06,550 Speaker 1: was 35%. Uh Things have changed a lot since then. 18 00:01:06,769 --> 00:01:11,379 Speaker 1: The IMF estimates structural fiscal deficit at 6.7% in 2024 19 00:01:11,389 --> 00:01:14,669 Speaker 1: with net debt to GDP closing in at 100% and 20 00:01:14,680 --> 00:01:18,680 Speaker 1: looking ahead. No significant consolidation looks likely and debt ratios 21 00:01:18,690 --> 00:01:20,730 Speaker 1: are likely to expected to rise for the rest of 22 00:01:20,739 --> 00:01:22,790 Speaker 1: the decade. Shai, how did we get here? 23 00:01:24,809 --> 00:01:26,949 Speaker 2: Let me give you the punch line up top, which 24 00:01:26,959 --> 00:01:30,690 Speaker 2: is that we Americans are already straining to cover their 25 00:01:30,699 --> 00:01:34,110 Speaker 2: bills and invest in their future. And if we don't 26 00:01:34,120 --> 00:01:37,870 Speaker 2: address this huge national debt that we have racked up 27 00:01:37,879 --> 00:01:41,180 Speaker 2: over the past several decades, it's going to impact policy 28 00:01:41,190 --> 00:01:42,870 Speaker 2: in almost every other sector 29 00:01:42,970 --> 00:01:46,429 Speaker 2: our society. So we really have a challenge here that 30 00:01:46,440 --> 00:01:50,910 Speaker 2: both parties have contributed to. There's enough blame to go around. 31 00:01:51,209 --> 00:01:53,279 Speaker 2: We at the bipartisan Policy center take this issue very 32 00:01:53,290 --> 00:01:56,349 Speaker 2: seriously and we have focused over the past couple of 33 00:01:56,360 --> 00:02:01,029 Speaker 2: decades at finding pragmatic solutions that could help us address it. 34 00:02:01,290 --> 00:02:03,400 Speaker 2: The, the way that we got here to, to directly 35 00:02:03,410 --> 00:02:06,660 Speaker 2: answer your question is that we have made a series 36 00:02:06,669 --> 00:02:10,389 Speaker 2: of choices, some that were forced upon us and some 37 00:02:10,399 --> 00:02:14,978 Speaker 2: that we proactively took ourselves that have been fiscally irresponsible 38 00:02:14,990 --> 00:02:17,289 Speaker 2: and have not been paid for either on the spending 39 00:02:17,300 --> 00:02:20,050 Speaker 2: side or the tax side that have added to this 40 00:02:20,059 --> 00:02:22,630 Speaker 2: debt burden that is now as you said, as large 41 00:02:22,639 --> 00:02:26,130 Speaker 2: as our economy at around $28 trillion of debt held 42 00:02:26,139 --> 00:02:26,949 Speaker 2: by the public. 43 00:02:27,279 --> 00:02:30,720 Speaker 2: It's been a series of decisions that started back in 44 00:02:30,729 --> 00:02:34,199 Speaker 2: the early two thousands under President Bush when they enacted 45 00:02:34,210 --> 00:02:37,830 Speaker 2: several unpaid for tax cuts. At that time, we had 46 00:02:37,839 --> 00:02:41,449 Speaker 2: revenues that exceeded spending. So we had a surplus which 47 00:02:41,460 --> 00:02:44,470 Speaker 2: has been very rare in us history. We had revenues 48 00:02:44,479 --> 00:02:47,429 Speaker 2: that were coming in at around 20% of gross domestic product. 49 00:02:47,440 --> 00:02:51,089 Speaker 2: GDP and outlays were closer to 18%. So we had 50 00:02:51,100 --> 00:02:53,529 Speaker 2: a fairly large surplus for a few years 51 00:02:53,899 --> 00:02:57,289 Speaker 2: and that quickly dissipated. We, we enacted those tax cuts. 52 00:02:57,300 --> 00:03:03,139 Speaker 2: We had several wars overseas, including the Iraq war, Afghanistan, Iraq. Now, 53 00:03:03,149 --> 00:03:05,660 Speaker 2: more recent conflicts, of course in, in Ukraine and the 54 00:03:05,669 --> 00:03:09,679 Speaker 2: Middle East. And we've also continued to enact unpaid for 55 00:03:09,690 --> 00:03:12,429 Speaker 2: tax cuts like most recently in 2017, with the tax 56 00:03:12,440 --> 00:03:13,360 Speaker 2: cuts and Jobs Act. 57 00:03:13,710 --> 00:03:15,169 Speaker 2: On top of that, we of course had the great 58 00:03:15,179 --> 00:03:18,429 Speaker 2: recession and we had unpaid for spending. The most notable 59 00:03:18,440 --> 00:03:21,119 Speaker 2: one was the American rescue plan that was enacted under, 60 00:03:21,130 --> 00:03:25,630 Speaker 2: under President Biden and the Democrats to help extract us 61 00:03:25,639 --> 00:03:29,210 Speaker 2: from the COVID recession. But really most economists felt like 62 00:03:29,220 --> 00:03:32,070 Speaker 2: it was more than necessary and in fact, contributed to 63 00:03:32,080 --> 00:03:35,250 Speaker 2: the inflation that we've seen in the US. In recent years. 64 00:03:35,470 --> 00:03:37,830 Speaker 2: All of these decisions have led us to a point 65 00:03:37,839 --> 00:03:43,289 Speaker 2: in 2024 where our spending is now 24% of GDP 66 00:03:43,300 --> 00:03:45,929 Speaker 2: compared to that 18% back in 2000. 67 00:03:46,190 --> 00:03:49,470 Speaker 2: And our revenues are now down at around 17% of GDP. 68 00:03:49,500 --> 00:03:53,240 Speaker 2: So this has flipped and we're running a roughly 7% 69 00:03:53,250 --> 00:03:57,929 Speaker 2: of GDP deficit that's just not sustainable. And we need 70 00:03:57,940 --> 00:04:00,910 Speaker 2: to put our budget on a more sustainable path. Otherwise 71 00:04:00,919 --> 00:04:03,919 Speaker 2: there are going to be severe consequences for our economy. 72 00:04:04,059 --> 00:04:06,250 Speaker 2: And the problem that we have right now is neither 73 00:04:06,259 --> 00:04:08,610 Speaker 2: party is prioritizing this issue. There is 74 00:04:08,809 --> 00:04:11,880 Speaker 2: who talk about it. But when it comes down to 75 00:04:11,889 --> 00:04:14,679 Speaker 2: it and their party is in power, often they will 76 00:04:14,690 --> 00:04:17,179 Speaker 2: enact the policies that they would like to see whether 77 00:04:17,190 --> 00:04:20,549 Speaker 2: it's tax cuts or spending in various areas and put 78 00:04:20,559 --> 00:04:22,570 Speaker 2: deficits aside for the moment and then come back to 79 00:04:22,579 --> 00:04:25,789 Speaker 2: them when they're out of power and opposed to the 80 00:04:25,799 --> 00:04:29,238 Speaker 2: other party's priorities. So we really need to reverse that 81 00:04:29,250 --> 00:04:31,118 Speaker 2: tide and the sooner the better, 82 00:04:32,690 --> 00:04:35,269 Speaker 1: I suppose from a politician's perspective, if interest rates are 83 00:04:35,279 --> 00:04:37,519 Speaker 1: not skyrocketing and the rest of the world is falling 84 00:04:37,529 --> 00:04:39,459 Speaker 1: over each other to buy us debt, I suppose that 85 00:04:39,470 --> 00:04:43,000 Speaker 1: exorbitant privilege lulls one to some degree of complacency. So 86 00:04:43,010 --> 00:04:45,000 Speaker 1: I want to talk about that supply demand stuff later. 87 00:04:45,149 --> 00:04:47,399 Speaker 1: But since you brought up the spending and revenue side, 88 00:04:47,410 --> 00:04:50,000 Speaker 1: let's sort of go through them at a time perhaps. 89 00:04:50,010 --> 00:04:53,118 Speaker 1: So on the spending side, your institute does a lot 90 00:04:53,130 --> 00:04:57,019 Speaker 1: of work on the areas where savings can be achieved. 91 00:04:57,089 --> 00:05:00,279 Speaker 1: So what are the areas where spending is super rigid 92 00:05:00,619 --> 00:05:03,179 Speaker 1: and what are the areas where there's some realistic room 93 00:05:03,190 --> 00:05:04,000 Speaker 1: for consolidation? 94 00:05:05,738 --> 00:05:09,149 Speaker 2: Yeah, we've seen these spending challenges for many years and 95 00:05:09,160 --> 00:05:11,579 Speaker 2: a lot of the spending that the US does in 96 00:05:11,589 --> 00:05:14,760 Speaker 2: its budget is on what are so called entitlement programs. 97 00:05:14,769 --> 00:05:17,649 Speaker 2: These are on autopilot, they're mandatory spending. So they're not 98 00:05:17,660 --> 00:05:21,859 Speaker 2: something that Congress addresses each year in its annual spending process, 99 00:05:21,988 --> 00:05:26,519 Speaker 2: which largely means that they remain untouched until there's a 100 00:05:26,529 --> 00:05:29,039 Speaker 2: major reform package that gets put on the table or that, 101 00:05:29,049 --> 00:05:31,079 Speaker 2: that gets momentum to be enacted. 