Waiting at the Center of the Terrible 20s

I haven't been talking too much about it either

I just wanted to put this on the table now that we’re in February 2024 as I want to make sure everyone has this in their scan in what is a busy election year.

Except for the very new readers, everyone here remembers when we kicked off our warning about “The Terrible 20s” back in 2010 on the OG Blog. We’ve carried it forward here now and then - and it has leaked over the last few years into the general conversation - which is nice - but we are all still sleepwalking into a wall.

Heck, I’m as guilty as anyone…but the math can kick down even the most dogged optimist.

Dominic Pino over at NR threw some water in my face to remind me of the larger macro obstacles we face countering our desire for a budget to build the fleet we think we need.

Nothing is written, but these are hard dates and codified laws that will be easy to get lost in our rapidly scrolling timeline.

2024 is going to be a nasty and chaotic election year. Whatever the results, we will come out of it more divided than before, and whoever is running the Executive and Legislative Branches of our government will have thin majorities and distractions by the score.

Wars and rumors of war are either going on or popping up all over the place - but it seems to have prompted little long-term thinking. We seem to be in a crouch waiting for the next fresh-hell to come along - and not trying to make sense of the larger movement of history.

Well, history does not like to be ignored.

On January 20, 2025, we will either have another term for President Biden or a new President - and that individual will face this;

About $5 trillion in new debt that’s expected to hit in 2025. That’s five times the level of the 2009 stimulus bill responding to the worst economic crisis since the Great Depression, and it’s expected to come in a time of no wars, low unemployment, and a growing economy.

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All of the individual-taxpayer provisions of the Tax Cuts and Jobs Act expire on December 31, 2025. That means if Congress does nothing, tax rates will increase, the standard deduction will decrease, and the tax burden will increase for most taxpayers. Some of the business provisions of the TCJA will also expire, such as the treatment of cross-border income and payments, bonus depreciation of investments, and opportunity-zone tax credits. The child tax credit will also decrease from a maximum of $2,000 per child to a maximum of $1,000 per child.

“These were all built-in tax increases that were designed essentially to meet the ten-year-budget-window rules that allow for reconciliation,” says Will McBride, vice president of federal tax policy at the Tax Foundation. Republicans used the budget-reconciliation process to pass the TCJA in 2017 so they would need only 50 votes in the Senate to pass it rather than the 60 that would have been required to break a Democratic filibuster.

Expiring on the same day is a set of health-care subsidies. The Affordable Care Act, a.k.a. Obamacare, offered subsidies to households making up to 400 percent of the federal poverty line. President Biden’s American Rescue Plan Act (ARPA) temporarily removed that cap. Then the so-called Inflation Reduction Act extended that suspension through the end of 2025.

Democrats planned for the cap to come back at the same time TCJA provisions expired. The idea was that no matter who was in office at the end of 2025, each party would have something important it wanted extended. Republicans get to keep their tax cuts, Democrats get to keep their Obamacare subsidies, everyone’s happy.

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The ARPA’s State and Local Recovery Fund gave $350 billion in federal money to state and local governments. According to the Treasury rules governing the fund, states have until the end of 2024 to obligate spending from it and until the end of 2026 to actually make the expenditures. So state and local officials, from both parties, are going to be descending on Washington in 2025 and begging for more money.

“Since the beginning of Covid, $190 billion has gone to schools alone,” Winfree says. “If school districts have been using that money to hire teachers or provide extra activities, there’s not going to be money for that anymore.” For-the-sake-of-the-children arguments will abound, and no politician wants to say no to the children.

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Simply extending all these provisions would add about $5 trillion to the debt over the ten-year budget window, with about $3 trillion of that coming from extending the tax cuts. But it’s even worse than that.

The discretionary-spending caps from the debt-limit deal also expire in 2025, and the debt limit will need to be raised again. The government will still need to fund all the normal stuff it always funds, such as the military, anti-poverty programs, education, and transportation. And we haven’t even touched on the biggest budgetary problem of all: entitlements.

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McBride, of the Tax Foundation, notes that despite the tax cuts and massive deficits, federal tax collections in fiscal year 2022 were higher than ever and are expected to be above average again this year. The federal government collected the equivalent of 20 percent of GDP in 2022, well above the 50-year average of 17 percent. “Even absurd tax increases of several trillion dollars don’t put a dent in the debt-to-GDP ratio in the long run,” McBride says. “The only way to do that is to rein in the spending.”

That is only a taste. You need to read the whole thing.

With all that coming right after the 2024 election … how do you get the attention of Congress and whoever is running the Administration? Who will make sure we match our our fleet plan and budget requirements to be to the challenge waiting for us from the People’s Republic of China west of the International Date Line?

How?

If the economic, political, and budgetary bow wave comes together like we think in 2025, the PRC challenge will not be the crocodile closest to the national canoe. Focus will go accordingly.

We’ve often asked the question, “Will the PRC get old before it gets strong?” Perhaps we should look at the intersection of that question with, “Will the USA go broke before it sobers up?”

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