In the News: Debt Ceiling Revisited

Nia And Aughie discuss the provisions of the debt ceiling agreement reached in June 2023. This is a follow up episode to a January 2023 episode. 

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Nia Rodgers: Hey, Aughie.
John Aughenbaugh: Good morning, Nia. How are you?
Nia Rodgers: I'm excellent. How are you?
John Aughenbaugh: Good.
Nia Rodgers: You know why I'm excellent?
John Aughenbaugh: Why is that?
Nia Rodgers: Because I'm living inside the movie.
John Aughenbaugh: In what movie or what movie script are you living in?
Nia Rodgers: I'm living inside Groundhog Day. For folks who are surprised that they're getting this episode, we had to record this because this isn't in the news follow-up to the news we did in January of this year. That in the news actually is quite long 42 minutes. Sorry about that. We got a little out of hand. That was the debt ceiling in the news. We have resolution because they said, and we reported in that episode that in June it would all come to a head. Of course, the government waited until the absolute last possible moment to solve this question.
John Aughenbaugh: It is Groundhog Day in so many ways. Because we've already talked about this like the running gag and the movie Groundhog Day.
Nia Rodgers: He wakes up with the same Cher song, I Got You Babe.
John Aughenbaugh: Sonny and Cher.
Nia Rodgers: At the same time every day, and the same events happen to him every day? The kid falls out of a tree and he almost gets run over and there's all these things that happen.
John Aughenbaugh: The radio clock beside his bed at this really quick bed and breakfast and Punxsutawney PA, clicks on. It's the same Sonny and Cher song, it's the same corny jokes from the same guys on the morning radio show.
Nia Rodgers: It goes off at 6:00 AM.
John Aughenbaugh: 6:00 AM. The number of times we've done podcast episodes where we're talking about how the United States federal government is pushing things to the last possible moment before they go ahead and get some resolution. Again and Nia you've actually heard me make this joke in my classes when you've come in, they go ahead and talk about research papers. I make the joke. Guys. Members of Congress, members of the White House have nothing on you all in regards to doing your assignments at the last possible moment.
Nia Rodgers: If you started more than a day in advance, you are ahead of the federal government. Not quite. But we talked about Janet Yellen saying, we're going to run out of money in June. Everybody
went, it seems terrible, we should solve that. Then everybody went, wait. What I said over my shoulder, a pterodactyl. Never mind, and they got distracted squirrel, and they got distracted and they stop paying attention. Then you got like veiled threats all the way through the spring. We're going to cut off Medicare, we're going to cut off a defense. Each side was making these-
John Aughenbaugh: The sky is falling.
Nia Rodgers: Far end predictions of what was going to be in this, what they would hold out for. I'm going to hold out for a personal shark for every person in the United States. That stupid stuff that they were saying all through the spring.
John Aughenbaugh: Then when, I think it was like in March, Secretary of the Treasury, Janet Yellen went ahead and said. The Department of Treasury is now going to have to prioritize paying the federal government's bills.
Nia Rodgers: Starting June 1st?
John Aughenbaugh: Yes. What have you guys been doing beforehand? Some things you do or do not prioritize. That was just like, well, that's just weird language.
Nia Rodgers: That is weird language. Like you got to hand it to her. I'm going to have to prioritize payment. What does that mean? Are there people we can say I'll get you next week. How does that work?
John Aughenbaugh: I really just like.
Nia Rodgers: I don't get to do that with my bills. My rent comes to I have if I don't pay it in the first five days of the month, they're would you like us to kick you out? There's no I'll get you next time.
John Aughenbaugh: The company that has my house mortgage doesn't go and say, hey, how you doing this month, Aughie on your income. Hey, would you like a couple of extra weeks? No. They want to know that
Nia Rodgers: I'm going to need that money, and I'm going to need it now. If I don't get it, I'm going to send a guy to your house with a baseball bat to extract it from you.
John Aughenbaugh: Because if there computer reaches out to my bank's computer and there isn't enough money. My phone, my email, all get blown up. But what was really interesting is and Nia to your point, they knew this was coming down. The Biden administration, and in particular, the House of Representatives controlled by the Republican Party. They knew this was coming down and they didn't hold any meetings until April.
Nia Rodgers: Did they hold meetings in April?
John Aughenbaugh: They had a couple brief meetings where they both basically walked away from the meetings concluding.
Nia Rodgers: That there'll be no solution,.
John Aughenbaugh: That there was no common ground,.
Nia Rodgers: Because that's how they always start.
John Aughenbaugh: Then they had a couple more in early May, and Biden was just like, well, I'm even willing to return from the G7 International Summit that is held every year if my negotiators, and they houses negotiators are close to a deal. I'm just like well, don't be calling your travel agent, Mr. President, because you won't need to become coming back.
Nia Rodgers: You did actually come back quite. I think he was rather more helpful than he probably should be.
John Aughenbaugh: But real fast for those of you who did not listen to the previous episode,.
Nia Rodgers: What it's a debt ceiling?
John Aughenbaugh: But, shame on you said tongue-in-cheek for not listening to that episode. The debt ceiling is basically, by law, the maximum amount of money that the United States can borrow by issuing bonds. Basically it's like saying, after you've spent a whole bunch of money, I won't spend anything more than that.
Nia Rodgers: It's a very teenager approach to your budgeting.