102 00:05:31,329 --> 00:05:33,290 Speaker 2: So the last time, for example, that we saw a 103 00:05:33,299 --> 00:05:36,640 Speaker 2: major reform package to social security was back in 1983. 104 00:05:36,649 --> 00:05:40,239 Speaker 2: That's 41 years ago that this program has remained largely untouched. 105 00:05:40,390 --> 00:05:43,299 Speaker 2: No wonder its spending and its revenue are no longer 106 00:05:43,309 --> 00:05:46,809 Speaker 2: in balance and it's in desperate need of reform. So 107 00:05:46,820 --> 00:05:48,690 Speaker 2: that is an example of a program that has run 108 00:05:48,700 --> 00:05:52,070 Speaker 2: on autopilot for far too long. Medicare largely has run 109 00:05:52,079 --> 00:05:53,849 Speaker 2: in the same way with a trust fund, but that 110 00:05:53,859 --> 00:05:55,690 Speaker 2: trust fund is now spending down and is going to 111 00:05:55,700 --> 00:05:56,399 Speaker 2: be depleted 112 00:05:56,660 --> 00:06:00,118 Speaker 2: uh soon. So those are the major entitlement programs that 113 00:06:00,130 --> 00:06:03,320 Speaker 2: have remained unaddressed even though we have seen these demographic 114 00:06:03,329 --> 00:06:07,609 Speaker 2: challenges because those imbalances are largely driven by demographics in 115 00:06:07,619 --> 00:06:11,079 Speaker 2: addition to health care cost increases and what we focused 116 00:06:11,089 --> 00:06:14,399 Speaker 2: on over the past 15 years that has 117 00:06:15,040 --> 00:06:19,410 Speaker 2: really exacerbated. The problem is only the annual discretionary part 118 00:06:19,420 --> 00:06:21,909 Speaker 2: of the budget and that is largely defense spending and 119 00:06:21,920 --> 00:06:25,579 Speaker 2: then other domestic agencies like the Education Department and the 120 00:06:25,589 --> 00:06:30,299 Speaker 2: Energy Department and the Department of Housing and Urban Development. 121 00:06:30,390 --> 00:06:33,808 Speaker 2: So all of those portions of the budget are allocated 122 00:06:33,820 --> 00:06:35,700 Speaker 2: annually and annually appropriated. 123 00:06:35,988 --> 00:06:38,059 Speaker 2: And the issue is that those also make up the 124 00:06:38,070 --> 00:06:41,170 Speaker 2: investment parts of our budget. So spending on infrastructure and 125 00:06:41,178 --> 00:06:44,730 Speaker 2: and housing policies and others that really contribute labor market 126 00:06:44,738 --> 00:06:48,510 Speaker 2: that contribute to the future growth of our economy. And 127 00:06:48,519 --> 00:06:50,779 Speaker 2: if we just continue to constrain that which is already 128 00:06:50,790 --> 00:06:53,390 Speaker 2: a shrinking part of the budget relative to those entitlement programs, 129 00:06:53,399 --> 00:06:56,130 Speaker 2: we're not going to get at the underlying problem. Now, 130 00:06:56,140 --> 00:06:57,089 Speaker 2: the biggest 131 00:06:57,619 --> 00:07:00,429 Speaker 2: issue that we have at the moment in the on 132 00:07:00,440 --> 00:07:03,359 Speaker 2: the spending side is that interest costs net interest costs 133 00:07:03,369 --> 00:07:05,720 Speaker 2: that we are paying on our existing debt are eating 134 00:07:05,730 --> 00:07:09,170 Speaker 2: up a larger and larger share of our spending and 135 00:07:09,178 --> 00:07:11,299 Speaker 2: a larger and larger share of our tax revenue. So 136 00:07:11,309 --> 00:07:14,679 Speaker 2: for example, just a couple of years ago, those interest 137 00:07:14,690 --> 00:07:17,440 Speaker 2: costs were consuming about 10% of all the revenue that 138 00:07:17,450 --> 00:07:18,880 Speaker 2: we were bringing into the federal government. 139 00:07:19,149 --> 00:07:21,500 Speaker 2: This past year, the fiscal year that just ended at 140 00:07:21,510 --> 00:07:24,619 Speaker 2: the end of last month, that number had increased to 19%. 141 00:07:24,630 --> 00:07:26,869 Speaker 2: So it had almost doubled in just a couple of years. Now, 142 00:07:26,880 --> 00:07:29,750 Speaker 2: that's a result of both increasing debt and of course, 143 00:07:29,760 --> 00:07:32,429 Speaker 2: interest costs that have got excuse me, interest rates that 144 00:07:32,440 --> 00:07:34,769 Speaker 2: have gone up significantly in the past couple of years. 145 00:07:35,084 --> 00:07:37,154 Speaker 2: So the interest that we paid on the federal debt 146 00:07:37,165 --> 00:07:41,614 Speaker 2: last year was $950 billion. It's now the second largest 147 00:07:41,625 --> 00:07:45,015 Speaker 2: category of spending in the federal budget. Only after Social Security, 148 00:07:45,024 --> 00:07:48,744 Speaker 2: it has now exceeded Medicare spending and all the spending 149 00:07:48,755 --> 00:07:50,434 Speaker 2: that we do on our national defense. 150 00:07:51,000 --> 00:07:54,369 Speaker 2: And there's also a rising cost of responding to emergencies 151 00:07:54,380 --> 00:07:56,390 Speaker 2: that we're seeing, which is eating up the budget on 152 00:07:56,399 --> 00:07:59,100 Speaker 2: an ad hoc basis because we do not budget appropriately 153 00:07:59,109 --> 00:08:01,779 Speaker 2: for emergencies. We pretend that we're surprised every time we 154 00:08:01,790 --> 00:08:04,350 Speaker 2: have them and we are increasingly surprised more and more 155 00:08:04,359 --> 00:08:07,940 Speaker 2: as things like climate change and other um 156 00:08:08,500 --> 00:08:11,600 Speaker 2: you know, factors around the world have contributed to whether 157 00:08:11,609 --> 00:08:14,940 Speaker 2: they're weather events or whether they're unforeseen overseas conflicts. And 158 00:08:14,950 --> 00:08:18,519 Speaker 2: those have increased the budget deficits in recent years as well. 159 00:08:18,529 --> 00:08:20,239 Speaker 2: So those are the pieces of the budget that are 160 00:08:20,250 --> 00:08:23,279 Speaker 2: consuming more and more. And instead we're focused on this 161 00:08:23,290 --> 00:08:26,690 Speaker 2: shrinking piece of the pie that is discretionary spending and 162 00:08:26,700 --> 00:08:30,040 Speaker 2: that's not going to address the challenges that we face 163 00:08:30,049 --> 00:08:30,799 Speaker 2: over the long run. 164 00:08:31,529 --> 00:08:35,349 Speaker 1: So structural reforms urgently needed shy, I used to cover 165 00:08:35,359 --> 00:08:38,820 Speaker 1: various developing countries when I worked at the IMF and 166 00:08:38,830 --> 00:08:40,270 Speaker 1: one of the countries was India and this is like 167 00:08:40,280 --> 00:08:41,919 Speaker 1: a long time ago. And one of the things we 168 00:08:41,929 --> 00:08:44,270 Speaker 1: should say in India is that India used to spend 169 00:08:44,280 --> 00:08:47,140 Speaker 1: more on interest payment than health and education combined. 170 00:08:47,409 --> 00:08:50,150 Speaker 1: I think we're there in the US now uh in, 171 00:08:50,159 --> 00:08:52,809 Speaker 1: in some extent. And you know, the defense budget of 172 00:08:52,820 --> 00:08:55,599 Speaker 1: the US is larger than most of the large economies 173 00:08:55,609 --> 00:08:58,650 Speaker 1: in the world combined, like close to $900 billion and 174 00:08:58,659 --> 00:09:01,010 Speaker 1: to your point interest spending is over a trillion. So 175 00:09:01,030 --> 00:09:04,890 Speaker 1: even it's outpacing the mega defense of the US. So that's, 176 00:09:04,900 --> 00:09:07,679 Speaker 1: I guess, you know, very well put in terms of context. 177 00:09:07,690 --> 00:09:11,239 Speaker 1: So let's stay with the structural stuff for a minute. 178 00:09:11,250 --> 00:09:13,450 Speaker 1: Uh Social Security and Medicare funding. 179 00:09:14,190 --> 00:09:16,130 Speaker 1: Where are we going with this? I mean, is the 180 00:09:16,140 --> 00:09:18,359 Speaker 1: trust fund really the sacrosanct? I mean, what if the 181 00:09:18,369 --> 00:09:20,079 Speaker 1: trust fund runs out of money? Is it, is it 182 00:09:20,090 --> 00:09:22,729 Speaker 1: a crisis or money is fungible? It can just print 183 00:09:22,739 --> 00:09:24,330 Speaker 1: money or take it from somewhere else in the budget? 