To say our nation’s finances are in poor condition would be a drastic understatement. They are in shambles.
Hundreds of billions worth of unresolved government reform recommendations, trillions in tax breaks still on the books, an annual deficit hurtling past $1 trillion, skyrocketing interest expenses on $22 trillion in national debt and $100 trillion in unfunded liabilities still coming down the pike.
Unfortunately, instead of trying to solve these problems, politicians like to play the blame game and point to their favorite partisan opponents’ policy as the sole reason for what ails us. It took many years of fiscal negligence and overpromising by both parties to accumulate $21 trillion in national debt and rack up $100 trillion in unpaid for liabilities. We don’t need more people and policies to blame. What we need is an opportunity to solve this colossal mess.
So how about now?
Yes, a major bipartisan kumbaya moment may seem laughable coming off a record setting government shutdown and an impending clash over constitutional spending powers. But there are also a lot of factors that indicate a big deal is possible in the coming months.
The Right Players
Senate Majority Leader Mitch McConnell (R-KY) was forthright in a pre-midterm election interview when he concluded “that entitlement changes, which is the real driver of the debt by any objective standard, may well be difficult if not impossible to achieve when you have unified government.” Well he may not like it, but the American people gave Leader McConnell his wish when the Democrats swept the Republicans out of the House majority.
His new counterpart, Speaker Nancy Pelosi (D-CA), has also voiced her concerns about the national debt. She recently called it a “dark cloud” over our nation’s future and excoriated the Republican tax cut as “borrowing from our children and grandchildren’s future in order to go deeply into debt to fund more tax breaks at the high end.”
While it’s difficult to pin down President Trump’s position on our fiscal outlook, he has shown he is favorable to big, beautiful, bipartisan bills.
There’s also precedent for a deal. The last time we had a Republican White House, Republican Senate, and Democratic House was in the 1980s. That combo produced the last significant Social Security reform, major efficiency reforms at the Pentagon, and comprehensive tax reform.
This spring, we will once again run up against the dreaded debt limit. The debt limit is an arbitrary cap on the amount that the United States can borrow. Instead of it being a tool to set sustainable goals for our nation’s debt load, it is just an iterative reminder that our debt keeps accelerating upwards. The only thing we are capable of doing at the debt limit is scream about doomsdays scenarios without considering the actual building debt crisis.
During the same time period, Democrats and Republicans will also want to negotiate a deal to lift the budget caps. Their last budget agreement resulted in a massive $300 billion spending cap increase for 2018 and 2019 – a hike so large that simply sticking to current caps (or even increasing by a modest amount) would result in a year-over-year spending reduction next year. This will be spun by spending advocates on the left and right as heartless cuts to the poor or a damaging blow to our national security respectively.
Inevitably, Congress will do what Congress does and lift the debt limit and increase spending as part of a new two-year budget agreement. But with a $1 trillion annual deficit soon to be breached – maybe, just maybe, our elected officials will use the budget caps to forge a broader deficit reduction deal as they were originally intended and actually deal with our debt while dealing with the debt limit.
10,000 Baby Boomers are retiring every day and Medicare and Social Security face a $100 trillion funding shortfall. The costs for those two programs alone are increasing by $140 billion every year – the equivalent of creating a new Pentagon every five years. Asking younger Americans to pick up this gargantuan tab is not just untenable, it’s immoral.
Manhattan Institute Fellow Brian Riedl’s recent proposal to stabilize the national debt through spending restraints (i.e. decreases in the increases) and curbing major tax loopholes would be a great place for Congress to start. The plan holds the poorest segment of Americans harmless while creating a large portion of the savings by paring back government benefits from high-income earners.
Democrats wanting to raise taxes on the well-off can instead reduce their federal benefits. Republicans, who have historically wanted to be the party of fiscal responsibility, can champion that they finally accomplished the long elusive goal. Both parties can be proud that they prevented the largest intergenerational wealth transfer in American history and a likely future debt crisis.
They Have Plenty of Time, Will They Use it?
Congressional leaders’ favorite playbook is governing crisis-to-crisis, a tool used to ensure that the only topics covered are political theater rather than the facts at hand. But we know these deadlines are coming in the next six months. Our elected officials have plenty of time to come together and find a long-term solution to our nation’s largest looming threat.
Everything is in place except for one great unknown.
Divided government? Check.
Impetus for bipartisan budget agreement? Check.
Courage to save the future? We’ll see.