James Pethokoukis

Politics and policy from inside Washington

Using TARP to pay down deficit? The math doesn’t add up

November 12, 2009

First, the nub of the WH idea:

The White House is looking to cut its budget deficit by using some unspent funds from the U.S. government’s Troubled Asset Relief Program (TARP), the Wall Street Journal said, citing people familiar with the matter.

Members of the Obama administration are still debating the idea, the paper said, adding that the administration would still like to keep some of the unspent money in case of emergencies.

A U.S. Treasury source told Reuters that it was shifting the focus of the TARP program toward helping small business and the housing sector rather than large banks.

“As that focus shifts, we expect to use significantly less TARP funding than authorized,” the source said. “We will maintain the flexibility to deal with a future crisis, and uninvested TARP money is dedicated to reducing the debt.”

But as my pal Dan Clifton of theĀ  Strategas Group points out, this idea neglects certain budget realities:

Is this really news? The US government has already issued the debt for the funds and any unused money would logically be used to retire that debt. There is about $300bn in unspent TARP funds now. But none of that can be used as deficit reduction. Why? Because the money has not been spent yet. And is it really $300bn? Absolutely not, the administration decided to change the accounting to a net present value basis. So any savings would be negligible. The punchline: This story makes a great headline against the concerns over deficits, but will have zero impact on debt issuance and the deficit.

Comments

This reminds me of when Obama said we would use savings from eliminating Medicare “waste, fraud and abuse” to pay for Obamacare. Someone pointed out Medicare was going bankrupt anyway, to which was replied:

“No, no, no. You see, Obamacare will have EVEN MORE waste, fraud and abuse, which we will then cut to pay for Medicare.”

 

Perhaps they should use that $300bn to buy a Magical Unicorn who can wish the debt away.

Posted by bryan | Report as abusive
 

Hmmm. Equate this madness with using one credit card to payoff another. Cash flow is still negative.

Posted by AIXNPAINS | Report as abusive
 

The government ought to auction off states to the highest bidder. China can have California, Mexico can have New Mexico and Arizona, etc. until the debt is paid in full. Rome had to shrink its borders due to a heavy deficit. It looks as though the U.S. will have to do the same.

Posted by Mufaso | Report as abusive
 

There are two actions which could substantially reduce (and eventually end) the US debt.

Within the last year companies which received TARP shared the wealth via bonuses when it was not theirs to share. In fact, their response to TARP has been to hog far more in bonuses (at taxpayer expense) than their companies even earned. A substantial tax penalty (a claw back of 70% or better?) on these bonuses would net $Billions which could be used to pay down outstanding debt and discourage future feeding frenzies.

In the late 80′s a pie chart in the 1040 instruction book caught my attention. Still there, it describes the sources and expenditures of US Treasury funds including taxes. Not surprising was that Defense was the greatest spending portion. What I found alarming at that time was that almost as large a piece of the pie went to service the public debt. My reasoning held that this burden would eventually be lifted if the US Treasury would simply STOP selling bonds.

The meltdown on Wall Street last fall has by now been embraced by both Bush and Obama as an excuse to raid the treasury on behalf of the companies which caused the problem. Expect the DEBT piece of the US Expenditures pie to eclipse defense in your next 1040 book.

 

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