184 00:09:24,340 --> 00:09:24,890 Speaker 1: No big deal. 185 00:09:25,950 --> 00:09:28,309 Speaker 2: Yeah, this is a huge problem. So we have trust 186 00:09:28,320 --> 00:09:32,229 Speaker 2: funds for Social Security and Medicare. And the, as I mentioned, 187 00:09:32,239 --> 00:09:34,440 Speaker 2: the last time Social Security was reformed was in 1983. 188 00:09:34,450 --> 00:09:38,130 Speaker 2: And so shortly after those reforms, it was projected that 189 00:09:38,140 --> 00:09:41,159 Speaker 2: the demographic challenges that we face as a society and 190 00:09:41,169 --> 00:09:42,489 Speaker 2: the pressures on the program 191 00:09:42,789 --> 00:09:45,859 Speaker 2: uh as well as increases in in benefits which are 192 00:09:45,869 --> 00:09:50,689 Speaker 2: attached to wages, we're going to cause the an imbalance 193 00:09:50,700 --> 00:09:53,090 Speaker 2: in the trust fund that would result in the depletion 194 00:09:53,099 --> 00:09:56,409 Speaker 2: sometime around when it is now projected to be depleted, 195 00:09:56,419 --> 00:09:59,880 Speaker 2: which is only in nine years in 2033. This is 196 00:09:59,890 --> 00:10:01,780 Speaker 2: the primary trust fund, there's also a trust fund for 197 00:10:01,789 --> 00:10:04,460 Speaker 2: disability insurance, which is a much smaller portion of the program, 198 00:10:04,469 --> 00:10:07,469 Speaker 2: but the old age and survivors insurance portion, which is 199 00:10:07,479 --> 00:10:10,728 Speaker 2: what goes to all older Americans that are collecting benefits. 200 00:10:11,000 --> 00:10:14,689 Speaker 2: Um The that, that portion is only nine years away 201 00:10:14,700 --> 00:10:16,500 Speaker 2: from depletion. And, and, and again, we've known this for 202 00:10:16,510 --> 00:10:20,469 Speaker 2: many years. The there are several factors that are driving this, 203 00:10:20,479 --> 00:10:24,409 Speaker 2: there's an aging population. So the ratio, the beneficiary to 204 00:10:24,419 --> 00:10:27,069 Speaker 2: worker ratio, which is the number of beneficiaries that are 205 00:10:27,080 --> 00:10:29,840 Speaker 2: collecting relative to the workers that are paying payroll taxes 206 00:10:29,849 --> 00:10:32,669 Speaker 2: into that system has shrunk over time. It, it went 207 00:10:32,679 --> 00:10:33,500 Speaker 2: down from four to 208 00:10:33,575 --> 00:10:36,635 Speaker 2: three and now we're getting close to 2.5 and that's 209 00:10:36,645 --> 00:10:40,075 Speaker 2: not a sustainable um model if we don't adjust the 210 00:10:40,085 --> 00:10:43,875 Speaker 2: program in other ways to account for this changing balance. 211 00:10:44,234 --> 00:10:47,424 Speaker 2: Um There's also an eroding tax base. We've had increased 212 00:10:47,434 --> 00:10:49,744 Speaker 2: wealth or excuse me, income inequality 213 00:10:50,429 --> 00:10:53,280 Speaker 2: over time and the way that the program is funded 214 00:10:53,289 --> 00:10:56,210 Speaker 2: is on payroll taxes which only go up to a 215 00:10:56,219 --> 00:10:59,570 Speaker 2: certain level of income. And right now, I, I believe 216 00:10:59,580 --> 00:11:03,650 Speaker 2: it's about 100 and $70,000. And so that means that 217 00:11:03,659 --> 00:11:06,570 Speaker 2: if we have more earnings that are above that income level, 218 00:11:07,130 --> 00:11:10,348 Speaker 2: more of the earnings in the economy are not being 219 00:11:10,359 --> 00:11:13,070 Speaker 2: taxed for the purposes of social security, so that has 220 00:11:13,080 --> 00:11:14,750 Speaker 2: led to an erosion of the tax base at the 221 00:11:14,760 --> 00:11:16,679 Speaker 2: same time that we are paying out more and more 222 00:11:16,690 --> 00:11:19,789 Speaker 2: benefits and that imbalance is only going to increase in 223 00:11:19,799 --> 00:11:23,348 Speaker 2: the future. So if we reach 2033 and policymakers don't 224 00:11:23,359 --> 00:11:26,598 Speaker 2: take action, there would be an across the board 21% 225 00:11:26,609 --> 00:11:26,950 Speaker 2: cut 226 00:11:27,049 --> 00:11:30,598 Speaker 2: benefits, which is not something that most seniors can afford. 227 00:11:30,609 --> 00:11:35,090 Speaker 2: This is really irresponsible behavior by policymakers because it's impossible 228 00:11:35,099 --> 00:11:39,330 Speaker 2: for anyone in the uh in the United States who 229 00:11:39,340 --> 00:11:42,049 Speaker 2: is trying to plan for their retirement to do so 230 00:11:42,059 --> 00:11:44,630 Speaker 2: in an accurate and responsible manner, if they don't know 231 00:11:44,640 --> 00:11:46,020 Speaker 2: what they're going to be getting out of the Social 232 00:11:46,030 --> 00:11:46,869 Speaker 2: Security program, 233 00:11:47,179 --> 00:11:49,859 Speaker 2: pretty much everybody knows what the menu of reforms are 234 00:11:49,869 --> 00:11:52,349 Speaker 2: to adjust the program. But for so long, it has 235 00:11:52,359 --> 00:11:56,039 Speaker 2: been the third rail of politics in this country and 236 00:11:56,049 --> 00:11:59,909 Speaker 2: it is so easy to demagogue and to make pledges 237 00:11:59,919 --> 00:12:01,440 Speaker 2: that you're never going to touch. And we've seen that 238 00:12:01,450 --> 00:12:02,960 Speaker 2: from both sides. That's what 239 00:12:03,070 --> 00:12:06,559 Speaker 2: has gone unaddressed for far too long. Basically the same 240 00:12:06,570 --> 00:12:09,890 Speaker 2: dynamic with Medicare uh that, that primary trust fund, the, 241 00:12:09,900 --> 00:12:12,549 Speaker 2: the Medicare part, a trust fund which goes for hospital 242 00:12:12,559 --> 00:12:16,960 Speaker 2: insurance uh is set to deplete its funds in 2036 243 00:12:16,969 --> 00:12:20,039 Speaker 2: only a few years after Social Security. And in that 244 00:12:20,049 --> 00:12:21,900 Speaker 2: same way, it would not be able to cover all benefits. 245 00:12:21,909 --> 00:12:22,960 Speaker 2: After that point, 246 00:12:23,530 --> 00:12:26,369 Speaker 2: these projections move around a little bit as the flows 247 00:12:26,380 --> 00:12:28,968 Speaker 2: come in, in and out. But again, we've known that 248 00:12:28,979 --> 00:12:31,469 Speaker 2: these programs are not in good shape for many years 249 00:12:31,479 --> 00:12:34,349 Speaker 2: and policymakers really have not done much to address them. 250 00:12:34,549 --> 00:12:37,669 Speaker 2: So we need to wrap our arms around this problem 251 00:12:37,799 --> 00:12:39,809 Speaker 2: and do so in a bipartisan manner, everything needs to 252 00:12:39,820 --> 00:12:41,919 Speaker 2: be on the table and it's going to take adjustments 253 00:12:41,929 --> 00:12:44,140 Speaker 2: to the benefit side and it's going to take adjustments 254 00:12:44,150 --> 00:12:46,289 Speaker 2: to the revenues that are coming into the program which 255 00:12:46,299 --> 00:12:49,690 Speaker 2: are insufficient to fund the aging population that we have. 256 00:12:50,700 --> 00:12:53,530 Speaker 1: Have there been attempts in the last few decades to 257 00:12:53,539 --> 00:12:58,169 Speaker 1: make some reforms or was it really the 1983 reform? 