John Aughenbaugh: I will not incur any more debt after all of the debt, after I just went on vacation, just bought a new car and just went ahead and provided new appliances in my house and my mom's house. At that point in time, I will not incur any more debt.
Nia Rodgers: Which is silly. Are there any other countries that have a debt ceiling?
John Aughenbaugh: The only other country in the world that has a debt ceiling is Denmark. In Denmark, they don't have the pitched political battles. They basically just routinely go ahead and do it.
Nia Rodgers: Raise their debt ceiling.
John Aughenbaugh: I've read a series of articles. Politicians in Denmark view it as an accounting measure. It's like the one.
Nia Rodgers: Make them stop and slow down and think about how they're spending.
John Aughenbaugh: But then they go ahead and spend some more.
Nia Rodgers: It doesn't actually deter them, and it doesn't deter us,.
John Aughenbaugh: It's doesn't deter us.
Nia Rodgers: That's the limit that the treasury has to spend on the nations debts. When we get close to that, then we start saying we want to raise the debt ceiling, which is we want to extend that money to more. The government will have more money to spend on stuff.
John Aughenbaugh: The first time it was officially instituted was in 1917. It was a way for Congress to check the executive branch to make sure the executive branch was not exceeding the spending allowed in budget bills. It was designed as a check and balance. However, over time, it is ended up becoming this leverage point between the Congress and the president, particularly when they're not of the same political party. This is where we've run into this particular year. Because last fall the House of Representatives went from being controlled by the Democratic Party to being controlled by the Republican. Whereas the Office of President, Joe Biden is a Democrat. The Republicans viewed it as a leverage point. Because without reauthorizing the debt ceiling effectively by law, the United States federal government cannot borrow anymore money.
Nia Rodgers: It defaults on its loans because it can't afford to pay for them.
John Aughenbaugh: That's right.
Nia Rodgers: Which Aughie explained in the last episode. I'm going to encourage you to listen to it. What happens when the US government defaults on its loans is basically, and the world collapses like a fun and a cupboard. Like if the US government actually did default because of globalization, the entire world economy would fall apart. People say, what about China? What about the yuan? What about different currencies? What about the EU and the Euro?
Nia Rodgers: The trading level done in the United States dollar is a nominal amount of the world's.
John Aughenbaugh: Economy.
Nia Rodgers: Economy.
John Aughenbaugh: The US dollar
Nia Rodgers: If it's unstable.
John Aughenbaugh: Yes.
Nia Rodgers: Then the markets completely fall apart in places, but it's the butterfly effect. If our currency goes unstable, every country in the world is affected by that.
John Aughenbaugh: It's not only just the currency Nia, it's also the fact that if you don't raise the debt ceiling and the United States has to default on paying its bills, then the US government then has to make decisions on which bills it will pay and which ones it won't.
Nia Rodgers: That's what Yellen is talking about, when she talks about prioritizing.
John Aughenbaugh: That's right. Because at that point in time, the United States federal government spending generates a significant percentage of the United States productivity. It's measured, gross
domestic product. If the United States federal government is not paying some of its bills, that means there are Americans who are not receiving money. Which means if they're not receiving money.
Nia Rodgers: They're not spending money.
John Aughenbaugh: They're not spending money. Which means the productivity in the United States plummets.
Nia Rodgers: Because you don't pay your contractors, they stop working. They don't make any money. They can't buy groceries, pay their mortgage, pay their car payment, whatever it is. When that is happening, so then the grocery company lays people off. The car company lays people off. The mortgage company goes under, all these things, it's a ripple effect.
John Aughenbaugh: Yeah, it's a ripple effect. Going into this particular debt ceiling crisis, you had credit analysis firms like Moody's, predict that even just a four month default, would mean a reduction of 4% of the US GDP. Stock prices would fall, because investors would lose confidence. Again, the stock market is a confidence if you will gain.
Nia Rodgers: Oh, yes, it's a con game.
John Aughenbaugh: Yeah, It's a con game. It's about confidence. Much of capitalist economies are about confidence.
Nia Rodgers: It's built on that.
John Aughenbaugh: Because if you were a wealthy person and you do have money to invest. But you think the economy is going to go into the tank, why would you invest the money into corporations? If you were a middle-class American and you think that you may lose your job, are you going to go out and buy a new house or a new car? No.
Nia Rodgers: No.
John Aughenbaugh: You stop spending money. Then we get into the ripple effects that Nia you just described. People aren't going to concerts. People aren't buying clothes. People are cutting back on what they spent at the grocery store. They make hard decisions about what drugs that they get at the drugstore. They hold off on going to the doctor because there's a copay and I can't afford the copay. All of a sudden you have these huge ripple effects in the economy. Here's the thing. When the American economy starts slowing, it then impacts the world. Because the US economy's primary role in the global economy is Americans consume.
Nia Rodgers: If we stop consuming, then the rest of the world has no place to place those goods. Then they have goods, but no money coming in.
John Aughenbaugh: Yes.
Nia Rodgers: Which means then their economies slow down because there's not enough flow, because part of what economy depends on is exchange of money, right?
John Aughenbaugh: Yes.
Nia Rodgers: In fact, that's actually the real definition of economy; is the flow of money.
John Aughenbaugh: Yeah, because I'm willing to go ahead and use my hard earned money.
Nia Rodgers: To buy that thing.
John Aughenbaugh: That you went ahead and spent a whole bunch of time making. That's the basic economic transaction. But it's even more than this Nia. The United States debt is provided for by people, institutions, and governments buying our debt.
