Off the Charts Blog | Center on Budget and Policy Priorities

Over the last decade, U.S. multinationals have dramatically reduced their American workforces while expanding their overseas workforces, the Washington Post reports today.  While the federal government publishes these data in the aggregate (see graph), many individual firms don’t publicly disclose their number of U.S. versus foreign workers, and some of them are among the firms lobbying Congress for a new round of tax amnesty on their growing foreign profits.

Members of Congress should keep this graph in mind as they consider another tax holiday, which would only sweeten the pot for corporations looking to shift income and investments overseas.  Instead of paying the regular 35 percent corporate rate applied to domestic investments, corporations would receive a bargain-basement rate of just 5 percent on their foreign profits.

The message to multinationals would be clear:  they can invest massively overseas and then, through periodic tax holidays, repatriate the resulting profits at extremely low tax rates.  This would give them even more incentive to move more investment and jobs overseas, as it appears they have been doing since 1999.

As we’ve explained in detail, the 2004 tax amnesty failed to produce the promised economic benefits, and repeating it would be an even bigger mistake.

MSNBC’s Thomas Roberts interviewed CBPP President Robert Greenstein on the risks of not raising the debt limit this morning.

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Robert Greenstein, the Center’s President, and Kevin Hassett, Senior Fellow and Director of Economic Policy Studies at the America Enterprise Institute, discussed job creation and the economic recovery on C-SPAN’s Washington Journal this morning.

Republicans on the House Ways and Means Committee pounced on a new Treasury Department report purportedly showing that federal debt will top 100 percent of the economy this year.  The problem is, they’re using the wrong debt measure.

As we’ve explained before (see here and here), economists use “debt held by the public” — the total amount we’ve borrowed in credit markets to finance our deficits and other cash needs — when measuring what the nation owes.  The new Treasury report projects that debt held by the public will reach 71.6 percent of gross domestic product (GDP) in 2011, double its ratio in 2000.

Ways and Means Republicans, however, used a more eye-catching figure from the report, that “gross federal debt” will reach 102.2 percent of GDP in 2011.  Gross federal debt consists of debt held by the public plus debt that one part of the federal government owes another part, such as the money the Social Security trust fund and similar trust funds lend to the Treasury.

As the Congressional Budget Office has said, the Treasury securities held by trust funds “represent internal transactions of the government . . . [and thus] have no direct effect on credit markets.” That’s why debt held by the public is the proper measure of government obligations.

Stabilizing the ratio of debt held by the public to GDP is a key test of fiscal sustainability.  The simplest way to get there in the next decade would be to let the Bush tax cuts expire as scheduled after 2012 or to pay for the parts that policymakers choose to continue (see graph).  That would be a huge accomplishment, buying us time to adopt gradual changes in entitlement programs and figure out the best ways to control health-care costs without jeopardizing coverage.

Instead, Ways and Means Republicans call for “significant spending reductions” soon as part of a bill increasing the debt limit. But if they find today’s debt so objectionable, where did it come from?  As my colleague Chad Stone vividly documents, nearly half of our debt results from two policies that bear Republican fingerprints:  the Bush tax cuts and the wars in Iraq and Afghanistan.  Complaining about the resulting credit-card bill is the sheerest hypocrisy.

Matt Miller, evoking this scene from the 1980 movie The Shining, contemplated writing a column consisting of the following sentence repeated 30 times:  “The House Republican budget adds $6 trillion to the debt in the next decade yet the GOP is balking at raising the debt limit.”  The real situation is even crazier.

Miller’s $6 trillion figure is the amount by which “debt held by the public” would increase under the House budget.  But a different debt measure, “debt subject to limit,” would increase by almost $9 trillion under that budget.  The former measure, which is basically the sum of all past budget deficits minus surpluses, is the right measure to use for assessing the government’s financial condition and the impact of federal borrowing on financial markets, so kudos to Matt for using it.  The latter, however, is what matters for the debt limit debate.

Debt subject to limit is a close cousin of “gross debt,” which as I discuss here, is a deeply flawed measure.  In a nutshell, both include money the federal government owes to itself — such as the money the Social Security trust fund has lent to the Treasury in years when Social Security’s earmarked revenues exceeded expenditures.  And as the Congressional Budget Office (CBO) said recently, neither is “a meaningful measure of the government’s future commitments.”

Between 1998 and 2001, for example, debt subject to limit continued to grow — even though the country was running budget surpluses and retiring some of the debt held by the public — because the Social Security trust fund was running large surpluses and lending them to the Treasury.

The Social Security and Medicare trust funds are projected to grow over the next decade, and their expanded holdings of Treasury securities will add to the debt subject to limit.  That’s why debt subject to limit would grow even faster than debt held by the public under the Ryan budget.

Matt Miller is absolutely right that it is hypocritical for Members of Congress to vote for the Ryan plan while railing against an increase in the debt limit that the Ryan plan itself would require.  Engaging in brinksmanship over the debt limit is extremely dangerous as well — and, since debt subject to limit is such a severely flawed measure of the government’s financial condition, just plain crazy.