Debt Ceiling – Janet Yellen Pitches ‘Dog and Pony Show’ Farce While She Stiffs GAO and CBO

By: Jeffrey Winograd

Key Points

  • Janet Yellen is avoiding underlying problem.
  • GAO says U.S. facing unsustainable growth in debt.
  • JCT tax expenditures act as direct spending programs.
  • Bloomberg Tax reports tax expenditures cost $1.5 trillion annually.
  • CBO offers 76 options for reducing budget deficit.

Treasury Secretary Janet Yellen is engaging in a “dog and pony show” unworthy of her lofty position and the gravity of America’s financial position.

Dog and pony show is an apt description of what Yellen is up to – a heavily promoted, over-the-top performance, presentation, or event designed to sway or convince opinion for political reasons.

On Jan. 19, she announced via a letter to congressional leaders that the U.S. has reached the statutory debt limit of $31.381 trillion and Treasury has started to implement so-called “extraordinary measures” to continue paying its bills. Congress must “act promptly to protect the full faith and credit of the United States,” she declared.

Yellen then graced the AP with an interview while flying off to Africa during which she spouted that spending cuts to get a debt limit increase are “very irresponsible” and it is “about paying bills and not new spending,”

She was quick to assure the fickle public that White House and Treasury officials “will have discussions with members of Congress to try to understand what they see as a path forward. Congress has to do it. It’s can’t be something that’s contingent on cuts.”

Is it fair to opine that Yellen is performing like a political hack hiding behind the aura of being a former president of the Federal Reserve Board and lacks the fortitude to push the White House and Congress into action?

GAO Says Act Now

On Nov. 9, 2022, the Government Accountability Office released a report on the federal debt, which – not for the first time – unequivocally declared that valuable time is wasting as Congress and the White House procrastinate. “Absent action to address the growing imbalance between spending and revenue, the federal government faces unsustainable growth in the debt,” GAO said.

There are almost no serious declarations from Capitol Hill, the White House and the Treasury Department for immediate and specific actions to reduce federal budget deficits and taking the requisite steps to begin paying down the federal debt. Only a shedding of crocodile tears that Treasury is now resorting to extraordinary measures!

However, there are several convenient and invaluable roadmaps to guide budget cutting. Admittedly, they involve negotiating political minefields of epic proportions even while leaving aside the red herrings of cuts in Social Security and Medicare.

 JCT and Tax Expenditures

The congressional Joint Committee on Taxation provides an explanation of tax expenditures as well as specific details.

Tax expenditures are defined in the Budget Act of 1974 as “revenue losses attributable to provisions of the federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability.”

According to JCT, tax expenditures include any reductions in income tax liabilities that result from special tax provisions or regulations that provide tax benefits to particular taxpayers. Special income tax provisions are referred to as tax expenditures because they may be analogous to direct outlay programs and may be considered alternative means of accomplishing similar budget policy objectives. Tax expenditures are like direct spending programs that function as entitlements to those who meet the established statutory criteria.

The Treasury Department has its own discussion of tax expenditures on its policy page website.

While they may sound innocent, tax expenditures – which according to Bloomberg Tax carry an annual price tag in the neighborhood of $1.5 trillion – are a continuing gold mine for K Street lobbyists, Wall Street and a variety of stakeholders whose livelihoods depend on them.

So, reasonable thinking may well conclude that cuts in tax expenditures are likely to translate into increased tax revenue flowing into federal coffers, thereby lowering the need to borrow at unsustainable levels.

CBO Enters The Fray

On Dec. 7, 2022, the Congressional Budget Office published two documents which should have a profound role in the current debt limit brouhaha.

The first, Options for Reducing the Deficit, 2023 to 2032 – Vol. I: Large Reductions, contains  detailed discussions for 17 large options. “Each of those options would either reduce the deficit from 2023 to 2032 by more than $300 billion or, in the case of Social Security options, have a comparably large effect in later decades,” CBO said.

The second, Options for Reducing the Deficit, 2023 to 2032 – Vol. II: Smaller Reductions, provides estimates of the budgetary savings from 59 options that would each decrease federal spending or increase federal revenues over the next decade by less than $300 billion.  

According to Phillip Swagel the CBO director, based on certain assumptions about taxes and spending, federal debt held by the public rises from 98% of gross domestic product (GDP) in 2022 to 110% of GDP in 2032 and 185% of GDP by 2052. The cost of interest on the debt doubles as a share of GDP over the next 10 years and continues to increase thereafter.