258 00:12:58,179 --> 00:13:00,039 Speaker 1: That was the last time that anything seriously was done 259 00:13:01,369 --> 00:13:03,229 Speaker 2: so on social security? That is the last time anything 260 00:13:03,239 --> 00:13:06,590 Speaker 2: seriously was done. Um There have absolutely been attempts. So 261 00:13:06,599 --> 00:13:10,369 Speaker 2: President Bush, for example, initiated a push to try to 262 00:13:10,380 --> 00:13:14,669 Speaker 2: do this under the, the second President George W Bush 263 00:13:14,950 --> 00:13:17,679 Speaker 2: in the early two thousands. And that was branded as 264 00:13:17,690 --> 00:13:20,059 Speaker 2: an attempt to privatize social security. And there's a lot 265 00:13:20,070 --> 00:13:22,260 Speaker 2: of nuance to the the argument as to what was 266 00:13:22,270 --> 00:13:25,270 Speaker 2: or was not being proposed. But it, it got again, 267 00:13:25,460 --> 00:13:28,669 Speaker 2: lambasted very quickly and was easy for the other side 268 00:13:28,679 --> 00:13:30,468 Speaker 2: to say that, you know, Republicans are coming for your 269 00:13:30,479 --> 00:13:33,400 Speaker 2: social security benefits and that reform went away. And since then, 270 00:13:33,409 --> 00:13:35,459 Speaker 2: there has not really been a concerted push. There have 271 00:13:35,469 --> 00:13:38,478 Speaker 2: been groups of bipartisan policymakers that we have been working 272 00:13:38,489 --> 00:13:41,320 Speaker 2: with who have, you know, come close to putting something 273 00:13:41,330 --> 00:13:44,510 Speaker 2: out that people could maybe coalesce around. But the politics 274 00:13:44,520 --> 00:13:46,979 Speaker 2: are just so difficult. So for example, in President Biden's 275 00:13:46,989 --> 00:13:49,440 Speaker 2: State of the Union last year, he 276 00:13:49,549 --> 00:13:52,119 Speaker 2: made a pledge that nobody was going to touch social 277 00:13:52,130 --> 00:13:55,619 Speaker 2: security and both parties stood up and gave a round 278 00:13:55,630 --> 00:13:58,059 Speaker 2: of applause for that. So it's very difficult in that 279 00:13:58,070 --> 00:14:02,650 Speaker 2: kind of context to get the political will on both 280 00:14:02,659 --> 00:14:06,409 Speaker 2: sides to go against the tide and tell, send a 281 00:14:06,419 --> 00:14:08,650 Speaker 2: difficult message that we're going to actually need to adjust 282 00:14:08,659 --> 00:14:11,090 Speaker 2: these programs in the future in order to sustain them 283 00:14:11,099 --> 00:14:13,609 Speaker 2: and make sure that they're available to future generations. 284 00:14:14,210 --> 00:14:14,770 Speaker 1: Right. 285 00:14:15,039 --> 00:14:18,900 Speaker 1: So now we've seen tax measures in the last 21 years, 286 00:14:18,909 --> 00:14:23,890 Speaker 1: large tax cut under Bush, some degree of rationalization under Obama. 287 00:14:23,909 --> 00:14:26,700 Speaker 1: Of course, those were tough post financial crisis years. The 288 00:14:26,710 --> 00:14:30,179 Speaker 1: US economy couldn't really handle major tax increases in those days. 289 00:14:30,190 --> 00:14:33,690 Speaker 1: And then Trump came more tax cuts. Biden has been 290 00:14:33,760 --> 00:14:36,059 Speaker 1: trying to sort of ride the ship, but most of 291 00:14:36,070 --> 00:14:39,059 Speaker 1: the tax cuts from the Trump Times have stuck around. 292 00:14:39,070 --> 00:14:40,340 Speaker 1: It's not been rolled back. 293 00:14:40,619 --> 00:14:45,479 Speaker 1: So are there low hanging sources to improve the revenue situation? 294 00:14:47,010 --> 00:14:50,219 Speaker 2: II, I wouldn't really put them as low hanging fruit. 295 00:14:50,229 --> 00:14:51,469 Speaker 2: I think if it's low hanging fruit, we would have 296 00:14:51,479 --> 00:14:54,909 Speaker 2: done it already. And the problem is that we have 297 00:14:54,919 --> 00:14:58,059 Speaker 2: these pledges on both sides and this comes in, you know, 298 00:14:58,070 --> 00:14:59,950 Speaker 2: we're talking about it on Social Security. It's there on 299 00:14:59,960 --> 00:15:03,429 Speaker 2: taxes too. So you've got the Republican party that has 300 00:15:03,440 --> 00:15:06,130 Speaker 2: basically pledged and many of them have pledged to never 301 00:15:06,140 --> 00:15:09,489 Speaker 2: raise taxes. And this comes from Grover Norquist and a 302 00:15:09,500 --> 00:15:12,909 Speaker 2: group on the, the right of the political uh spectrum 303 00:15:12,919 --> 00:15:14,549 Speaker 2: that is called N uh 304 00:15:15,210 --> 00:15:17,549 Speaker 2: Americans for tax fairness. I think, I, I forget the 305 00:15:17,559 --> 00:15:19,619 Speaker 2: name of his group. But um it, it is a 306 00:15:19,630 --> 00:15:22,979 Speaker 2: group that is, its sole mission is to oppose any 307 00:15:22,989 --> 00:15:28,000 Speaker 2: increases in taxes, which is, of course, fundamentally inconsistent with 308 00:15:28,010 --> 00:15:31,380 Speaker 2: fixing our budget problems. And many Republicans have signed on 309 00:15:31,390 --> 00:15:33,460 Speaker 2: to that pledge. And then on the Democratic side, President 310 00:15:33,469 --> 00:15:35,799 Speaker 2: Biden has made a pledge not to raise taxes on 311 00:15:35,809 --> 00:15:40,000 Speaker 2: anyone making under 400,000, which gets very difficult when you're 312 00:15:40,010 --> 00:15:42,320 Speaker 2: looking at the inner workings of how taxes 313 00:15:43,049 --> 00:15:47,119 Speaker 2: are distributed and how certain policies would uh be evaluated. And, 314 00:15:47,130 --> 00:15:51,080 Speaker 2: and that also basically precludes most tax changes from being 315 00:15:51,090 --> 00:15:54,500 Speaker 2: considered except for, you know, uh billionaire taxes or wealth taxes, 316 00:15:54,510 --> 00:15:55,229 Speaker 2: those kinds of things, 317 00:15:55,549 --> 00:15:58,989 Speaker 2: um which are, of course, have no receptive reception on 318 00:15:59,000 --> 00:16:01,280 Speaker 2: the other side of the aisle. So the universe of 319 00:16:01,289 --> 00:16:04,789 Speaker 2: offsets and policies that Congress has been willing to consider 320 00:16:04,799 --> 00:16:09,010 Speaker 2: has really shrunk and we're going to need a change 321 00:16:09,020 --> 00:16:12,359 Speaker 2: in that mindset in order to get serious on the 322 00:16:12,369 --> 00:16:14,409 Speaker 2: revenues that we bring into the government in order to, 323 00:16:14,719 --> 00:16:16,940 Speaker 2: to fund the, the spending that we want to or 324 00:16:16,950 --> 00:16:18,570 Speaker 2: need to do as a country. If you just look 325 00:16:18,580 --> 00:16:20,299 Speaker 2: at some things that should have been low hanging fruit 326 00:16:20,309 --> 00:16:22,909 Speaker 2: in the past couple of years as examples. So reducing 327 00:16:22,919 --> 00:16:26,049 Speaker 2: the tax gap, we should all have a desire that 328 00:16:26,059 --> 00:16:28,950 Speaker 2: people who owe taxes under the law are paying them 329 00:16:29,169 --> 00:16:31,659 Speaker 2: in the way that they should and 330 00:16:31,739 --> 00:16:34,059 Speaker 2: we have a very large tax gap, hundreds of billions 331 00:16:34,070 --> 00:16:35,890 Speaker 2: of dollars, which means that there are hundreds of billions 332 00:16:35,900 --> 00:16:38,729 Speaker 2: that should be paid to the Treasury Department that are 333 00:16:38,739 --> 00:16:43,260 Speaker 2: not being paid either through intentionally because people are failing 334 00:16:43,270 --> 00:16:47,010 Speaker 2: to pay the taxes they owe or in some cases inadvertently. 335 00:16:47,020 --> 00:16:48,679 Speaker 2: But the, the government is not, 336 00:16:49,539 --> 00:16:52,590 Speaker 2: you know, follow monitoring this in a way that is 337 00:16:52,599 --> 00:16:56,750 Speaker 2: closing those gaps. And so there was legislation passed a 338 00:16:56,760 --> 00:16:59,859 Speaker 2: couple of years ago that gave additional funding by the Democrats. 339 00:16:59,869 --> 00:17:02,710 Speaker 2: They gave additional funding to the IRS to ramp up 340 00:17:02,719 --> 00:17:04,329 Speaker 2: tax enforcement that became 341 00:17:04,339 --> 00:17:05,189 Speaker 1: politicized too, 342 00:17:05,540 --> 00:17:08,489 Speaker 2: that became politicized. Exactly. So, so to do more audits 343 00:17:08,500 --> 00:17:11,069 Speaker 2: and it became, you know, the IRS going after your, 344 00:17:11,338 --> 00:17:14,968 Speaker 2: your pocketbook and that makes it incredibly hard to even 345 00:17:14,979 --> 00:17:17,759 Speaker 2: collect the taxes that are owed under our system today. 346 00:17:17,769 --> 00:17:21,038 Speaker 2: There's another example where there was a tax credit that 347 00:17:21,048 --> 00:17:24,828 Speaker 2: was passed under the COVID response packages that was called 348 00:17:24,838 --> 00:17:26,938 Speaker 2: the employer retention tax credit. And this was to try 349 00:17:26,948 --> 00:17:30,717 Speaker 2: to help employers retain their employees while the economy was 350 00:17:30,729 --> 00:17:33,328 Speaker 2: shedding jobs and we were going into a deep recession. 