The Math Always Wins

Floor Speech

Date: Nov. 16, 2022
Location: Washington, DC


Mr. SCHWEIKERT. Madam Speaker, Ron is one of the good guys. For those of us who are blessed to be on the Ways and Means Committee, many times it is one of those committees where you have to do adult stuff that affects not only this country but the world. Having people that you can talk to and work it through with is important. Ron is going to be missed. I thank him for being one of the good guys.

Madam Speaker, this is going to be sort of a two-parter. I am going to come back in 2 weeks and provide solutions, but right now I need to define the problem.

As you know, right now around the Capitol complex, we have dozens and dozens of brand-new Members and hundreds of potentially new staffers. They are all trying to find their office and which way is up and where the bathrooms are; I mean, all the things we go through when we are brand-new around here.

My fear is no one is telling these Members that are new--and even talking to the Members who have been here a while--the truth. The truth is the math, and the math always wins.

We are in real trouble. What scares me is with some of the things going on in the economy right now, with where interest rates look like they are going, with inflation now becoming structural, it is potentially just devastating to the individuals out there, our brothers and sisters in the country, just the affordability, being able to afford a house, food, but you have got to understand what it also means to the stability of this country.

Let's actually walk through it. Some of this is big-boy math, it is going to be complex, but there are a couple punch lines in here I want to be remembered.

I am not going to take you back to 1965, but let's do last year. This is last year's budget cycle. Understand, over 71 percent of all of our spending is on autopilot. The fact of the matter is this is what we call mandatory. Only 13 percent was defense, 16 percent was discretionary, what we functionally debate here which we really fight over.

But this mandatory here, you see red, your government functionally is an insurance company with an army. This is health, Medicare, Social Security, other benefits, pensions for military, for government workers, those sorts of things. This is mandatory. And it is on autopilot.

I don't think there is a Member here who has ever ultimately voted on this red portion. It is a formula. You turn 65, you get certain benefits. You serve in the military a certain amount of time, you get certain benefits. It is autopilot.

Defense, well, that we debate, we work through, but the fact of the matter is defense sort of stays within a certain mean of the GDP.

And then domestic. The crazy thing, domestic, actually, as a percentage of GDP, at the end of a decade will be flat.

So where is all this debt coming from? Where is all this growth coming from?

I am going to give you an answer, and it is going to make people really unhappy. You need to understand, when we talk about just last year's borrowing, does anyone out there understand how big it was?

Okay. So we borrowed, functionally, $1.375 trillion.

How much is that?

It is $114 billion a month.

It is $26 billion a week.

It is $3.7 billion a day.

It is $159 million an hour.

It is $2.6 million a minute.

We are told with big numbers, how do you get it so it is understandable? If I came to you right now and said to you, how much last year did your government borrow every second? Anyone in this body able to answer that? It turns out it was $43,600 a second. We borrowed $43,600 every second last year.

Does anyone see a problem? Or is it one of those things that as long as we are handing out goodies and subsidizing the folks who will vote for us or contribute to us, the world is good?

Where is all this debt coming from? Brian Riedl, Manhattan Institute, basically just put out a series of slides where they take the Congressional Budget Office, the OMB office from the administration, and sort of look at it and say, what is driving the debt?

Today we hold $31 trillion of total debt. That is borrowing from trust funds and everything, but that is the total debt.

But from today for the next 30 years, based on a previous interest rate calculation--so we haven't even plugged in the new higher interest rates that we are borrowing money on--anyone want to guess what the borrowing is from today to the future, how much money? We are going to borrow, functionally, $114 trillion. There is a $114 trillion shortfall.

Now, the interesting thing--remember on that previous slide, I was saying, here is mandatory, here is discretionary. Well, it turns out the discretionary military we calculate today to actually have about a $1.9 trillion surplus over the next 30 years.

So where is $114 trillion of borrowing coming from? This is really uncomfortable. I will tell you, I believe the Democrats did something actually really crappy during the election, but it is a knife fight. I accept the knives come out, it is all about winning.

But when you had campaigns out there--``They are going to cut your Medicare''--you can't even have an honest conversation here what is going on.

The shortfall in Medicare, when you add in the interest cost, is $80 trillion. The shortfall in Social Security is $35.8 trillion. The entire borrowing over the next 30 years is Social Security and Medicare.

We got old. The fact of the matter is this place didn't pay any attention. There was this thing called baby boomers.