“To put the federal budget on a sustainable long-term path, lawmakers would need to make significant policy changes – taking actions to cause revenues to rise more than they would under current law, reducing spending to amounts below those currently projected, or adopting some combination of those approaches,” Swagel said.

However, unlike the GAO, Swagel may be a bit more optimistic. “The nation has time to implement these changes,” he opined.

Time will tell!

Spineless Janet

Meanwhile, the treasury secretary is expected to continue her dog and pony show.

Can Janet Yellen, for the good of the country, abandon partisan politics and candidly speak to the issue as an eminent economist?

If she chose to do so, it is likely she would find allies in GAO, CBO, and even on Capitol Hill.

Don’t hold your breath.


This article originally appeared on Jan. 26 at https://unamericanactivities.substack.com/p/debt-ceiling-janet-yellen-pitches.


GAO and Freedom Caucus March in Lockstep on $31 Trillion Federal Debt – Wall Street Set to Join Them

By: Jeffrey Winograd


  • GAO warns of unsustainable federal debt.
  • GOP conservatives draw line in the sand.
  • Jamie Dimon of JPMorgan Chase sounds the alarm.
  • Federal debt stands at $31 trillion.
  • Interest on federal debt is soaring.
  • Vote on increasing debt limit is on the horizon.

A recent report by the Government Accountability Office pulled no punches when it comes to the financial health of the federal government which it views as being in critical condition.

At the same time, it sends a powerful message that the Republican-only Freedom Caucus in the House of Representatives is spot on with one of its key concerns – the out-of-control federal debt.

The Freedom Caucus, which is no Johnny come lately with its focus on “limitless federal spending,” made clear its intentions in a Dec. 8, 2022, “Dear Colleague” letter. “We must commit to not raising the debt ceiling without a concrete plan to cap spending and operate under a budget that balances in 10 years or less – and  hold to it In addition, we must not return to the blind embrace of earmarks emblematic of the swamp,” said the letter which carried seven signatures.

A key Wall Street figure has just stepped into the role of pathfinder on the issue for the financial sector. Jamie Dimon, the head honcho of JP Morgan Chase & Co., on Jan. 10 told Maria Bartiromo of Fox Business that the problem is not today but when the federal debt hits 130% of gross domestic product. “I’m talking about on the day that America can’t pay its debt, that has potentially disastrous outcomes,” he said.

Dimon laid out a scenario where over a period of time there are continuous defaults on Treasury bills. “It is so potentially dangerous we shouldn’t get anywhere near it. And after all the shenanigans of politics, we’re going to have to fix this. I think it’s very bad for the nation to constantly be looking at this type of thing,” he declared, adding that the credit rating of the United States was unimaginably dropped from AAA to AA due to a previous controversy over raising the nation’s debt limit.

GAO’s Perspective

GAO’s overriding warning, according to the report, is that the United States is continuing to edge closer and closer to the precipice of a financial meltdown – a situation created courtesy of bipartisan feeding at the trough of unsustainable borrowing.

“From fiscal year 1997, GAO’s first year auditing the [financial books], through September 30, 2022, total federal debt managed by the Bureau of Fiscal Service has increased from $5.4 trillion to $30.9 trillion, and the debt limit has been raised 22 times,” GAO reported. That period of time includes five presidential administrations, six speakers of the House of Representatives and six Senate majority leaders.

According to GAO, during FY 2022, total federal debt increased by some $2.5 trillion. Interest on the public debt ballooned to $497 billion, up from $392 billion in the previous year.

“The primary reason for the increase in debt held by the public was the federal deficit, which was $1.4 trillion for fiscal year 2022,” GAO stated. Another category of federal debt is intragovernmental debt holdings, it noted.

Over the years, repeated delays in raising the debt limit have resulted in increased borrowing costs and this history portends further increases with federal spending “projected to increase more rapidly than revenue,” the report said.  “Absent action to address the growing imbalance between spending and revenue, the federal government faces unsustainable growth in its debt,” GAO warned.

Publicly Held Debt Includes Foreign Owners    

As described by GAO, debt held by the public represents the amount the federal government has borrowed from the public to finance cumulative cash deficits.

Debt held by the public, in contrast to intragovernmental debt holdings, “represents a claim on today’s taxpayers and absorbs resources from today’s economy,” GAO explained. “In addition, the interest paid on this debt may reduce budget flexibility because, unlike most of the budget, it cannot be controlled directly,” GAO said.  

