KLOBUCHAR CALLS FOR NEW PRIORITIES, OUTLINES DEFICIT REDUCTION PLAN
08/30/2006
U.S. Senate Candidate Releases a Report Outlining the Costs Middle Class Families Pay for Reckless Congressional Spending
Speaking at the Carlson School of Management at the University of Minnesota, U.S. Senate candidate and County Attorney Amy Klobuchar outlined a plan to reduce the federal deficit and discussed the often overlooked costs the middle class is paying for Washington’s reckless federal spending spree.
“The costs of this Congress’s irresponsible spending are real for middle class families – we are throwing away money that we should be spending on renewable energy, health care and tax cuts for the middle class on interest payments, debts to other countries and increasing loan, credit card and mortgage payments,” said Klobuchar.
The U.S. is currently paying $900 million a day in interest on the debt. The U.S. is giving away $352 billion annually to foreign entities.
Amy Klobuchar said Washington’s values were out-of-step with Minnesota, highlighting Congress’s wasteful spending projects and tax loopholes for wealthy corporations. Klobuchar said federal agencies should have to pass an audit, just like public corporations do.
“Washington has it backwards. We don’t need more giveaways to the oil companies or tax havens in the Bahamas for millionaires. We need tax breaks for first time home buyers and families who are trying to put their kids through college,” said Klobuchar. “We are not just spending too much – we are wasting taxpayer dollars on all the wrong things – prioritizing special interests and the big drug makers, not middle class families.”
Klobuchar’s plan to reduce the deficit calls for:
- Restoring pay-as-you-go budgeting - $18 billion a year
- Cutting wasteful spending - $60 billion a year
- Ending tax giveaways and loopholes - $154 billion a year
- Health care savings - $171 billion a year
“Washington has been following the money for too long. It is time our leaders start following the priorities of the American people by reducing the deficit and invest in our country’s future.”
Klobuchar released a detailed report on the cost that middle class families are paying on: home mortgages, auto loans, student loans, credit cards and small business loans as a consequence of the deficit. Middle class families are paying as much as $1,700 a year in unnecessary interest for consumer debt and home mortgages. The complete report is below:
REPORT: MIDDLE CLASS FAMILIES PAY A PRICE FOR NATIONAL DEFICIT
Under President Bush and this Congress the federal budget deficit is expected to reach an historic high of $1.1 trillion by 2011.(i) Only six years ago, when Mark Kennedy and George Bush came to office there was a projected $1.2 trillion surplus.(ii)
Many people see the national deficit as a number out of control – but don’t know the effect it has on their lives. In 2003, the Federal Reserve, under Chairman Alan Greenspan, conducted a study(iii) on the impact of the deficit on interest rates. This study concluded that for every percentage point increase in the deficit as a share of gross domestic product (GDP), long-term interest rates will rise by a quarter percent.
Since 2000, the budget deficit as a share of GDP has risen by about four percent.(iv) Using the Federal Reserve’s analysis, this means that the current deficit will end up increasing interest rates by more than a full percentage point.
For middle-class families, the deficit means two things:
· Paying as much as $1,700 a year in unnecessary interest for consumer debt and home mortgages; and
· One out of every twelve federal tax dollars spent by the federal government is wasted on making interest payments on the national debt.
Minnesotans Lose Thousands of Dollars Every Year in Increased Payments and Loans Due to the Rising National Deficit
The following report documents the “pocketbook effect” of a one percent increase in interest rates on a typical consumer, on five types of debt:
· Home mortgages
· Auto loans
· Student loans
· Credit card
· Small business loans
The following analysis shows the monthly and annual impact of a one percent rate increase:
Home Mortgages:
National median home price in July 2006: $230,000[v]
Principal balance on mortgage, assuming 20% down payment: $184,000.