Nia Rodgers: They feel it's a safe investment. The reason they feel it's a safe investment for people, this is super basic. Oh my gosh, sorry, economists who may be listening to this and you start wailing. The thing about buying a bond. The reason that you buy a treasury bond is that because it's a guaranteed interests payment to you. You say to the government, I will loan you this $10, and the government says, well thank you very much, I will give you back $11 when this bond comes due.
John Aughenbaugh: Yes.
Nia Rodgers: Yes, you're not making a huge margin, but you're making a guaranteed margin, so long as there is a United States government, as long as we continue to exist as a nation.
John Aughenbaugh: Particularly because it was the United States government that never defaulted.
Nia Rodgers: We are seen as a safe investment. You may not need huge amount, but you'll get $1 off of that 10.
John Aughenbaugh: That's why most people's retirement funds.
Nia Rodgers: Is in treasury bonds.
Nia Rodgers: Yes.
Nia Rodgers: You move out of stocks.
John Aughenbaugh: When you want safer return.
Nia Rodgers: Because when you're young, you're like venture capital. I'll buy that stock and if it goes down, I'll just put in more money later. You live a little wilder. You get to your mid 50s and you start going, I want treasury bonds and I want only blue-chip companies that are never going to go under, and none of that makes a huge amount of money, but it's safe.
John Aughenbaugh: It's safe.
Nia Rodgers: What we're talking about here is bringing that safety into question.
John Aughenbaugh: Yes.
Nia Rodgers: When you do this brinkmanship thing.
John Aughenbaugh: This goes back to confidence. In the given example of why the predictions of June of this year were so dire, was that the last time the United States Congress and the President got close to defaulting on the nation's debt ceiling, was in 2011. Once again, it was a House of Representatives controlled by the Republicans. Again, this is another feature of the Groundhog Day. A Democratic president at that time, it was Barack Obama.
John Aughenbaugh: The fact that they got close to the debt ceiling expiring and thus a default lead to stock market or stock prices plunging, huge volatility within the government securities market. The United States credit rating for the first time in our country's history. In our country's history, folks at that point, it was 220 plus years. Our credit rating was reduced, which meant that the federal government would have to pay more money to borrow money because our credit cost more.
Nia Rodgers: They didn't trust us that we were going to pay it back. That's why if you are a person with what they call no credit. You're just out of college and you don't have a history of having credit. When you go to buy a car is going to cost you more to borrow that money than it would Aughie, who has a long history of showing that he pays debts on time, that he's good for the money basically. He is shown over time and he's good for the money so he gets a significantly lower car interest rate than you would get as a college student fresh out of college with no credit history. Which by the way is to trap of how they get college students to get credit cards. Is they say, you're going to build your credit history. Don't do it. Don't put anything on their credit card when you're in college. But anyway, that's a whole side issue. That cost difference. If you're talking about half a percent on a billion dollars.
John Aughenbaugh: Or a trillion, or in the case that the United States federal government.
Nia Rodgers: The one trillion.
John Aughenbaugh: Yes.. At the time of recording this podcast most estimates of the United States accumulated debt is well over $31 trillion.
Nia Rodgers: That starts to add up to be real money. That half a point interest rate or that corner point interest rate. Once you start spending in the trillions that actually adds to the debt in a really terrifying way.
John Aughenbaugh: Here's one more cost of the brinksmanship before we move into the realm of the political. What actually happened to avert the debt ceiling crisis. Here's the other thing. Again, I'm going to go back to confidence. We saw this in 2011, because the federal government gets so close to defaulting it had a huge impact on consumer confidence and small business confidence. Now some of you all might be like so what's the big deal? When consumers are not confident they don't make large expenditures.
Nia Rodgers: We'll put off buying that washing machine until next year. We'll put that new car until next year. Let's not go on vacation this year. Let's just stash the money. I'm not sure how things are going to go.
John Aughenbaugh: That's right. That means they are not spending money. This goes back to Nia, what you said a few moments go. That's that basic economic transaction. I'm not willing to go ahead and spend my hard-earned money on other goods and services which would generate economic, if you will, activity in the market. That's that ripple. Because when we stop spending money, then the ripple stops. That was really problematic in 2011 because that was two, two-and-a-half years removed from the Great Recession.
Nia Rodgers: Still recovering.
John Aughenbaugh: Still recovering. Here's where it would have had a huge impact in today's economy. The United States, like many Western democracies, has been dealing with inflationary pressures for the last year-and-a-half to two years. In the big question is government's efforts to reign in inflation could lead to a recession. Well, you would almost guarantee a recession if the United States federal government defaulted on its debt, because when you shave off 4 or 5% of the nation's productivity in a short period of time, it's going to lead to a recession.
Nia Rodgers: I would argue that it's not almost, it will lead to a recession. You are being generous there at the beginning of your statement because I don't know how else that could end. Well, it could end in a wild depression that drags down the entire rest of the world. But the best we could have four would be a recession.
John Aughenbaugh: Because Nia and I, listeners have talked off recording a number of times. Nia is of the opinion that the reaction to the inflation will most assuredly lead to a recession. I'm not entirely sure it will only because we still end up getting these odd economic measures. At the time that we are recording, it's a couple of days after the labor departments may employment figures and the United States still added well over 300,000 new jobs which is just bizarre when you have the Federal Reserve Board in a protracted campaign to raise interest rates to slow down economic activity. But we're still hiring people, which means we got to typically raise labor costs. We've got a raise, if you will, salaries because we're in competition for jobs.
