US Calling: The ballooning budget deficit, Russian oligarchs and Jet tracking

To finance the deficit, the federal government borrows money by selling Treasury bonds , bills notes, floating rate notes and Treasury inflation-protected securities (TIPS). As of September 30, 2022, the end of the most recent fiscal year, the United States Treasury had about $24 trillion in outstanding debt, ie about 93 percent of GDP making it the highest value of debt relative to GDP since the end of World War II. And this current debt will mature within the next three years.

So almost thirty percent of this $ 6.7 trillion outstanding debt will mature and need to be refinanced during fiscal 2023-24. High levels of debt mean that financing the budget deficit at the prevailing high interest rates will only increase the budget deficit. Given this scenario there are no ready solutions as to how this tight-rope will be walked without higher taxes, lower interest rates and or cut back on expenditure.

Defence expenditure, and price gouging

Discussions on cutting spending inevitably turn to defence – the discretionary spending behemoth. President Joe Biden recently signed the Fiscal 2023 National Defence Authorization Act into law allotting $816.7 billion to the Defence Department. It authorises an increase of $500 million above the initial budget request and underlines the United States’ commitment to NATO obligations, maintaining US military bases in 85 countries and territories, and a unified response to Russia’s unprovoked war in Ukraine. While China’s emergence and an aggressive Russia raise the strategic stakes, however a budget deficit approaching $1 trillion, and publicly held debt the size of the US GDP, is a national security concern too.

Bipartisan support backs a stable defence budget for America’s NATO commitments and the cost of maintaining the global balance of power. However there is considerable concern over defence procurement. CBS News 60 Minutes program, after a 6-month investigation, found that almost half of the budget goes to defence contractors like Lockheed Martin, Boeing, Raytheon, and TransDigm are earning up to 40% profits and there is significant concern over military contractors overcharging or “price gouging” the Pentagon. Department of Defence (DOD) purchases were found to be plagued by a supply chain rife with unjustifiably high margins.

The genesis of the problem, per CBS News, lies in 1993 when the Pentagon, in a bid to reduce costs, urged defence companies to merge consolidating 51 major contractors into 5 giants. This reduced government leverage. Then 130,000 jobs of employees whose job was oversight of government contracts were cut in the 2000s, compounding the problem. In most US States ‘price gouging’ (i.e. increasing prices of goods or services much higher than is considered reasonable or fair) is set as a violation of unfair or deceptive trade practices law. The “Stop Price Gouging the Military Act” was introduced in Senate on 6th Sept 2022 which modifies DOD acquisitions and negotiation processes to address transparency and pricing including requiring defence contractors to make certain annual disclosures regarding average prices and gross margins.

Watchdog organisations have also red-flagged another practice, that is perhaps rampant in India as well, the “revolving door “ of DOD acquisition officials moving to Defence contractors. The Government Accountability Office (GAO) found that 1700 officials left the DOD and went to work for defence contractors.

DOJ’s Task Force KleptoCapture

The Justice Department had set up Task Force KleptoCapture,tasked with investigating Russian oligarchs and their assets like jets, yachts, and real estate. The task force had early successes that enabled key arrests and indictments for money laundering and successfully seized $325 million superyacht Amadea in Fiji belonging to Suleiman Kerimov and $ 90 million yatch Tango belonging to Viktor Vekselberg on the Spanish island of Mallorca. Prosecutors are now targeting their accountants, and lawyers for facilitating Russian payments, managing properties or securing sensitive technologies with potential military applications. Post the Ukraine invasion in February 2022, the US has received robust support in enforcement of its sanctions in the EU and UK and other jurisdictions. The message being sent to Russia’s elites is clear, that enabling Kremlin aggression brings severe costs.

Of Yachts, Jets and ‘Doxxing’

And staying with jets and yachts, under Section 179 of the US Internal Revenue Code, you can take a one-time expense deduction in the year of purchase equal to the purchase price of your yacht up to a maximum deduction of $500,000. Similarly the entire cost of either a new or used jet can be written off in the first year for business use. In this situation, the aircraft can essentially be viewed as “free.” So many entrepreneurs buy jets. However Jet tracking is now popular hobby using tail numbers. Google flight tracker and websites like Flightaware, FlightRadar24, FlightStats etc make it easy and also a risk. Elon Musk has a “doxxing policy” on Twitter (now X). He feels journalists sharing his jet’s “exact real-time” location is tantamount to sharing “assassination coordinates” and journalists have been suspended for violating it. But that apart, using artificial intelligence, private jets have an extremely high risk profile. Readers may remember that Yevgeny Prigozhin, who led the failed coup against Russian President Vladimir Putin, allegedly died in a plane crash.

Jewish New Year ‘Rosh Hashanah’ celebrations

As per a recent study, approximately 5.8 million adults (2.4% of all U.S. adults) are Jewish. The Jews are a prodigiously talented community, in virtually every walk of American achievement. On Friday, September 15, 2023 “Rosh Hashanah” the Jewish new year celebrations commenced at sunset, and will end 10 days later with Yom Kippur. This is a festive holiday, so do wish your friends “Happy New Year,” or “Shanah tovah”, which means “Good year.”

(The writer is a former IRS officer, presently in the US. You can reach her on X @punamsidhu )