Additional amount per month of a 1% increase in interest rates, 30-year mortgage: $115(vi)
Additional amount per year: $1,380
Auto loans:
Average price of a new car in 2006: $29,200(vii)
Additional amount per month of a 1% increase in interest rates, 5-year loan, no down payment: $14(viii)
Additional amount per year: $168
Student loans:
Average balance on graduation: $19,300(ix)
Additional amount per month of a 1% increase in interest rates, 15-year loan: $11
Additional amount per year: $130
Credit cards:
Median credit card balance among households with credit card debt, 2004: $2,100(x)
Additional amount per month of a 1% increase in interest rates: $6(xi)
Additional amount per year: $74
Small business loans:
Additional amount per month, 10-year loan, $200,000 principal: $104
Additional amount per year: $1,248
GRAND TOTAL—ANNUAL INCREASE IN PAYMENTS(xii)
Home mortgage: $1,380
Auto loan: $ 168
Student loan: $ 130
Credit card: $ 74
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TOTAL $1,752
Small business loan $1,248
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TOTAL $3,000
National Debt Results in Billions of Taxpayer Dollars Wasted on Interest Payments
Another side effect of deficit spending is that the federal government has to make interest payments on the money it borrows. There is probably no greater waste of taxpayer dollars than the budget item “interest payment on the national debt.” This year, that budget item totals more than $200 billion, that’s around $900 million a day just in interest payments.
According to the Congressional Budget Office, approximately one in every twelve federal dollars is spent to pay down interest on the debt.(xiii) That’s one in every twelve tax dollars that taxpayers shouldn’t have to pay—or one in every twelve tax dollars that’s not going toward more college aid, better schools, homeland security, etc.
This means that a significant portion of the average American’s tax bill is wasted on paying interest on the national debt. For example, a typical middle-class taxpayer with adjusted gross incomes of between $50,000 and $75,000 paid an average of $5,500 in federal taxes. $454 of that amount was wasted on paying interest on the national debt.
Congressional Budget Office, “The Budget and Economic Outlook: Fiscal Years 2007-2016,” available at http://www.cbo.gov/ftpdocs/70xx/doc7027/01-26-BudgetOutlook.pdf
[ii] Congressional Budget Office, http://www.cbo.gov/execsum.cfm?index=2241&from=1&file=exsum.htm
[iii] Laubach, Thomas, “New Evidence on the Interest Rate Effects of Budget Deficits and Debt,” available at http://www.federalreserve.gov/pubs/feds/2003/200312/200312pap.pdf
[iv] Government Accountability Office, http://www.gao.gov/cghome/pubstrat20050131/img7.html In 2000—a time of budget surpluses—the deficit as a share of GDP was zero.
[v] National Association of Realtors, http://www.realtor.org/PublicAffairsWeb.nsf/Pages/EHSJuly07?OpenDocument. Metro information on median home prices is available at http://www.realtor.org/PublicAffairsWeb.nsf/Pages/2ndQtrMetros06
[vi] Our calculations were made using the following mortgage payment calculator: http://www.interestratecalculator.com/mortgage/mortgage.html The following chart from Freddie Mac also shows monthly payments for a $150,000 mortgage at different interest rates: http://www.freddiemac.com/news/factbook/pdf/reporter-factbook-p3.pdf
[vii] Comerica Auto Affordability Index, available at http://www.comerica.com/Comerica_Content/Corporate_Communications/Docs/Auto_Affordability_Index.pdf#search=%22comerica%20auto%20affordability%20index%22
[viii] Amounts were calculated using the following auto payment calculator from http://www.edmunds.com: http://www.edmunds.com/apps/calc/CalculatorController
[ix] National Center for Education Statistics, http://nces.ed.gov/programs/coe/2004/section5/indicator38.asp
[x] Federal Reserve, Survey of Consumer Finances, http://www.federalreserve.gov/Pubs/oss/oss2/2004/bull0206.pdf
[xi] These calculations were made using the following interest calculator: http://www.bankrate.com/brm/calculators/credit-cards.asp
[xii] This grand total reflects a “worst-case scenario.” The typical household is unlikely to carry all of these categories of debt, at these amounts.
[xiii] Congressional Budget Office, http://www.cbo.gov/ftpdocs/70xx/doc7027/01-26-BudgetOutlook.pdf