Nia Rodgers: Except that I'm not sure that's happening. Because I think that there's some real questions. Because we're in a new economy right now. This post COVID economy, I think has different economic drivers, maybe slightly different economic drivers. A lot of our new jobs are in service, services and always the best paid industries. But you're right that you and I are going to have to have that discussion over the next year, garage or fight it out a little bit amongst ourselves of what this means in the long term.
John Aughenbaugh: But Nia, that conversation actually replicates what's actually going on in government in the United States, but around the world.
Nia Rodgers: Everybody is going. This is really weird. Economies, you shouldn't do this. Pains somewhere is rolling over in his grave just spinning.
John Aughenbaugh: Because the normal cycle is what you described Nia. The normal cycle is when you have protracted prolonged inflation, governments react, some would say overreact and then that leads to a slight recession and then you eventually get to equilibrium But. We know that there wouldn't be an equilibrium if the US Federal Government had defaulted. There's no way of getting around it. You don't have that retraction or retrenchment if you will and not get a recession. Next question.
Nia Rodgers: The political aspects of the debt ceiling.
John Aughenbaugh: Yes.
Nia Rodgers: You mentioned something to me awhile back and we're going to do a whole separate episode on this about how the government uses money to get what it want.
John Aughenbaugh: To incentivize the levies.
Nia Rodgers: Thank you. Incentivize is the word I was looking for. I was going to say blackmail, but that's not quite. Although one could argue that from either direction. But incentivizing behavior is part of what the government does with money. Just in general. The reason there are gasoline taxes is to curb people just driving endlessly all over the place. It's to help you think about, do you really want to drive for hours and hours and hours on end. The answer to teenage boys and girls who want to do what we used to call,
Nia Rodgers: Cruising.
John Aughenbaugh: Yeah.
Nia Rodgers: We're cruising on a Friday and Saturday night.
John Aughenbaugh: Is when you just drive up and down uselessly. Well, one of the reasons that you have a car tax is to prevent that because then it then it helps cut down on emissions and blah, blah, blah. Does all these other things that the government wants to have happen. That's why you get incentivizing behaviors. I think you get posturing.
John Aughenbaugh: Oh, yes.
Nia Rodgers: Let me take that back. I believe that the people who were sitting in the White House on this past week who were totally stressed out about this, I believe they were serious. I don t think they walked in there saying, I want an elephant and I want to be six inch taller. All these ridiculous things they weren't going to get, I don't think they were doing that at this point.
John Aughenbaugh: No.
Nia Rodgers: But but when we talk about what happened in the spring, I think a lot of what we're talking about there is posturing.
John Aughenbaugh: Because you got to play to your basis. If you're an elected official, you know that your core supporters are going to want you to say certain things because those are their policy preferences.
Nia Rodgers: How do we get past the posturing? Wait first of all, I happen to know that in this bill, we've scheduled the next debt ceiling fight for 2025.
John Aughenbaugh: Correct?
Nia Rodgers: Which is great. You got to get down on people's calendars. You don't want them to be laid, you don't want them to miss it. It's like going to a concert from your favorite artists. You want to make sure everybody shows up. That by the way is me being completely sarcastic. I don t think you should plan to have a debt ceiling fight, but we know that's what we're going to have in 2025. How can we stop doing this? What tools are there? What ways are there that we can stop doing?
John Aughenbaugh: Well you can say Aughie fix it or you could get rid of the debt ceiling. The debt ceiling is not required by the US Constitution.
Nia Rodgers: Really? We can just say we don't have that, so we spend whatever we want to spend.
John Aughenbaugh: Yeah, we could.
Nia Rodgers: Well, that seems in some ways awesome and in some ways completely dangerous.
John Aughenbaugh: unfortunately, I don't see there being an incentive for either Well particularly right now the Republican Party, but in the past the Democratic Party use the debt ceiling as leverage to get what they want in regards to the federal government's budget.
Nia Rodgers: We shouldn't be honest for everybody who's listening. This was both to everybody.
John Aughenbaugh: Yeah.
Nia Rodgers: Whenever this has been divided, government in this question has come up since it first started. It's been partisan. Both sides have done this because the democrats did this to Reagan, didn't they?
John Aughenbaugh: The Democrats did to Reagan and it's also institutional. Remember when it was created in 1917, it was because Congress didn't trust the President.
Nia Rodgers: I mean coming on the heels of the Great Depression, they had reason. Wait. No, you said 1917.
John Aughenbaugh: In '17.
Nia Rodgers: My bad, wrong year.
John Aughenbaugh: But this was the era where the progressives were saying if you wanted to get better government. You would take the budgeting process out of the hands of legislative bodies and give it to executive branch bodies.
Nia Rodgers: Which only works out if the President is not, a proflicate spender.
John Aughenbaugh: Yeah, but if the Congress is controlled by the opposition party. I hate to be so cynical, but if you have divided government I think it's almost natural for the Congress controlled by the opposition party to go ahead and say, do we really trust that president? Our system is predicated on that lack of trust.
Nia Rodgers: On not trusting. On castings suspicious eye on the other party.
John Aughenbaugh: Yes.
Nia Rodgers: Do you remember the other party?