You get the clown show around here that says, well, we will do Medicare for All. That is a financing bill. It had nothing to do with what we pay. ObamaCare, that is a financing bill; who gets subsidized, who has to pay. The Republican alternative was ultimately a financing bill. You need a revolution in what we pay, not who pays it.

But that is actually more uncomfortable here than actually having a debate over raising taxes or doing entitlement reform, an actual discussion of should we legalize technology, should we legalize the things that actually create disruptions in providing our brothers and sisters the healthcare that we as a society made a deal? We are going to keep our promise on Social Security and Medicare. Well, I think we are.

I mean, the fact of the matter is, what is it now? In a decade, because of the new COLA increase, we just shortened the lifespan of the Social Security trust fund by, what?, almost a year. So you have a little bit over a decade, and our brothers and sisters who live on Social Security are heading toward a 25 percent cut.

What is this place going to do?

Medicare is just unsustainable. The stunning amount to finance our brothers and sisters, our promise for those who turn 65 and get Medicare, to finance it, basically consumes every dollar of this government.

It is math. It is the reality.

How many of you during this last campaign had an honest debate, honest conversation, anyone who was even willing to talk about this? Really dangerous because the other side will run nasty ads about you to scare people, yet by not dealing with it, you are sentencing our seniors to misery because at some point this hits the wall.

So what is going on? Why am I even more dour right now than I was several months ago?

It is inflation, it is the cost of everything. It is the affordability in our society. But you are crushing people. We are going to walk through a little bit of that. But you have got to understand--I am sorry, I am going to geek out on interest rates for a moment, but then I am going to try to show what it actually means to everyone in this country. What we are doing to you and so many of our brothers and sisters out there, you don't understand how--oh, I am sorry, it is a sort of high-level, technical, economic term--how screwed you are.

Let's sort of walk through this. We were building budgets a year ago on an assumption that U.S. sovereign debt when you did the 2-year, the 5-year, the 10-year, the 20-year, the 30-year, the blended interest rate, the weighted daily average, it was all these fun calculations. Actually really interesting stuff.

We were originally about 1.78 we thought would be our mean interest rate. Then last--what was it, was this March or May?--March we recalculated because of this thing called inflation. Oh, we are going to be up to 2.10. Then the reality of it is that we ended up at a recalculation of, hey, the U.S. mean now is heading toward 2.85. That is on the 10-year.

We have some economists around us who are starting to say, it is going higher; it is going higher. I am going to show you a couple things here of what happens to us as a country if the way the Federal Reserve has to stop inflation is raising, raising, raising interest rates, breaking the labor market because you understand within there, even though there is this delay effect, that also means what you and I have to pay the interest back on all the borrowing, and the biggest part of the borrowing cycle has not even hit us yet because we are just now starting to absorb and get ready for the huge spike in costs because of our demographics.

Remember, baby boomers, the final tail end of the baby boomers is moving into their retirement benefits, and as they get slightly older and a little bit older, a little bit older, the Medicare costs start to really go up, and we haven't even hit that financing cycle. It is coming. What happens if we have to finance that at the higher interest rates?

You start looking at some of this. Three months T-bill back in March was 0.2. That was our Biden administration estimate for the 3-year. The actual 3-year right now is 1.75.

Let's see, what is the difference between a 0.2 and a 1.75? Can anyone say ``a whole lot''?

This may not mean much to you, but this is money your taxes are going to be paying back.

Here is the punch line. I am going to make it really simple. What if this inflationary cycle stuck with us? What if instead of that, what was it, 1.78 or even the 2.3 percent interest rate on U.S. sovereign debt, what if it were 2 points higher, just 2 percent higher?

Fifteen years ago, that is where we were at. Remember, we actually had a reprieve, a completely fake economic reprieve for a decade with artificially low interest rates. We were borrowing, and the Federal Reserve kept interest rates lower, particularly since 2008. Now, we are about to pay the cost of it.

What would happen if we paid that 2 percent higher? Functionally--and my math is a little bit less--the end of 30 years, 100 percent of all tax receipts, of all taxes, all tariffs, all everything that comes into the government, 100 percent goes just to pay interest.

You have to understand how sensitive we are as a government, as a society, as a country, how fragile we have made ourselves because we structurally are going to borrow another $1 trillion to $1.3 trillion-- there is one estimate of $1.4 trillion--this year. We are never paying off anything.

It gets worse and worse because of our demographics as we get older, unless we crash the price of healthcare. Two weeks from now, we are going to talk about things we can do to accomplish that.

Are you prepared to live in a country that if our mean interest rate goes up 2 percent and stays there, all tax receipts go just to cover our interest? There is no more government. There is no more military. There are no more benefits. There is no more Social Security. There is no more Medicare.