351 00:17:33,698 --> 00:17:35,078 Speaker 2: Uh The, 352 00:17:35,650 --> 00:17:39,438 Speaker 2: what this has turned into is companies retroactively now claiming 353 00:17:39,449 --> 00:17:42,639 Speaker 2: these credits three or four years down the road because 354 00:17:42,650 --> 00:17:45,629 Speaker 2: they've been marketed by sort of a cottage industry of 355 00:17:45,640 --> 00:17:48,389 Speaker 2: folks who will take a share of the credit that 356 00:17:48,400 --> 00:17:50,649 Speaker 2: they're owed and, and promise the business that they'll 357 00:17:51,260 --> 00:17:53,829 Speaker 2: collect for them. In many cases, these are fraudulent claims 358 00:17:53,839 --> 00:17:56,280 Speaker 2: and they're not even eligible for the credits. In other cases. 359 00:17:56,290 --> 00:17:57,530 Speaker 2: You know, this is three or four years down the 360 00:17:57,540 --> 00:17:59,369 Speaker 2: road and every everybody has moved on, this is no 361 00:17:59,380 --> 00:18:02,810 Speaker 2: longer an essential need of their business and yet these, 362 00:18:02,819 --> 00:18:06,869 Speaker 2: these claim windows have remained open and there is tons 363 00:18:06,880 --> 00:18:08,790 Speaker 2: of fraud in this program, such as the IRS has 364 00:18:08,800 --> 00:18:11,790 Speaker 2: put a pause on processing some of them. But this 365 00:18:11,800 --> 00:18:14,399 Speaker 2: could result in savings of literally tens of billions of 366 00:18:14,410 --> 00:18:15,160 Speaker 2: dollars to the federal 367 00:18:15,430 --> 00:18:17,500 Speaker 2: government if they do not need to pay out these 368 00:18:17,510 --> 00:18:21,780 Speaker 2: fraudulent or improper claims. And yet policymakers have not been 369 00:18:21,790 --> 00:18:25,640 Speaker 2: able to shut down those activities and, and cut off 370 00:18:25,650 --> 00:18:29,448 Speaker 2: the window for claiming this credit early because there has 371 00:18:29,459 --> 00:18:33,319 Speaker 2: been bipartisan disagree. There's been partisan disagreement over what package 372 00:18:33,329 --> 00:18:35,650 Speaker 2: that gets put into and what else it's paying for. 373 00:18:35,680 --> 00:18:38,399 Speaker 2: And so it goes on and these are the types 374 00:18:38,410 --> 00:18:39,140 Speaker 2: of activities that 375 00:18:39,219 --> 00:18:42,718 Speaker 2: we can't afford when we have a $28 trillion debt. There, 376 00:18:42,729 --> 00:18:46,160 Speaker 2: there may be some consensus around some offsets that could 377 00:18:46,170 --> 00:18:48,130 Speaker 2: go with an extension of some of the tax cuts 378 00:18:48,140 --> 00:18:50,540 Speaker 2: and Jobs Act T CJ A provisions that are on 379 00:18:50,550 --> 00:18:53,198 Speaker 2: the table this year. Uh Excuse me next year because 380 00:18:53,209 --> 00:18:54,839 Speaker 2: next year is going to be a very consequential year 381 00:18:54,849 --> 00:18:57,270 Speaker 2: for fiscal policy with the expiration of many of those 382 00:18:57,280 --> 00:19:00,489 Speaker 2: tax cuts that were passed in 2017. So there are 383 00:19:00,500 --> 00:19:03,119 Speaker 2: a number of provisions that are being discussed, that could 384 00:19:03,199 --> 00:19:04,739 Speaker 2: be a part of that package that could help pay 385 00:19:04,750 --> 00:19:07,760 Speaker 2: for some of those extensions, but they're not enough in 386 00:19:07,770 --> 00:19:09,660 Speaker 2: the scheme of things. And so we at B PC 387 00:19:09,670 --> 00:19:13,040 Speaker 2: have been working on what some of those potentially bipartisan 388 00:19:13,050 --> 00:19:15,660 Speaker 2: options could look like and what could be on the 389 00:19:15,670 --> 00:19:18,609 Speaker 2: order of magnitude. If if packaged together, that would really 390 00:19:18,619 --> 00:19:21,979 Speaker 2: start to at least stop the digging in, in the 391 00:19:21,989 --> 00:19:25,359 Speaker 2: direction of more and more debt and perhaps even begin 392 00:19:25,369 --> 00:19:27,060 Speaker 2: to address the underlying challenge 393 00:19:28,170 --> 00:19:32,290 Speaker 1: in terms of uh fraud and non compliance. I periodically 394 00:19:32,300 --> 00:19:35,439 Speaker 1: read reports of the US authorities leaning on like European 395 00:19:35,449 --> 00:19:38,630 Speaker 1: banks or offshore centers to, you know, disclose more information 396 00:19:38,640 --> 00:19:41,669 Speaker 1: about Americans who are hiding their wealth. And once in 397 00:19:41,680 --> 00:19:45,649 Speaker 1: a while you see these big penalties, how, how large 398 00:19:45,680 --> 00:19:48,199 Speaker 1: this sort of, you know, presumed sort of 399 00:19:49,170 --> 00:19:53,129 Speaker 1: non compliance outside of the US is for income that is, 400 00:19:53,140 --> 00:19:56,020 Speaker 1: you know, under the worldwide taxation uh net that the 401 00:19:56,030 --> 00:19:57,910 Speaker 1: US has, is um missing out. 402 00:19:58,989 --> 00:20:02,989 Speaker 2: I think it's fairly significant. So II, I do think 403 00:20:03,000 --> 00:20:05,530 Speaker 2: we need to, you know, look under every couch cushion given, 404 00:20:05,540 --> 00:20:07,689 Speaker 2: given where we are today as a country and look 405 00:20:07,699 --> 00:20:12,910 Speaker 2: for the places that are easier to raise revenue. So or, or, 406 00:20:12,920 --> 00:20:14,310 Speaker 2: or bring in that revenue. So 407 00:20:15,010 --> 00:20:18,099 Speaker 2: while it may be difficult to track down those folks 408 00:20:18,109 --> 00:20:20,079 Speaker 2: who are evading and have, have hid their money overseas. 409 00:20:20,089 --> 00:20:22,409 Speaker 2: In various places, it's probably easier to get them to 410 00:20:22,420 --> 00:20:24,800 Speaker 2: pay the taxes that they owe than it is to 411 00:20:24,810 --> 00:20:28,149 Speaker 2: get the political will to raise taxes on other people. 412 00:20:28,250 --> 00:20:32,419 Speaker 2: So those are places that we do need to go for. Um, 413 00:20:32,699 --> 00:20:35,439 Speaker 2: you know, when it comes to the, the IRS E 414 00:20:35,449 --> 00:20:38,560 Speaker 2: enforcing the laws that are on the books, they have 415 00:20:38,569 --> 00:20:41,400 Speaker 2: been severely underfunded for many years and this comes back 416 00:20:41,410 --> 00:20:43,520 Speaker 2: to the squeezing of the discretionary portion of the budget 417 00:20:43,530 --> 00:20:46,079 Speaker 2: because the IRS is funded out of that discretionary portion. 418 00:20:46,380 --> 00:20:48,228 Speaker 2: So we need to reverse that trend and, and we 419 00:20:48,239 --> 00:20:50,229 Speaker 2: have started reversing it with this investment that was passed 420 00:20:50,239 --> 00:20:52,339 Speaker 2: a couple of years ago in order to ensure that 421 00:20:52,349 --> 00:20:55,040 Speaker 2: they have the resources they need to do the job 422 00:20:55,050 --> 00:20:55,959 Speaker 2: that they're supposed to do, 423 00:20:56,489 --> 00:20:59,199 Speaker 1: right? Ok. Um tariffs, 424 00:20:59,569 --> 00:21:02,939 Speaker 1: uh there was a time uh 100 years ago when 425 00:21:02,949 --> 00:21:07,079 Speaker 1: the US did collect substantial government revenues through tariffs, but 426 00:21:07,089 --> 00:21:10,869 Speaker 1: we saw Donald Trump raise tariffs substantially, particularly against China 427 00:21:10,880 --> 00:21:13,260 Speaker 1: but also in a few other countries on a few goods. 428 00:21:13,359 --> 00:21:16,359 Speaker 1: Why haven't we seen the impact of these higher tariffs 429 00:21:16,369 --> 00:21:18,219 Speaker 1: on revenue GDP ratio of the US? 430 00:21:20,160 --> 00:21:24,180 Speaker 2: So it's interesting when you look back at the last, 431 00:21:24,189 --> 00:21:26,579 Speaker 2: you know, period of time in modern US history. So 432 00:21:26,589 --> 00:21:29,300 Speaker 2: roughly from the middle of the last century till now, 433 00:21:29,609 --> 00:21:34,189 Speaker 2: tariffs have made up about 1.5% of all federal revenues, 434 00:21:34,579 --> 00:21:37,000 Speaker 2: which is very small in the scheme of things in 435 00:21:37,010 --> 00:21:39,290 Speaker 2: the past five years, looking at the effects or of 436 00:21:39,300 --> 00:21:41,900 Speaker 2: the after effects of the tariffs that were put on 437 00:21:41,910 --> 00:21:44,989 Speaker 2: during the Trump administration, they've made up about 2% of 438 00:21:45,000 --> 00:21:47,920 Speaker 2: all federal revenues. So it's higher, but it's really a 439 00:21:47,930 --> 00:21:49,099 Speaker 2: drop in the bucket. 