John Aughenbaugh: That at least is what James Madison said in Federalist Paper number 51.
Nia Rodgers: Even when people say we could get rid of the debt ceiling, they don't really mean that. They mean we could get rid of the debt ceiling while my guy is in the office.
John Aughenbaugh: Yes.
Nia Rodgers: But then we're going to need that debt ceiling when your guys is in the office, because I'm not feeling it.
John Aughenbaugh: Yeah.
Nia Rodgers: That's what they mean.
John Aughenbaugh: Yes.
Nia Rodgers: That's not a legitimate. What else can we do?
John Aughenbaugh: Again, this would force in this prevalence people who are unrealistic. We could have serious discussions in the Congress and between the Congress and the White House about spending because we have some structural problems currently in the United States federal government's budget.
Nia Rodgers: Oh my gosh. Can we just talk briefly just for just a second about the budget? The budget in the United States is like,what do you mean? I don't have money. They're still checks in my checkbook.
John Aughenbaugh: Yes.
Nia Rodgers: As long as I have this credit card I can spend. No. That is not how it works. I can see having serious discussions about reform. If we had a bunch of moderates.
John Aughenbaugh: Yes.
Nia Rodgers: But the way we are now both edges of the parties would rather chew through rotten word than have an honest discussion about.
John Aughenbaugh: Outspending priorities..
Nia Rodgers: Spending.
John Aughenbaugh: Yeah, Because off recording as listeners as Nia and I were discussing what we wanted to cover with this podcast episode. Nia, you and I discussed two examples from the two wings of
the political parties represented by members of Congress. How AOC, a Democratic member in the House of Representatives, hated the deal that lead to averting the debt ceiling default.
John Aughenbaugh: Then on the Republican side, Lindsey Graham also hated it. AOC hated it because there were elements to the debt ceiling deal where there's going to be work requirements for Safety Net Programmes. She hated that. On the other hand, Lindsey Graham absolutely hated the fact that future spending is kept over the next two years and that includes the Department of Defense.
Nia Rodgers: Right. Which he's a big hawk.
John Aughenbaugh: Yes. Huge hawk. He would like to see the Biden administration give even more money, more weapons to the Ukrainians in fighting the war against the Russians.
Nia Rodgers: Sorry. For listeners who don't know AOC, Alexandria Ocasio-Cortez.
John Aughenbaugh: I apologize.
Nia Rodgers: We just call her AOC because that's what everybody calls her and it's cool. But we don't want to not recognize her full name.
John Aughenbaugh: That's right. I apologize for not doing so. But we need to have serious discussions. That's on the spending side. You know the fact that we have the world's largest defense budget of any country, we have, even according to supporters of these programs, uncontrolled entitlement program spending.
Nia Rodgers: Right. As was noted during COVID when we had millions of dollars that just went missing.
John Aughenbaugh: Yes.
Nia Rodgers: The states were like, uh. That is not an acceptable answer to millions of dollars have gone missing.
John Aughenbaugh: Particularly because the definition of entitlement program is you need to determine who is entitled.
Nia Rodgers: If you have no measures for that and you're not enforcing those measures.
John Aughenbaugh: Then you are going to lose money.
Nia Rodgers: Right. You're going to lose to fraud, and just to poor mismanagement.
John Aughenbaugh: That's right. Then you've got the infamous pork barrel spending.
Nia Rodgers: Well, and can I just say this bill has a little lovely piece of pork barrel in it which is the expedited permitting of oil and gas projects?
John Aughenbaugh: Yes.
Nia Rodgers: Senator Manchin, I'm looking at you because that was put in there just to get his vote.
John Aughenbaugh: I think. Well, interestingly enough, you had both Liberals and Conservatives who wanted this because Liberals want it for not only oil and gas projects but for future solar projects because environmentalists have begun to make the same complaint that fossil fuel advocates had been making for years, which is that.
Nia Rodgers: We can't get anything built to the permitting process, is too hard.
John Aughenbaugh: The process is, yes, too time-consuming. But on the revenue side, if we were really truly interested in addressing future United States debt, you need to go ahead and look at the United States tax code, which has not been significantly reformed since the 1980s during the Reagan administration significantly.
Nia Rodgers: There's got to be a way to simplify the tax.
John Aughenbaugh: That was a joint effort between the Reagan administration and Democratic Senator Bill Bradley from New Jersey. But that's the 1980s. The United States economy has changed significantly since the 1980s.
Nia Rodgers: In forty years, exactly.
John Aughenbaugh: If you really wanted to go ahead as you pointed out, one of the best reforms would be to simplify the tax code. When you simplify the tax code, you have to get rid of exceptions, subsidies, removal of tax breaks.
Nia Rodgers: For everybody for everything which people are like, I want that for big corporations. Yeah, but that also includes your mortgage payments and your child payments. It includes all of that stuff.
John Aughenbaugh: Student loan repayment.
Nia Rodgers: Exactly. All of that has to be revisited if you want to simplify the tax code. Part of why we don't simplify the tax code is because one of the biggest lobbying groups in Washington is the tax preparer.
John Aughenbaugh: Oh my goodness.
Nia Rodgers: Lobbying groups; H&R Block and all those other. Not just them. I'm not singling them. They're just the only one I can name right now. But tax form USA. All those companies are like no we don't want you to change the tax code because they don't want it to be simple, that you could do it on your own. You need a preparer for that.