That is why it is so crucial around here to have an honest conversation where people put batteries in their calculators. Instead, this place is living on theater. Oh, modern monetary policy--we can spend all the money we want, and look, nothing happens. Oh, got it. Didn't work.

I can show you right now the largest tax increase in modern history has happened in the last year. If you live in my Phoenix-Scottsdale area and are a working person, you are a hardworking taxpayer, and you have not had a pay hike, do you realize you have lost 6 weeks, maybe more, of your labor? We are still at 12.1 percent inflation in my community. You have lost 6 weeks of your labor.

If I had walked in and told you that I was going to take a month and a half of your salary, that that is going to be my new tax hike, you would have lost your mind. But if we do it through this thing called inflation, where we strip the affordability of your groceries and your gasoline and everything else in your life, did you notice it? Well, you know there is a problem. You know life has gotten much harder. You know sometimes you get to the checkout stand and are taking things back because the price just doesn't work on your budget.

The perverse thing, you are going to see a chart here, my next one, where actually there is going to be this little drop in sort of the debt-to-GDP and those things. That is because that inflation actually has been a tax. We lowered the value of your income. We lowered the value of your savings. At the same time, we lowered the value of all this debt because we are going to pay it back with what we call inflated dollars, which is wonderful up until the next year or 2 when we have to refinance the debt and refinance the new spending at the higher interest rates. Then that little benefit of taxing you through inflation goes away, and we are off to the races, and it becomes hell.

Remember, this has brought down other countries for hundreds of years, and it is right in front of us. No one seems to come behind these microphones--they talk about it, educate about it, and for the last couple years I have come here behind these microphones and tried to show solutions, and then it drives the lobbyists out of their minds.

Let's take a look at this. Let's see if I can make this work. These are deficits during the Biden administration fiscal year 2023 budget baseline versus a 1 percent rise in interest. Do we all agree that we have had at least a 1 percent rise in interest rates? Yes. Do you see this one little bit of a fall right there? This orange is what happens when you tack on the additional interest. That little fall is, functionally, the fact that we devalued your dollar. That is our little benefit from taxing you in a way you didn't know.

But then, boom. Functionally, the budget cycle we are about to work on is the 2024 budget cycle. You are basically going to have a budget deficit of $1.4 trillion, and then, boom, it is $1.5 trillion. You get out a couple more years, you are heading toward $1.75 trillion. In less than a decade, you are well over $2 trillion a year in just borrowing. This chart explodes if we go beyond that 1 percent rise in interest rates.

Structurally, even if I say we are going to go back to living in that world of that fantasy artificially low interest rate, we are still heading toward $2 trillion a year borrowing. It just takes 10 years. This is insane.

Right in here, interest will be just the basic borrowing. All of defense, a whole bunch of discretionary, and other things will all live on borrowed money.

Most people have no idea what the concept of debt-to-GDP is. It is the concept of: Here is the size of my economy, and, yes, we are borrowing all this money, but look how big my economy is, and that economy's ability to finance--just like your income finances your credit cards. As long as your income keeps going up faster than the debt on your credit cards, you can live. You are going to be okay. What happens when your economy isn't growing, when your income isn't growing as fast as you are borrowing on those credit cards? At a certain point, it comes to an end.

We are heading toward a time where if we add--this is our baseline. If we start adding a little bit of higher interest rates because we have to finance the debt, we have to sell our bonds, the bond markets are expecting higher interest rates because of inflation--you start seeing the chart where you are hitting a world where at the end--now, I know these are 30-year projections, but remember, we are selling 30- year bonds. The baseline number is 185 percent of debt-to-GDP. That means the debt will be 85 percent bigger than the entire economy. If we had 3 percent higher interest rates, the debt is, functionally, 245 percent bigger than the entire economy.

Do you think we ever get anywhere--because this is what we are doing to ourselves. This is already baked in the cake if these interest rates go up. But this down here, the base CBO assumption--remember, we are already over 100 percent. Right now, our borrowing is already substantially bigger than the entire size of our economy.

It is why growth is moral but is also necessary. If we don't start growing this economy and we are continuing just the borrowing-- remember, what was the primary driver of our borrowing? Medicare and Social Security. We got old. It is demographics. Getting old is not Republican or Democrat; it is just who we are. That is driving most of our borrowing. We are not adopting policies that maximize growth at every opportunity.

We are destroying the future. I need my brothers and sisters on the left to at least embrace some basic truths.