440 00:21:49,410 --> 00:21:54,179 Speaker 2: And even, excuse me, even if the incoming administration, if, 441 00:21:54,189 --> 00:21:55,270 Speaker 2: if President Trump is 442 00:21:56,229 --> 00:22:00,389 Speaker 2: elected in the upcoming election, um, decides to put on 443 00:22:00,400 --> 00:22:03,439 Speaker 2: more tariffs and even if it's an order of magnitude 444 00:22:03,449 --> 00:22:05,630 Speaker 2: higher than it has been in the past, it could 445 00:22:05,640 --> 00:22:08,650 Speaker 2: contribute a modest amount to the solution. But it's certainly 446 00:22:08,660 --> 00:22:11,359 Speaker 2: not going to pay for e even the problems that 447 00:22:11,369 --> 00:22:13,869 Speaker 2: the spending that we have right now, much less the 448 00:22:13,880 --> 00:22:15,500 Speaker 2: agenda items that the, 449 00:22:15,709 --> 00:22:17,829 Speaker 2: that President Trump has said he wants in terms of 450 00:22:17,839 --> 00:22:22,250 Speaker 2: other tax cuts and certainly much, much less than addressing 451 00:22:22,260 --> 00:22:25,290 Speaker 2: the $28 trillion that we have racked up so far. 452 00:22:25,449 --> 00:22:27,969 Speaker 2: So it's, it shouldn't be off the table because we 453 00:22:27,979 --> 00:22:31,050 Speaker 2: need to be considering all of these options. But when 454 00:22:31,060 --> 00:22:34,489 Speaker 2: I think about tariff policy, what we should be first 455 00:22:34,500 --> 00:22:39,229 Speaker 2: and foremost considering is the impact or, or the tool that, 456 00:22:39,239 --> 00:22:39,650 Speaker 2: that 457 00:22:40,390 --> 00:22:44,629 Speaker 2: uh presents for labor market considerations. You know, what is 458 00:22:44,640 --> 00:22:48,790 Speaker 2: produced here in the US versus overseas for national security purposes. 459 00:22:48,800 --> 00:22:52,369 Speaker 2: If there are certain products like semiconductors that we need 460 00:22:52,380 --> 00:22:55,650 Speaker 2: to be producing domestically rather than overseas for um for 461 00:22:55,660 --> 00:23:00,400 Speaker 2: national security reasons. And, and um there's certainly merit to 462 00:23:00,410 --> 00:23:00,729 Speaker 2: that 463 00:23:01,079 --> 00:23:04,909 Speaker 2: and there are, you know, other foreign policy reasons that 464 00:23:04,920 --> 00:23:08,089 Speaker 2: we have tariffs on, on particular countries depending on what 465 00:23:08,099 --> 00:23:10,119 Speaker 2: their stances are on other issues that we care about. So, 466 00:23:10,130 --> 00:23:12,989 Speaker 2: you know, the environment or labor market conditions in those 467 00:23:13,000 --> 00:23:17,829 Speaker 2: countries and those are all things that are should factor 468 00:23:17,839 --> 00:23:21,000 Speaker 2: into tariff policy, the revenue that we're raising as a country. 469 00:23:21,010 --> 00:23:23,639 Speaker 2: I I don't think it's really should be front of 470 00:23:23,650 --> 00:23:27,310 Speaker 2: mind as to how we are determining those policies that 471 00:23:27,319 --> 00:23:29,390 Speaker 2: affect our standing in the 472 00:23:30,030 --> 00:23:33,199 Speaker 2: um global environment. Th th those tariff policies should really 473 00:23:33,209 --> 00:23:36,030 Speaker 2: be dictated, dictated by other issues. And the revenue that 474 00:23:36,040 --> 00:23:39,540 Speaker 2: we collect is, is a by-product of them. So given 475 00:23:39,550 --> 00:23:41,849 Speaker 2: the order of magnitude that we're talking about here, I 476 00:23:41,859 --> 00:23:46,438 Speaker 2: wouldn't expect or suggest that that should be driving our, 477 00:23:46,449 --> 00:23:47,849 Speaker 2: our policy in that area. 478 00:23:48,609 --> 00:23:52,680 Speaker 1: Well, but um comment if you will on the fiscal 479 00:23:52,689 --> 00:23:56,250 Speaker 1: plans of the two presidential candidates. 480 00:23:58,319 --> 00:24:01,819 Speaker 2: What we're seeing right now from these two campaigns is 481 00:24:01,829 --> 00:24:05,920 Speaker 2: really what I've been calling recently economic populism on steroids. 482 00:24:06,199 --> 00:24:09,369 Speaker 2: And this is the Oprah version of you get a 483 00:24:09,380 --> 00:24:11,280 Speaker 2: tax cut and you get a spending increase and you 484 00:24:11,290 --> 00:24:13,300 Speaker 2: get a tax cut and we see this 485 00:24:13,430 --> 00:24:15,270 Speaker 2: each side trying to one up the other side. So 486 00:24:15,280 --> 00:24:18,829 Speaker 2: there's home buyers tax credits and there's no taxes on 487 00:24:18,839 --> 00:24:20,979 Speaker 2: tips and there's no taxes on overtime and there's no 488 00:24:20,989 --> 00:24:23,569 Speaker 2: taxes on social security benefits. And soon enough, we're not 489 00:24:23,579 --> 00:24:26,729 Speaker 2: going to have any taxes at all. And I think 490 00:24:26,739 --> 00:24:28,500 Speaker 2: that this is really a 491 00:24:29,119 --> 00:24:31,899 Speaker 2: challenge that we have encountered in our political system that 492 00:24:31,910 --> 00:24:36,489 Speaker 2: it is much easier to sell your constituents on. No 493 00:24:36,500 --> 00:24:39,790 Speaker 2: tough medicine. Everybody can have everything that they want and 494 00:24:39,800 --> 00:24:42,380 Speaker 2: we'll deal with the consequences later. That's for another day. 495 00:24:42,699 --> 00:24:46,129 Speaker 2: What that has led to is 100% debt to GDP. 496 00:24:46,140 --> 00:24:48,139 Speaker 2: And by the way, that 100% level is expected to 497 00:24:48,150 --> 00:24:52,060 Speaker 2: rise to over 100 and 50% by 2050. 498 00:24:52,349 --> 00:24:56,589 Speaker 2: So we are really on a on a trajectory that 499 00:24:56,599 --> 00:25:01,050 Speaker 2: is should be concerning for everyone. And it is not 500 00:25:01,060 --> 00:25:04,010 Speaker 2: only because it's a very large and scary number, but 501 00:25:04,020 --> 00:25:06,630 Speaker 2: because it's going to make it less affordable for Americans 502 00:25:06,640 --> 00:25:08,930 Speaker 2: in areas that they care about. So we're talking about 503 00:25:08,979 --> 00:25:11,260 Speaker 2: things like the housing market that is a critical issue 504 00:25:11,270 --> 00:25:14,349 Speaker 2: that both candidates have talked about and that policymakers in 505 00:25:14,359 --> 00:25:16,369 Speaker 2: in Congress are very focused on right now because we 506 00:25:16,380 --> 00:25:20,290 Speaker 2: have a housing supply challenge, a housing affordability problem as well. 507 00:25:20,459 --> 00:25:21,770 Speaker 2: And the 508 00:25:22,130 --> 00:25:25,599 Speaker 2: imbalance that we have on fiscal policy is over the 509 00:25:25,609 --> 00:25:27,949 Speaker 2: medium term driving interest rates higher, which is going to 510 00:25:27,959 --> 00:25:31,389 Speaker 2: make it more difficult for people to afford mortgages. And 511 00:25:31,400 --> 00:25:33,790 Speaker 2: it has driven inflation higher which is making it more 512 00:25:33,800 --> 00:25:37,129 Speaker 2: difficult for people to afford rent payments. And it's also 513 00:25:37,140 --> 00:25:40,030 Speaker 2: more difficult for builders to create the supply that we 514 00:25:40,040 --> 00:25:43,688 Speaker 2: need as a country because those investments become more difficult 515 00:25:43,699 --> 00:25:46,750 Speaker 2: propositions when interest rates are are perennially higher, 516 00:25:47,030 --> 00:25:50,429 Speaker 2: all of those factors are going to exacerbate not help 517 00:25:50,439 --> 00:25:54,329 Speaker 2: address the housing problem. So that's just one sector. And 518 00:25:54,339 --> 00:25:57,030 Speaker 2: you can come up with other examples in many other 519 00:25:57,040 --> 00:26:01,150 Speaker 2: areas where the challenges that we