John Aughenbaugh: Because if it's complicated, that means most of us will go to an expert to go in and get it done, which means they are guaranteed employment. Well, you know if you simplify the tax code and many of us can just go ahead and do it ourselves, well, we don't need any tax attorney account. Any of those firms that you mentioned, we don't need any of that.
Nia Rodgers: It would be way more transparent if it were simpler.
John Aughenbaugh: More transparent, but also we lose, according to economists billions of dollars every year from the Treasury simply because of all these tax breaks. Again, you mentioned this a few moments ago, Nia, we use these tax breaks to incentivize behavior. We want people to go to college. If you take out a student loan, when you have to repay the loan, you get to claim the interest on your loan as a deduction on your taxes. We want people to buy houses. You took out a mortgage. Well, guess what you get to deduct from your taxes? The interest on your loan. We want you to go ahead and install solar panels on your house. Well, guess what you get to go ahead and deduct? Some of those costs.
Nia Rodgers: Or electrical vehicles world. We want you to have children.
John Aughenbaugh: Yes. What about all those Americans who decide not to have kids? Well, they don't get a tax frame.
Nia Rodgers: You got for them.
John Aughenbaugh: You're SOL. I'm not talking about Standards of Learning either listeners. But we want businesses to go ahead and expand their workforce. We will give you a tax credit if you do so. We want small businesses to operate in poor areas; whether poor rural or poor urban areas. Well, we will give you interest-free loans to do this.
Nia Rodgers: All of that costs money.
John Aughenbaugh: Costs money.
Nia Rodgers: It costs money by not getting money.
John Aughenbaugh: Yes.
Nia Rodgers: It's not money that's coming into the federal government. If everybody just straight up paid exactly what they owed for all of this stuff, probably in five years we'd have all our debt paid off.
John Aughenbaugh: Or we would have a significant amount. At least we'll be able to balance the budget on a yearly basis.
Nia Rodgers: But people don't like that because they perceive that the other guy is getting breaks they're not getting.
John Aughenbaugh: Yes. Politicians don't like some of these reform measures because it would hurt some of their constituents. Real fast for those of you who don't want to read the 99 pages of the debt ceiling bill that President Biden signed in the office.
Nia Rodgers: We shall put to you that not a whole lot of members who voted for it is credit either. Side note, house vote was 314-117.
John Aughenbaugh: It was bipartisan.
Nia Rodgers: Which is interesting to me, and we'll talk about this another time, that Speaker McCarthy could not get every single Republican onboard. He's not in the best position as speaker and then the Senate vote was 63-36. If you're doing the math, Senator Feinstein is the missing vote.
John Aughenbaugh: Yes.
Nia Rodgers: The 99 and then she's the 100th. She's the missing vote.
John Aughenbaugh: But it was bipartisan.
Nia Rodgers: But it was also bipartisan.
John Aughenbaugh: Yeah, and pretty much those on the extremes for both political parties voted against it.
Nia Rodgers: Everybody else was like quick fix it.
John Aughenbaugh: Yes.
Nia Rodgers: We'll have this fight again in two years. See you in two years bye.
John Aughenbaugh: Nia, you already mentioned the debt ceiling has been reauthorized for two more years. Yes, 2025 was done consciously because that avoids the presidential election year of 2024, and it also avoids the next midterm election year of 2026. You can say what.
Nia Rodgers: We need something to find about in the middle.
John Aughenbaugh: You can say what you want about.
Nia Rodgers: This is like planning out pay for TV.
John Aughenbaugh: Elected officials get criticized sometimes rightfully as not being all that smart. But this was rather conscious on their part, and I think it's rather smart on their part because you don't want a debt ceiling crisis in an election year. You just don't.
Nia Rodgers: That just more drama then we can put up with.
John Aughenbaugh: Yes. Nia, you already mentioned future spending is capped for the next two years. It's temporary, but I mean, for those who actually like the federal government to be a little bit more conscious about how much it spends. This was something that McCarthy push for. It did not go as far as the Freedom Caucus of the Republican Party. The Freedom Caucus wanted particular spending cuts.
Nia Rodgers: They wanted reductions, and this is basically a stays at the 2022 level.
John Aughenbaugh: That's right. We already talked about the expedited permitting for oil and gas projects, but also for all energy.
Nia Rodgers: Projects.
John Aughenbaugh: Projects. The big one, this one really upset the progressives in the Democratic Party.
Nia Rodgers: But I have something to say about this after you say it.
John Aughenbaugh: Work requirements for safety net programs. There were exceptions made for homeless veterans in recent foster care youth programs.
Nia Rodgers: Those exceptions are brand-new?
John Aughenbaugh: Yes.
Nia Rodgers: They are very exciting to those folks of us who worry about community.
John Aughenbaugh: Yes.
Nia Rodgers: In the sense of the idea that you're homeless but you have a work requirement would be terrible. Like how on Earth would you make that work? We have long in this country had problems with foster care youth. You're 18, get out. Like that's terrible thing to do to somebody.
John Aughenbaugh: Yeah. You're going to condition continued aid for a recent foster child on work. Likewise with veterans who are transitioning back to civilian life.
Nia Rodgers: Who may suffer from a variety of illnesses inflicted upon them during the defense of their country? No. Thank you. I'm glad to see those exceptions, and I think that it makes that a pill that is easier to swallow.
John Aughenbaugh: Swallow. Yeah.