Since fiscal year 1997, the total federal debt has mushroomed from $5,398 billion to $30,924 billion at the conclusion of FY 2022. In other words, it increased by 473%.

Total federal debt has increased by $9,418 billion, or 44%, from $21,506 billion as of Sept. 30, 2018, to $30,924 billion as of Sept. 30, 2022. This included “an increase in debt held by the public of $4,210 billion – the largest annual dollar increase in history – occurring in FY 2020,” GAO reported.

“Treasury [Department] reporting shows that foreign ownership of Treasury securities represents a significant portion of debt held by the public,” GAO noted. As of June 30, 2022, the amount of foreign holdings of Treasury securities represented an estimated 31% of debt held by the public. The estimated amount of foreign holdings of Treasury securities increased from $983 billion as of June 30, 2001, to $7,431 billion as of June 30, 2022.

The Federal Deficit

As defined by GAO, the federal deficit is the amount by which the government’s spending exceeds its revenues for a given period, usually a fiscal year.

“The primary reason for the increase in debt held by the public was the federal deficit,” said the report, which added “the federal deficit of $1,375 billion for FY  2022 was down from $2,772 billion and $3,132 billion for FYs 2021 and 2020, respectively – the two largest recorded federal deficits in history – and up from $984 billion and $779 billion for FYs 2019 and 2018, respectively.”

GAO attributed the larger deficits for FYs 2020 and 2021to “economic disruptions” related to the COVID-19 pandemic, which both decreased revenues and bolstered federal spending. “The deficit decreased in FY 2022 as a result of revenue growth and the phasedown of the pandemic-related spending, offset by the long-term costs of certain forms of federal student loan debt relief for many borrowers,” it said.

Debt Limit Ceiling and Extraordinary Measures

An attempt to significantly increase the debt limit that began in FY 2021 continued through mid-December 2021. Some progress was made by mid- October when the president signed a bill increased the debt limit by $480 billion, from $28,401 billion to$28,881 billion. However, Treasury still had to resort to “extraordinary actions” to keep from exceeding the debt limit. Finally, on Dec. 16, 2021, legislation was enacted to raise the debt limit by $2,500 billion from $28,881 billion to $31,381 billion.

On Jan.11, an AP article explained the particulars and warned of an upcoming political brouhaha with its attendant economic consequences. “Once the government bumps up against the cap – it could happen any time in the next few weeks or longer – the Treasury Department will be unable to issue new debt without congressional action,” the article said. The department plans to use “extraordinary measures” to keep the government operating “but once those measures run out, probably mid-summer, the government could be at risk of defaulting unless lawmakers and the president agree to lift the limit on the U.S. government’s ability to borrow,” it added.

Interest Payments on Debt

Interest paid on debt held by the public totaled $497 billion in FY 2022. In FY 2021 that amount was $392 billion and in FY 2020 it was $371 billion. The increase from 2021 to 2022 was attributed to an increase in inflation adjustments, an increase in the average interest rates, and an increase in the outstanding debt held by the public.

While noting that interest rates on publicly held debt have been “historically low,” the outlook for the future is bleak, the report said. “In the longer term, interest on debt held by the public is projected to increase overall and as a share of the federal budget as debt grows – from the imbalance between spending and revenue – and as interest rates rise. Interest rates can have a compounding effect on the debt, as borrowing to make interest payments adds to the debt,” GAO said.

What GAO Foresees

Here is how GAO wrapped up its report, with a message to both Democrats and Republicans, as well as the voting public:

“Absent action to address the growing imbalance between spending and revenue, the federal government faces unsustainable growth in its debt. The underlying conditions driving the unsustainable fiscal outlook existed well before the COVID-19 pandemic and continue to pose serious economic, security, and social challenges if not addressed.

“Congress should consider developing a plan to place the government on a sustainable long-term fiscal path. Congress and the administration will need to make difficult budgetary and policy decisions to address the key drivers of the debt and change the government’s fiscal path. A fiscal plan would provide policymakers with a framework to help manage such uncertainty and support difficult policy decisions that will help to achieve a more sustainable fiscal policy. The sooner actions are taken to change policy to alter the government’s fiscal path, the less drastic the changes will need to be.”


This article originally appeared on January 12 at https://unamericanactivities.substack.com