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The Debt Ceiling & Blue Oval City
Is anyone worried about the ballooning debt of the Federal Government? Yes. Is anyone going to do anything significantly effective about our ballooning debt in the near future? Probably not. Let me elaborate on these answers a bit. First, is anyone worried about the ballooning debt of the U.S. government? You are hearing some in Congress talking about the deficit. Senator Rick Scott from Florida is one of them. He is the head of the Republican Senatorial Committee and he recently proposed that social security and Medicare become part of the annual appropriations process rather than becoming an evergreen entitlement. Other members of congress have taken a different approach. According to William Galston at the Wall Street Journal, in 2022 the House Republican Study Committee put together a proposal to balance the budget in 7 years. The proposal included saving money by raising the full retirement age for social security benefits from 67 to 70 by 2040 – and then indexing this in accordance with changes in life expectancy in order to save money. This proposal also includes increasing retirement benefits for lower income earners and decreasing benefits for middle and upper earnings. An additional provision includes allowing people to defer a portion of their payroll taxes to private retirement plans. Its Medicare proposals also involves increasing the age of eligibility, but it is not clear how high that age would go or how quickly it would move. Many of these ideas were dismissed in the previous Congress, but the looming debt ceiling decision could bring them back front and center. Some in Congress will see the debt ceiling debate as an opportunity to address the deficit. President Biden is aware of the nation’s increasing debt load. This week he proposed to raise the Net Investment Tax for those making over $400,000 a year from 3.8% to 5%, a move he says will keep Medicare solvent through 2050. So yes, there are certainly people talking about it in Washington – some with ideas to cut spending, some with ideas to raise taxes, others with a mind to do both. This much is for certain, it will have to be addressed.
Did you know that the U.S’s debt as a percentage of GDP has gone from 32% at the end of 2000 to 97% at the end of 2022? I think that is a more helpful measure than the total dollars at stake. Because the nation is producing more and more every year, what is the debt as a percentage of that production? The Congressional Budget Office estimates it will rise to 118% by 2033 if we do nothing. An increasing debt load hampers the country’s ability to grow. It restrains our resources. But now to answer the second question, “Is anyone going to do anything significantly effective about our ballooning debt in the near future?” I answered probably not, because I don’t know of anyone with the political will coupled with the ability to draw together a consensus that will make this a high priority. In their campaigning, both former President Donald Trump and one of his assumed opponents in the primary, Governor Ron DeSantis have said they do not have any intentions of raising the ages of eligibility for Social Security or Medicare. This debt is a can that is easier to kick down the street – until you can’t anymore. Major change, whether in government, business, or personal life, doesn’t often take place until desperation forces it. It may be that it will take economic calamity or the threat of a change in the world order to move from ideas and talk to viable solutions that are embraced and implemented. It has always been my contention that shared sacrifice is the only way out. In my mind this means strategic reductions in spending as well as targeted and measured increased in taxes. I think you’ll have to have both to bring both sides of the isle to the table. Although it is true that our debt load does not create a problem that will have severe consequences in the next year, it is a problem that continues to create a drag on our ability to compete and thrive in the future.
Speaking of change, there is change coming to West TN. Just about everyone in this area of the state know there is a Ford and SK Battery plant being built near exit 42 on I-40 that is being called Blue Oval City. This is the largest dollar investment in a plant by Ford in its history. I had an opportunity yesterday to attend an event sponsored by the Jackson Area Chamber of Commerce which featured the excellent analytical work of the marketing firm Younger and Associates on what impact we might see on population growth and housing in the Blue Oval impact Zone. This impact Zone is defined as a 35-mile drive from the plant. I wanted to highlight a few takeaways on what I think is going to change for West TN.
There is a change coming in the number of jobs that will be available in West TN. Ford indicates that they plan to ramp up to nearly 6,000 jobs on site. That’s a number that is larger than many of the towns in West TN. If you add in the roughly 3-3.5 jobs that are created for ancillary businesses such as suppliers, you are looking at the potential for almost 20,000 jobs by 2026. When it comes to jobs, those are huge numbers.
There is a change coming in rural communities’ ability to be indifferent about growth. Every county and city will have to contend with whether or not they will be in a posture that embraces growth or that resists growth. It was clear from yesterday’s presentation that the availability of infrastructure will determine whether a community is poised to grow its households. Some communities will say, “we like things the way they are” and this is fine. But each community is going to have to figure this out – because indifference is essentially a decision not to embrace the potential growth. You can be sure there will be debates and maybe even arguments, so leaders who are able to galvanize consensus in either direction will be needed more than ever.
There is a change coming that is not going to turn us into a Nashville or a Chattanooga. Ms. Younger estimated the potential population growth for the Madison County area. Although it is significant, it is not as large as I thought it might be. Will this be the most significant event in a generation in West TN? Yes. Will it be an event that fundamentally changes West TN into the fastest growing part of the country, or even the fastest growing part of TN? No. The reality is that the suburbs of East Memphis are likely to see the greatest influx of people and the greatest degree of change as a result. Those areas have already been going and already have great infrastructure in place to handle that growth. In the rest of West TN, we’re going to have to balance optimism with realism as we prepare. There will be certain benefits for which we are thankful. There will also be drawbacks we wish we could avoid. And the combination of these benefits and challenges will very much depend on the seat in which you sit. So although there is big and significant change ahead, it does not appear to be seismic change that totally alters the landscape of this place that we call home.
As you’ve heard me say before in previous podcasts, consistently accurate prediction is impossible, but wise preparation is essential. You may have questions about what your small business should do to prepare for the change coming. We can help you with this. You see, at MBC and Foundation Bank we don’t just lend money to small businesses, we give financial guidance to small businesses. Our goal is to give you more for your money, and we have a host of small businesses we have helped that can attest to the value of our objective eye and thoughtful counsel. Start your financial conversation with us today by exploring our website or visiting your local branch. If you’ve found this podcast helpful, we hope you’ll subscribe to it in your favorite podcast app and share it on social media. Until our next episode, God bless you.
-President Chad P. Wilson, CFP
Today’s episode of “Money Matters” was written and recorded by President Chad P. Wilson of McKenzie Banking Company / Foundation Bank on March 8, 2023. This episode does not constitute financial advice. Please consult a financial professional to discuss your specific needs. MBC/Foundation Bank is an Equal Housing Lender, Member FDIC.
