Rep. Phillips hosts conversation on federal fiscal responsibility
It was standing room only at Minnetonka High School as Dean Phillips, the U.S. representative for Minnesota’s Third Congressional District, hosted a community conversation focused on federal fiscal responsibility.
“We’re here tonight because we have a $23 trillion dollar national debt. … I am so glad that you are all here tonight, but we have got to inject this issue into the national discourse and do something about it,” Phillips said at the top of his presentation Dec. 16 in the school’s forum room.
Phillips first provided a breakdown of where the federal government spent most of its money for 2019.
According to the Congressional Budget Office, 47% ($2.09 billion) of the budget was spent on mandatory items such as Social Security benefits, Medicare and Medicaid. Around 30% of the budget was for discretionary spending, with around half ($654 billion) going toward defense. Close to 10% ($423 billion) of the budget went toward interest on the debt.
The government received around half ($1.72 trillion) of its revenue from individual taxes, with another $1.24 trillion in payroll taxes and $230 billion in corporate income taxes.
According to the Congressional Budget Office, fiscal year 2019 spending exceeded $4.4 trillion with revenue at nearly $3.5 trillion, meaning the budget deficit totaled $984 billion, which is $205 billion more than the shortfall recorded in 2018.
“So, why are we facing this? A lot of it is simply because of legislation passed just in the last couple years,” Phillips said, noting that absent the recent legislation, the budget deficit for 2019 would have been around $360 billion. “The 2017 tax bill, as you all know – no matter what position or perspective you have on it – is going to add about $1.3 trillion to our deficit.”
The congressman said potential consequences of the rising debt include a crowding out of private sector investment, which could lead to slower economic growth and slower wage growth. He said higher government interest payments could displace other priority spending and investments. A higher debt could also limit the resources available for education, infrastructure and support for low-income families and limit the government’s ability to react to wars, recessions or other national needs or emergencies.
“There will be a fiscal crisis if changes aren’t made, and we won’t be the determinants. Bigger national investors – when they decide that the United States of America is no longer the safest places to deploy capital – they will make the determination when our time has come, and by that time, I’m afraid, it will be too late,” Phillips said.
The congressman said in order to get back to the 50-year average for the national debt compared to GDP, the government would have to either increase revenue by 16% or decrease spending by 15% every year until 2049.
“So, in 2020, the year ahead, that would amount to a deficit reduction of $630 billion. And I can tell you that I don’t think there’s anybody in this room who could identify a way that we could achieve that in light of the circumstances that we face,” he said.
As part of the evening’s event, Phillips welcomed Neel Kashkari, president of the Minneapolis Federal Reserve Bank, to join him at the front of the room.
Kashkari first explained the role of the Federal Reserve, which was created by Congress in 1913.
“Our job essentially is to manage the ups and downs of the U.S. economy,” Kashkari said. “Congress gave us two goals. One goal is stable prices; think of an economy that’s not overheating or not limping along. And [the second goal is] maximum employment; as many Americans as possible are able to find jobs, hopefully, good jobs, and take care of themselves. And we try to balance these two out.”
Phillips then asked Kashkari what his major concerns were when considering the national deficit.
“We don’t know when this is going to become a problem. Right now, the U.S. government borrows – if you look at the 10-year Treasury – if you loaned your money to the government for 10 years, you’d get an interest rate, and that’s around 1.9% today, which is still quite low relative to history. So, as the congressman said, investors around the world today still say we have a lot of confidence in the U.S. economy and we have a lot of confidence in the U.S. political system, but the question is when is that going to change? When might they say, ‘We have more confidence in Europe or we have more confidence in China.’ So, it’s not simply up to us making these choices, it’s a relative strength. Today, we are relatively stronger than the rest of the world, but nobody knows when that relative position is going to change. Is it five years from now, or is it 25 years from now? We just don’t know.”
The community conversation also included a panel discussion with Phil Smith, national field director for the Concord Coalition, and former U.S. Congressmen Tim Penny and David Minge.
After the panel, community members were invited to participate in an interactive workshop to work together in small groups to navigate the challenges of the federal budgeting process and create federal budgets of their own.