The very end of 2017, we did tax reform. Some people go, oh, it was tax cuts, except the rich actually pay a higher percentage of Federal income taxes today than they did under the old tax system. But, 2022, tax receipts, the highest in U.S. history by far, and this is under the new tax system. If you are going to demagogue us for doing tax reform, trying to bring businesses back to the United States and get them to domicile and manufacture and do things here in this country, you can at least pull out a chart and show me where the revenues disappeared because they didn't. They are right here.

We brought in $4.8 trillion in tax receipts last year, and we are still borrowing $1.3 trillion. The spending has just exploded around here, and now we hit our structural deficits because of our demographics. It gets uglier and uglier, and we have made ourselves incredibly fragile.

God forbid we ever have a failed bond auction or an undersubscribed one, and interest rates start to spike. Do you understand what happens to the entire world, let alone your savings?

We don't need to do this to ourselves. There are solutions, but this body is incapable of having that debate.

Dear God, please, with a Republican majority, no matter how thin it is, maybe we will actually try to do something honest and adult with the calculators.

You keep looking at the charts, and there are charts out there. It is not revenues. There is this whole line of thought out there that has been worked on by the left and the right that we raise taxes, somehow we stay within a certain mean of the size of the economy. When we have lowered taxes, somehow the revenues come back up. Taxes always seem to come in just right about here. If this is 20 percent of GDP, you raise the taxes, the economy seems to shrink, the growth shrinks, we fall back to the mean. You lower taxes, the economy grows, the revenues come back. You have decades and decades of data. You look at the charts, and it is pretty darn clear. We are going to take in 19.1 to 20 percent. Sometimes we fall down to 18 percent of the economy in revenues, in receipts, in taxes.

The art here is to design a tax code, design a regulatory code, adopt embracing of technology and other things that maximize growth. The ultimate solution is grow, grow, grow, and then adopt disruptive technologies that lower prices, so affordability.

Imagine if you had a society once again that was growing, your wages were going up, but inflation wasn't; where your healthcare costs were actually going down; where your savings, your investments, your planning for retirement, your ability to help your kids go to college got better. We can do that. We did that in 2017, 2018, 2019, even the first quarter of 2020 before the pandemic. There is a model to do it.

All that progress, all that closing income inequality, making the poor less poor, the hardworking, tax-paying middle class, making them more prosperous, it is all gone. The Democrats succeeded, in 18 months, in crushing the people of this country by really crappy policy--great virtue signaling, just incredibly good virtue signaling, really crappy policy.

Once again, I need my brothers and sisters on the left to buy a calculator and understand if you came in and said I am going to take every dime, you make small businesses, rich people, high-income earners, if I take every dime--if you make $500,000, the next dollar we just take everything. You have heard this, oh, rich people aren't paying enough, take every dime. You, functionally, don't get anywhere.

This is assuming that they continue to work as hard, that they make the same amount of money so they don't change their behavior at all. It is a math experiment, and you get about 5.1 percent of GDP in taxes.

The problem is our borrowing is already about to hit 6 percent, and in a couple more decades, we are over 12 percent. It is a fantasy.

Look, the Republicans have their sin, too. We will often say, well, waste and fraud, foreign aid, that is just almost a rounding error. Remember a little while ago, $40,000-plus a second in borrowing?

The scale of the problems ahead of us is terrifying, and it is no longer getting postponed to the future.

I have gotten in front of audiences, and, A, they will boo when you try to explain to them the truth of the math. They say, Well, I was told this 10 years ago.

Yes, but we had 10 years of artificially low interest rates that allowed Congress to engage in really crappy policies.

What is that saying, ``the chickens are coming home to roost''? I am not particularly good at colloquialisms. But it is time. It is here.

Will this new Congress with a divided government step up, tell the public the truth, tell our new freshman class the truth, and actually take on a really tough decision?

Madam Speaker, do you want a society and a country that is prosperous, innovative, and disruptive but we are growing so fast and so healthy that you can imagine a world where healthcare prices aren't going up twice as fast as inflation, where your wages go up faster than inflation, and where affordability when you go to the grocery store or your gasoline station doesn't take your breath away?

We can do that. At least I think we can do it.

I just want to know: Are we going to have partners on the other side to do what is honorable?

Because growth is moral.

Are we going to do the right thing for our society, for our brothers and sisters out there, or are we going to continue with virtue signaling?

Because virtue signaling may be brilliant politics, but it is really crappy economics.

Madam Speaker, I yield back the balance of my time.