Nia Rodgers: Into my mind.
John Aughenbaugh: The bill also reduced $20 billion of new enforcement money for the IRS. For those of you who don't know last year in President Biden's, if you will, signature.
Nia Rodgers: Infrastructure.
John Aughenbaugh: Signature infrastructure bill.
Nia Rodgers: Thank you.
John Aughenbaugh: He convinced the Congress to give it was what, nearly $80 billion in new enforcement money. The thought was, this would pay for itself because the IRS would be able to go ahead and target all of those Americans who consciously cheat the treasury out of income tax. Republicans were concerned, and initial reports indicated that the IRS was struggling to come up with an enforcement scheme that only targeted wealthy Americans. The concern was that many lower and middle-class Americans would also be targeted for audits. Which would seemingly run counter to what the Biden administration said was the purpose of all this enforcement money. I think these guys are
playing to the masses. The reality is the IRS for decades has needed in an infusion of money to go ahead and upgrade their systems, and to hire more agents. Now, the downside, and this is something that I actually agree with the Republicans. We need to see potential rules or regulations coming from the IRS that are transparent about who will be the target of the audits of the investigations.
Nia Rodgers: I agree with that, but I'm cynical enough to say that one of the reasons Republicans oppose it is because wealthy Americans tend to be Republican.
John Aughenbaugh: Well, that's actually somewhat changing. But we talked about that previous with the United States census.
Nia Rodgers: Which we will and I'm sure discuss yet another time before we're 40 as we make this podcast. There's some self-servingness to it as well.
John Aughenbaugh: Sure. There's a changing demographic going on with both political parties, which I think both political parties are of struggling with. There's a few more items and you and I both agree that this next one was really good. The return of close to $28 billion of either unused or unaccounted for COVID monies?
Nia Rodgers: Yeah. I'm actually surprised that it's not more than that.
John Aughenbaugh: Oh, yeah. I think that's the low-end estimate.
Nia Rodgers: I think that's a low-end estimate too, and I think that part of that was the federal government took a huge part of the money and threw it at the states and said good things, and the states had no infrastructure for doing that. There's poor transparency, things got spent in really stupid weird ways.
John Aughenbaugh: Heterodimer, the federal government didn't have the capacity to manage this because once your money got allocated to businesses, individuals, and corporations. In some cases there was just outright fraud, but in other cases, you actually had people make mistakes.
Nia Rodgers: Whether they were supposed to get their money whether they were supposed to spend it. I'm all about the claw back on that. I'm all about this yes, take back that money because if there's any money left, let's pull it back. Clearly it wasn't needed and let's see if we can find fraud and figure that out as well. People who took PPE money and didn't pay their staff, all of that new Corvette you bought in 2021? No, thank you.
John Aughenbaugh: You're supposed to use the money to keep your business open, but you actually reduced hours. How's that work?
Nia Rodgers: Yeah, I know. We try not to be super political on this podcast, but I personally would like to see some of that money returned to the government and taken off the debt.
John Aughenbaugh: You mentioned something just real briefly in your description there, Nia. Let's see if we can learn some lessons so that when we have a future public health crisis and we're attempting to throw money at the problem, which is part of what we did with COVID-19, can we actually learn on how we can do it more effectively and more economically?
Nia Rodgers: The only thing that they did leave in place that I appreciate was they did leave in place money for the CDC to continue to research the expedition of vaccines for future issues. Which is a good thing because this is probably not the only pandemic we're going to have. As the world gets more and more full of people and they cough on each other or exchange bodily fluids or whatever you then we're going to have more pandemic.
John Aughenbaugh: As our previous podcast guests and friend Dr. Judy, Twitter just pointed out. As human beings begin to move into and populate areas that were previously only occupied by animals.
Nia Rodgers: Who knows what's going to happen?
John Aughenbaugh: We don't know. There are two other items we would be remiss if we did not mention.
Nia Rodgers: One of them we already covered the defense spending caps that Lindsey Graham just loves. Boy, I said that completely sarcastically. Basically he stopped just setting himself on fire. But it was a near thing. He was so upset because defense spending cap for this year is three percent. It can only go up three percent and next year it can only go up one percent. One percent, what will the military do? Oh my goodness, we're only the largest military on the planet by about a factor of 40, but okay and now I am being sarcastic.
John Aughenbaugh: Again, I'm not a national security expert, but some of the hawks in the United States Congress.
Nia Rodgers: They act like other people are super armed. I'm like, what are you?
John Aughenbaugh: Well, in some of their arguments. A couple of them actually gave press conferences, where they went ahead and said. Well, if I was another country and I was going to attack the United States, I would want to do so in the next two years because we just announced that we've put spending caps on the Department of Defense. I'm like, you're talking about the nation that has the largest defense budget in the world.
Nia Rodgers: Larger than the next, at least five or six countries combined.
John Aughenbaugh: Combined. If you're going to make your decision on attacking the United States.
Nia Rodgers: Based on our defense spending.
John Aughenbaugh: On our defense spending.
Nia Rodgers: I'm not too worried about our ability to be.
John Aughenbaugh: I'm just going to [inaudible]
Nia Rodgers: Your logic and reasoning are not good. I like our chances. I'm like, Lindsey, do you think Canada's coming over the border? How do you think this is? I don't know. It is interesting to me when
the hawks gets so hawkish that even other hawks are he's gone a little too far. All the other hawks were looking at Lindsey Graham and going, man calm down, it's not that bad.