are seeing, both parties 520 00:26:01,560 --> 00:26:06,160 Speaker 2: perpetuate are going to start having real effects on Americans 521 00:26:06,170 --> 00:26:08,280 Speaker 2: that they may not even understand, they may not link 522 00:26:08,290 --> 00:26:09,369 Speaker 2: directly to the debt. 523 00:26:09,609 --> 00:26:13,400 Speaker 2: But eventually it is going to be something that restrains 524 00:26:13,410 --> 00:26:17,060 Speaker 2: our economic growth and could result in something that diminishes 525 00:26:17,069 --> 00:26:21,150 Speaker 2: our standing globally economically and in terms of our national security, 526 00:26:21,180 --> 00:26:23,869 Speaker 2: we really need to get our arms around this. And unfortunately, 527 00:26:23,880 --> 00:26:27,310 Speaker 2: neither party is is doing that right now. Neither presidential 528 00:26:27,319 --> 00:26:27,790 Speaker 2: candidate 529 00:26:28,030 --> 00:26:29,448 Speaker 2: is doing that right now. The one, the last thing 530 00:26:29,459 --> 00:26:32,579 Speaker 2: I'll mention is growth is certainly a big part of 531 00:26:32,589 --> 00:26:36,060 Speaker 2: any solution that we need. And certainly both candidates are 532 00:26:36,069 --> 00:26:39,569 Speaker 2: talking about policies that will lead to more economic growth. 533 00:26:39,849 --> 00:26:41,760 Speaker 2: But it can't be only growth. We need policies that 534 00:26:41,770 --> 00:26:45,040 Speaker 2: directly reduce the deficit. There are policies that are growth 535 00:26:45,300 --> 00:26:48,430 Speaker 2: uh oriented like more immigrants like immigration 536 00:26:48,599 --> 00:26:51,589 Speaker 2: reform that could bring more legal immigrants into this country 537 00:26:51,599 --> 00:26:55,319 Speaker 2: who tend to be net positives for our budget could 538 00:26:55,329 --> 00:26:58,969 Speaker 2: bring in more revenue and help grow the economy. So 539 00:26:58,979 --> 00:27:01,469 Speaker 2: those are things that we should should certainly think about 540 00:27:01,479 --> 00:27:04,300 Speaker 2: as part of our fiscal solution, but it will not 541 00:27:04,310 --> 00:27:07,109 Speaker 2: replace the need to reduce spending in certain areas and 542 00:27:07,119 --> 00:27:08,829 Speaker 2: bring in more revenue in others. 543 00:27:09,459 --> 00:27:12,219 Speaker 1: Right. Right. I know you're pressed for time. So I'm 544 00:27:12,229 --> 00:27:14,449 Speaker 1: not gonna ask you to walk me through the mechanics 545 00:27:14,459 --> 00:27:17,260 Speaker 1: of debt ceiling. That drama is omnipresent. We can talk 546 00:27:17,270 --> 00:27:19,478 Speaker 1: about another day. I want to talk about something that 547 00:27:19,489 --> 00:27:21,280 Speaker 1: a lot of the investors of my bank are very 548 00:27:21,290 --> 00:27:24,040 Speaker 1: keen to know about or learn more about, which is 549 00:27:24,050 --> 00:27:24,790 Speaker 1: the um 550 00:27:25,650 --> 00:27:30,609 Speaker 1: us bond issuance of the federal government and the supply 551 00:27:30,619 --> 00:27:35,780 Speaker 1: demand dynamic and the persistence of foreign, foreign demand and 552 00:27:35,790 --> 00:27:39,859 Speaker 1: also some degrees of the maturity uh sort of management 553 00:27:39,869 --> 00:27:42,290 Speaker 1: that the treasury is doing, issuing more of the shorthand 554 00:27:42,500 --> 00:27:44,939 Speaker 1: for the long end. I mean, by and large, are 555 00:27:44,949 --> 00:27:49,719 Speaker 1: you pleased with the operational capabilities of the treasury in 556 00:27:49,729 --> 00:27:51,390 Speaker 1: managing this massive debt burden? 557 00:27:53,310 --> 00:27:56,449 Speaker 2: Yeah, I think they're doing what they should be doing 558 00:27:56,459 --> 00:27:59,069 Speaker 2: and what they need to be doing. Given the situation that, 559 00:27:59,219 --> 00:28:01,319 Speaker 2: you know, they largely find themselves and the the people 560 00:28:01,329 --> 00:28:05,060 Speaker 2: who manage our, our debt are not the uh as 561 00:28:05,069 --> 00:28:07,060 Speaker 2: a general matter, the people who have led us to 562 00:28:07,069 --> 00:28:09,250 Speaker 2: the problem that we have today, they are responsible for 563 00:28:09,260 --> 00:28:11,869 Speaker 2: managing the trillions and trillions of dollars of debt that 564 00:28:11,880 --> 00:28:14,270 Speaker 2: we have racked up. The, you know, the share of 565 00:28:14,280 --> 00:28:17,689 Speaker 2: debt that's held by foreign investors peaked during the last decade. 566 00:28:17,699 --> 00:28:19,579 Speaker 2: It it was actually more than a third now, it's 567 00:28:19,589 --> 00:28:21,569 Speaker 2: back closer to a quarter. So that's come down a 568 00:28:21,579 --> 00:28:22,670 Speaker 2: little bit over time. 569 00:28:22,979 --> 00:28:26,819 Speaker 2: Um you know, according to the Peterson Foundation, the average 570 00:28:26,829 --> 00:28:29,000 Speaker 2: maturity used to be more like four or five years 571 00:28:29,010 --> 00:28:31,640 Speaker 2: and it's actually now up or been hovering around six years, 572 00:28:31,650 --> 00:28:33,489 Speaker 2: that's come down to a tiny bit, I think, uh 573 00:28:33,500 --> 00:28:35,389 Speaker 2: due to some of the shorter term issues that you're 574 00:28:35,400 --> 00:28:38,829 Speaker 2: talking about, but interest rates are of course, uh higher 575 00:28:38,839 --> 00:28:40,969 Speaker 2: than they've been over the past, you know, half decade 576 00:28:40,979 --> 00:28:41,560 Speaker 2: or decade 577 00:28:41,810 --> 00:28:45,040 Speaker 2: uh prior to COVID. And so when we're thinking about 578 00:28:45,050 --> 00:28:47,550 Speaker 2: the balance of issuance is shorter term versus longer term 579 00:28:47,800 --> 00:28:49,530 Speaker 2: in a higher interest rate environment, it may make sense 580 00:28:49,540 --> 00:28:51,089 Speaker 2: to issue more short than longer term. I don't know 581 00:28:51,099 --> 00:28:53,810 Speaker 2: that that's exactly why they're making these decisions. But I, 582 00:28:53,819 --> 00:28:56,359 Speaker 2: I do think that by and large, what we've seen 583 00:28:56,369 --> 00:28:57,979 Speaker 2: is responsible action from 584 00:28:58,229 --> 00:29:00,969 Speaker 2: the Treasury Department and going back to my prior answer, 585 00:29:01,300 --> 00:29:03,729 Speaker 2: what they're going to be facing increasingly regardless of which 586 00:29:03,739 --> 00:29:06,449 Speaker 2: administration we're in is a long term upward pressure on 587 00:29:06,459 --> 00:29:09,910 Speaker 2: interest rates as a result of this irresponsible fiscal policy. 588 00:29:09,920 --> 00:29:12,469 Speaker 2: And that's going to crowd out private investment and it's 589 00:29:12,479 --> 00:29:14,229 Speaker 2: going to make it more and more difficult for them 590 00:29:14,239 --> 00:29:16,050 Speaker 2: to manage the, the debt burden that we 591 00:29:16,060 --> 00:29:16,400 Speaker 2: have 592 00:29:18,469 --> 00:29:18,729 Speaker 1: is the 593 00:29:19,239 --> 00:29:23,449 Speaker 1: interest rate part. I think the treasury has enough financial 594 00:29:23,459 --> 00:29:27,489 Speaker 1: market participants to balance out the short term demand and 595 00:29:27,500 --> 00:29:29,319 Speaker 1: the US government is playing four or 5%. I think 596 00:29:29,329 --> 00:29:31,339 Speaker 1: the whole world wants to own some of that. But 597 00:29:31,439 --> 00:29:34,349 Speaker 1: at a one year, two year maturity, 1015, 20 year, 598 00:29:34,359 --> 00:29:36,089 Speaker 1: which is where you should be singing a lot of 599 00:29:36,099 --> 00:29:37,760 Speaker 1: your debt. I think it's going to get harder and 600 00:29:37,770 --> 00:29:41,109 Speaker 1: harder if we don't see any fiscal consolidation. Um Shai 601 00:29:41,489 --> 00:29:45,910 Speaker 1: the final question that I have perhaps from my perspective 602 00:29:45,920 --> 00:29:47,359 Speaker 1: is like, you know, still a bit of an 603 00:29:47,969 --> 00:29:51,180 Speaker 1: known unknown if you will to paraphrase Rumsfeld. Um We've 604 00:29:51,189 --> 00:29:53,790 Speaker 1: seen the weaponization of the US dollar in recent years 605 00:29:53,800 --> 00:29:57,260 Speaker 1: began with the seizing of the assets or the reserves 606 00:29:57,270 --> 00:30:00,349 Speaker 1: of the Afghanistan Central Bank. And we've seen substantial weaponization 607 00:30:00,359 --> 00:30:05,270 Speaker 1: with the Russian invasion of Ukraine. I hear questions sitting 608 00:30:05,280 --> 00:30:08,609 Speaker 1: here in Asia that could bond holders of US treasury 609 00:30:08,619 --> 00:30:14,420 Speaker 1: holders face some weaponization, some taxation, something like that in 610 00:30:14,430 --> 00:30:16,949 Speaker 1: the future. Um What are your thoughts? 