Both parties are taking the easy road when it comes to addressing Washington’s passivity toward reckless spending. It is unfortunate that any discussion of what ought to be a no-brainer for Congress — that is, taking care to prevent current and future taxpayers from being held liable for both parties’ fiscal mistakes — becomes a matter of resignation and hopelessness. The fact that all eyes are immediately turning towards 2020 mere days after the midterm election only adds to the pessimism of those hoping for issues of national importance to be taken seriously.
Despite Congress’s blatant preference to govern election to election, it is important to remember that elected officials have the power to legislate even if they would prefer otherwise. The question looming large on this front: What options does Congress have to deal with our fiscal problems after years of procrastination?
All policy proposals are bound to meet serious pushback since Congress will have to a.) lower government spending — by a lot, b.) raise revenues (taxes), or c.) a combination of both. Manhattan Institute senior fellow Brian Riedl’s comprehensive report on finding the pathway to sustainable debt levels makes the case that option C is the only option, and the only viable way to do so is a bipartisan deal (i.e. both sides will have problems).
Unfortunately, Riedl’s prescription is correct. There are no easy magical options to vanquish our debt problems. As the price for decades of perpetual inaction on the national debt, Congress is now in a position of having to make deeply undesirable choices should it decide that a fiscally stable future is more important than the short-sighted view of politics as resume-building for the next election. Actually working to get the debt under control will require having to handle difficult decisions, conflict, and, worst of all in our political moment, negative press coverage. All of these things are almost an inevitability considering the waning options available.
Over the next 30 years, the CBO projects that the national debt will grow from its current $20 trillion to a staggering $99 trillion. That number could be much higher if interest rates rise from the projected 3-4 percent range to the historically typical 5-6 percent.
Congress will need to make major reforms to entitlement programs like Medicare and Social Security, a proposal that has been blasted by both Republicans and Democrats in 2018. These two programs alone account for, as Riedl estimates, $130 billion in annual growth or “the equivalent of creating another Defense Department every five years.” Given that “the rest of the federal budget is projected to run a surplus over the next 30 years” while Medicare and Social Security face a $100 trillion shortfall, it is undeniable where Congress must act.
Lawmakers must also pursue a more comprehensive tax reform that goes beyond the 2017 tax cuts if a debt crisis is to be averted. While Republicans may scoff at such an idea, deficits now equate to tax increases in the future. In other words, inaction on the debt is a tax increase on younger generations. Riedl’s report explains that “drowning younger workers in ever-rising taxes is no more moral than drowning them in debt.”
Overall, his proposal’s balance of 75% spending restraint and 25% revenue increases to stabilize our debt-to-GDP growth at 95 percent. In spite of the fact that such changes may result in higher taxes for some, it would be miniscule compared to the drastic and unprecedented tax increases that would accompany a debt panic.
For perspective on how dire our condition is, our current debt-to-GDP ratio, the amount of government debt as a percentage of our GDP, is about 105 percent or more than double our historic average of 41 percent. That figure, to flip Larry David’s signature quote, is prettay, prettay bad.
If you, like me, are disappointed with Reidl’s findings, recall that we are in this position because of years of irresponsible foot-dragging in Congress. Lawmakers are now faced with Riedl’s set of politically uncomfortable policy prescriptions because of continued refusal to get serious about a major public concern. The big question left unanswered is how long our generation will have to wait until elected officials leave their fiscal policy of electioneering behind before all options grow not only more undesirable, but less effective.
Read the full report here.