John Aughenbaugh: How many multiple threat scenarios are we supposed to be prepared for here?
Nia Rodgers: Exactly. We'd like a war on 74 fronts, please. We're not going to do that because diplomacy.
John Aughenbaugh: Because otherwise why in the heck have a budget for the State Department if we can't talk ourselves out of some of these problems.
Nia Rodgers: Sadly.
John Aughenbaugh: The last one I want to mention, and this is near and dear to both Nia and I. One because of our own personal experiences, but also because we both work at a university with a very high percentage of our students that we interact with that have this. Student loan payments must resume when this bill gets signed.
Nia Rodgers: Not 60 days or 90. They'll start in September?
John Aughenbaugh: Yeah, they will start in September.
Nia Rodgers: If you're listener and you have student loans, you should start preparing for that.
John Aughenbaugh: Yes. If your payments were suspended because of COVID-19.
Nia Rodgers: It will resume in September.
John Aughenbaugh: They will resume in September.
Nia Rodgers: Even if the Supreme Court by some, what I would think at this point would be, miraculous decision decides to allow the debt forgiveness to go forward, what is not covered under the debt forgiveness will still be owed.
John Aughenbaugh: Yes.
Nia Rodgers: It doesn't just wipe out people's lungs completely. Don't fall into that mistake in thinking. If you owe money, you are going to have to start paying it back in September.
John Aughenbaugh: September. Yes. Budget accordingly.
Nia Rodgers: Or seek deferment if you are in a situation where you can't talk to your lender. That's the thing people don't do. I just didn't mention that the mortgage company that I couldn't pay the mortgage for three months, if you had just talked to the mortgage company, they could have worked something out with you, but now you're homeless. Same thing with your student loan. This little PSA here at the end of this episode. If you have a student loan lender and you are strapped, or struggling because you're still struggling to get back on your feet from COVID or whatever, then you need to talk to your lender and see if there's any way that they can extend or give you a deferment or something.
John Aughenbaugh: Reduce the size of your payment because let's face it most holders of loans don't want to see you default because in the default, they don't see any repayment.
Nia Rodgers: Something is better than nothing.
John Aughenbaugh: Yes.
Nia Rodgers: If your payment is $200 a month and you can give them 50. That's 50 more than they're going to get if you don't give them anything.
John Aughenbaugh: Anything. That's right. But again folks, it's 99 pages. Once the bill is signed into law and depending on when this episode gets posted, we'll probably have in the research guide, a link to the bill. Again guys, it's pretty fascinating reading even if you're not a policy junkie because some of this stuff as I was reading it, I was like, this is not getting covered in the news. Nia you mentioned earlier in the podcast episode. I'm not entirely sure all the members of Congress who voted on this call are all aware of some of the details.
Nia Rodgers: If I were writing bills these days I would stick stuff in the middle just random sentences where I would say, and space unicorns will dance through the halls of Congress. Then I would just keep writing the normal bill as it were and then see if anybody caught it. Now, I say that, but there are poor interns all over Capitol Hill.
John Aughenbaugh: Oh good Lord.
Nia Rodgers: All over the news agencies that had to read over this thing and highlight and make notes and give it to their boss, to give it to another person just to write script. There are people out there who have fully read this, and for them we say, God bless you.
John Aughenbaugh: We're sorry.
Nia Rodgers: Thank you for your service.
John Aughenbaugh: Thank you for your service and as somebody who did that one summer when I had an internship with a United States senator.
Nia Rodgers: Bless your heart in the good way.
John Aughenbaugh: I feel your pain. I'm not being condescending when I was used by a former president. Seriously, I feel your pain. But anyways, Nia.
Nia Rodgers: Folks sorry. Went a little long this time, but we had a lot to say about this in the news thing that's going on. I guess then we'll just hold our counsel until 25 and then we'll have this discussion all over again.
John Aughenbaugh: We'll probably start that particular podcast episode with some of our favorite dialog quotes from the movie Groundhog Day. Because listeners if you didn't pick up on this, both Nia and I are huge fans of that movie. It doesn't have a lot to say about politics, though we could probably
make almost any movie about politics but it is a fan favorite and for listeners I actually grew up 15 minutes outside of Punxsutawney.
Nia Rodgers: Did you ever see Phil?
Nia Rodgers: Yes. We had to do school trips, field trips. How about this? Having to wake up at six o’clock in the morning.
Nia Rodgers: Oh, that February.
John Aughenbaugh: In North Central parts.
Nia Rodgers: It's dark and you're like I don't care.
John Aughenbaugh: Care about that Groundhog. Teachers are like, oh, you're going to have a really good time and we're like no, we're not.
Nia Rodgers: Because for Gen Xers we're absolutely.
John Aughenbaugh: I don't care.
Nia Rodgers: That's a great thing for us to end on Aughie. That ceiling thing it's like getting up at six in the morning in the dark, in the cold to go out and see if a groundhog.
John Aughenbaugh: It's a shadow. You're like first of all, could I not just find out about this-
Nia Rodgers: Later.
John Aughenbaugh: A little later when I had an opportunity to stay in my bed where it was nice and warm.
Nia Rodgers: Oh my goodness, and I love that because the parallel there is I was saying, just tell us how it ends when you all figure it out. Oh, my goodness. Thank you Aughie.
John Aughenbaugh: Bye Nia