611 00:30:18,219 --> 00:30:21,750 Speaker 2: I guess I'm less concerned about the weaponization being a 612 00:30:21,760 --> 00:30:25,359 Speaker 2: systemic problem and more the precarious position of the US 613 00:30:25,369 --> 00:30:28,130 Speaker 2: dollar itself. And this comes back to the, the broader 614 00:30:28,140 --> 00:30:31,060 Speaker 2: conversation that we're having here and we've seen credit rating 615 00:30:31,069 --> 00:30:36,319 Speaker 2: agency downgrades over recent years most recently. Um you know, 616 00:30:36,329 --> 00:30:39,219 Speaker 2: just in the, in the past year or two over 617 00:30:39,229 --> 00:30:44,140 Speaker 2: brinksmanship and the inability to budget in a responsible manner. 618 00:30:44,150 --> 00:30:48,000 Speaker 2: There's been an increase, putting aside the actual 619 00:30:48,204 --> 00:30:51,535 Speaker 2: substance of our budgetary and fiscal challenges. If you just 620 00:30:51,545 --> 00:30:54,305 Speaker 2: look at the process, there's been an increase in last 621 00:30:54,314 --> 00:30:58,364 Speaker 2: minute crisis, negotiations and that injects uncertainty into the economy. 622 00:30:58,435 --> 00:31:03,145 Speaker 2: It increases unease both for Americans and for investors and 623 00:31:03,155 --> 00:31:06,314 Speaker 2: is counterproductive to addressing the fiscal problem. So when you 624 00:31:06,324 --> 00:31:09,104 Speaker 2: look at the annual appropriations process over the last 10 625 00:31:09,114 --> 00:31:11,464 Speaker 2: or 15 years, we've had multiple shutdowns of the federal 626 00:31:11,474 --> 00:31:17,025 Speaker 2: government and we've had debt limit brinksmanship. And that really is, 627 00:31:17,035 --> 00:31:18,104 Speaker 2: is something that 628 00:31:18,719 --> 00:31:22,829 Speaker 2: is corrosive to our standing in the global economy and 629 00:31:22,839 --> 00:31:26,780 Speaker 2: to our standing as the reserve currency, which is a 630 00:31:26,790 --> 00:31:30,949 Speaker 2: huge benefit for the US economy and leads to some 631 00:31:30,959 --> 00:31:32,920 Speaker 2: of the behavior that you were talking about by investors 632 00:31:32,930 --> 00:31:35,349 Speaker 2: and wanting to have the US as a safe haven 633 00:31:35,359 --> 00:31:36,329 Speaker 2: and invest in 634 00:31:36,584 --> 00:31:39,545 Speaker 2: us treasury securities. So this coming year is going to 635 00:31:39,555 --> 00:31:42,785 Speaker 2: be really important because what we have lined up is 636 00:31:43,064 --> 00:31:46,775 Speaker 2: effectively an inflection point on us fiscal policy. We have 637 00:31:46,785 --> 00:31:49,324 Speaker 2: both the annual appropriations process and we might get a 638 00:31:49,334 --> 00:31:51,584 Speaker 2: double dose of that because they haven't yet addressed the 639 00:31:51,594 --> 00:31:54,364 Speaker 2: current fiscal year appropriations. They've kicked that can 640 00:31:54,650 --> 00:31:56,349 Speaker 2: down the road and they may kick it into next year. 641 00:31:56,359 --> 00:31:58,229 Speaker 2: So we may have two years of appropriations to deal 642 00:31:58,239 --> 00:31:59,979 Speaker 2: with next year. We know we're going to have the 643 00:31:59,989 --> 00:32:02,099 Speaker 2: debt limit sometime in the middle of the year. We 644 00:32:02,109 --> 00:32:03,969 Speaker 2: know that the tax cuts and Jobs Act, many of 645 00:32:03,979 --> 00:32:06,250 Speaker 2: those provisions are expiring at the end of the year. 646 00:32:06,290 --> 00:32:09,270 Speaker 2: Those are going to be driving the policy debate in 647 00:32:09,280 --> 00:32:12,290 Speaker 2: the United States all year long and the choices that 648 00:32:12,300 --> 00:32:15,849 Speaker 2: policymakers make on those various issues 649 00:32:15,925 --> 00:32:20,584 Speaker 2: will determine over the coming years and decade, whether we 650 00:32:20,594 --> 00:32:23,905 Speaker 2: start bending that curve and taking a more responsible path 651 00:32:24,045 --> 00:32:26,425 Speaker 2: or if we keep digging the hole deeper. And I 652 00:32:26,435 --> 00:32:29,125 Speaker 2: know that investors are watching, we know that they're watching 653 00:32:29,135 --> 00:32:32,295 Speaker 2: what credit a credit rating agencies are doing, who in 654 00:32:32,305 --> 00:32:36,064 Speaker 2: turn are watching what policymakers will do. And it's not 655 00:32:36,074 --> 00:32:37,084 Speaker 2: going to be 656 00:32:37,790 --> 00:32:40,300 Speaker 2: in my view, something where we're going to see a 657 00:32:40,310 --> 00:32:42,930 Speaker 2: crisis coming from a mile away. But it's sort of 658 00:32:42,939 --> 00:32:46,729 Speaker 2: the frog sitting in the, in the proverbial pot where, 659 00:32:46,739 --> 00:32:49,050 Speaker 2: you know, it continues to get hotter and hotter and 660 00:32:49,060 --> 00:32:52,760 Speaker 2: we continue to go further and further down this unsustainable 661 00:32:52,770 --> 00:32:57,010 Speaker 2: path until suddenly we realize that investors are 662 00:32:57,310 --> 00:33:00,050 Speaker 2: running away because they believe that this debt is no 663 00:33:00,060 --> 00:33:03,729 Speaker 2: longer sustainable and there's a somewhat lower chance that we're 664 00:33:03,739 --> 00:33:05,130 Speaker 2: going to be able to wrap our arms around it 665 00:33:05,140 --> 00:33:07,900 Speaker 2: in the future. And based on the behavior of policymakers 666 00:33:07,910 --> 00:33:12,329 Speaker 2: in recent years, that's not a unreasonable proposition that that 667 00:33:12,339 --> 00:33:14,199 Speaker 2: could happen soon. And it could be that one of 668 00:33:14,209 --> 00:33:18,079 Speaker 2: these unexpected events like natural disasters, like overseas conflicts or 669 00:33:18,089 --> 00:33:20,880 Speaker 2: something else pushes us over that edge. 670 00:33:21,339 --> 00:33:22,989 Speaker 2: That's why we need to get our hands around this 671 00:33:23,000 --> 00:33:25,839 Speaker 2: challenge and why we need policymakers in the new Congress 672 00:33:25,849 --> 00:33:28,280 Speaker 2: and the new administration to be taking it seriously. 673 00:33:29,280 --> 00:33:31,959 Speaker 1: Yeah, and sitting here at my person in Singapore, I 674 00:33:31,969 --> 00:33:35,439 Speaker 1: will be watching that very closely. Uh Shi Aus, thank 675 00:33:35,449 --> 00:33:37,140 Speaker 1: you so much for your time. And insights. 676 00:33:38,130 --> 00:33:39,780 Speaker 2: Thanks for having me time. I really appreciate it. 677 00:33:39,969 --> 00:33:42,020 Speaker 1: Great to have you and thanks to our listeners and 678 00:33:42,030 --> 00:33:44,449 Speaker 1: viewers as well. Uh Copy Time was produced by Ken 679 00:33:44,459 --> 00:33:47,810 Speaker 1: Delbridge at Sply Studios, Violet Lee and Daisy Sherman provided 680 00:33:47,819 --> 00:33:50,630 Speaker 1: additional assistance. It is for information only and does not 681 00:33:50,640 --> 00:33:54,219 Speaker 1: represent any trade recommendations. All 100 and 35 episodes of 682 00:33:54,229 --> 00:33:57,390 Speaker 1: the podcast are available on youtube and on all major 683 00:33:57,400 --> 00:34:01,569 Speaker 1: podcast platforms including Apple and Spotify. As for our research publications, 684 00:34:01,579 --> 00:34:03,229 Speaker 1: webinars and live streams, you can find them all by 685 00:34:03,239 --> 00:34:06,180 Speaker 1: Googling Devis Research Library. Have a great day.