The nation’s fiscal situation is deteriorating quite rapidly, and instead of fixing it, our nation’s leaders engage in fake justifications and ongoing finger-pointing.
There is a huge risk that we will soon see large tax cuts that add hundreds of billions, if not trillions, to the debt. We should fully offset these tax cuts by broadening the tax base and cutting spending.
But instead, in addition to making exaggerated growth claims, those who defend tax cuts will no doubt point to the bloated Democratic American Rescue Plan that also borrowed too much and kicked off inflation.
And Democrats will in turn point to the first Trump Administration, where tax cuts not only added trillions to the debt, but spending increases added trillions more.
Republicans will likely respond by pointing to the cynical scare tactics of Democrats that whip seniors into a frenzy at any mention of reforming Social Security and Medicare, which has led to decades of unsustainable growth in automatic spending.
To which, Democrats will remind Republicans that they, too, now promise not to touch the programs, despite that fact that they are rapidly heading towards insolvency.
And they will all be right, for there are no fiscal heroes in this story.
We are now so polarized and dysfunctional that our leaders are unwilling to do anything hard. They are more intent on their party and their own political success, and they see unpaid-for tax cuts and spending increases as key to that success.
Twenty-five years ago, we were running budget surpluses, and the national debt was heading towards being paid off. Instead, we reversed course and now have near record debt levels. Three-quarters of the deterioration resulted from bipartisan legislation. As divided as the two parties are, agreement comes much easier when they are borrowing.
The fiscal picture has now moved from worrying to alarming. Our deficits are approaching $2 trillion a year, and interest payments are the second largest item in the budget — even larger than defense. We are expected to break the record for debt as a share of the economy, set just after WWII, in just four years. And yet the current plan is to borrow another $22 trillion over the coming decade despite warnings from just about anyone who has looked at the numbers.
Nonetheless, we are now so polarized and dysfunctional that our leaders are unwilling to do anything hard. They are more intent on their party and their own political success, and they see unpaid-for tax cuts and spending increases as key to that success. We the voters are complicit too, continuing to reward those who promise us the moon while blaming the other party for all of our problems, despite the damage this borrowing continues to do to the country.
The exceedingly high debt levels weaken the U.S. in just about every way possible. They crowd out private investment and slow economic growth and the standard of living. They lead to inflation and higher interest rates, which cause a variety of hardships for American families who then face higher prices and borrowing costs. As interest payments grow, they squeeze out other parts of the budget. And they leave us ill-prepared for the next emergency, recession, pandemic, or geopolitical crisis, where we will need to borrow but will have less of an ability to do so cheaply due to all the unnecessary borrowing from the past.
We the voters are complicit too, continuing to reward those who promise us the moon while blaming the other party for all of our problems, despite the damage this borrowing continues to do to the country.
At this point, our dependence on borrowing has become not just an economic threat, but a national security threat, as well. It will be difficult to absorb the increases in defense spending we will almost surely need in what is proving to be an extremely risky geo-political environment. Just as one example, the Salt Typhoon attack showed us we desperately need to harden our defenses for a techno-driven warfare model. This will create more domestic pressure as we either fail to fund other pressing priorities or pile on more debt, and we will be far more vulnerable if and when we need to respond to attacks at home or abroad, given our dependence on foreign borrowing. The external risks from China and others should remind us that we can’t compete internationally if we can’t cooperate domestically, but even the national security wake-up call has failed to help us take the debt threat seriously thus far.
And this is how great nations fall – divided, distracted, distrustful, and drowning in debt.
The good news — and there still is some — is that the solutions are straightforward. This is not to say that they are easy, but that is what true leadership is about. Were we to choose to turn the situation around, we still could, though that window will not last indefinitely.
We must immediately agree not to make the situation worse. Political leaders should commit to “No New Borrowing” until the debt is back under control. Frankly, they should go a step further, and adopt Paygo-Plus, whereby anytime the debt-to-GDP ratio is over 100 percent, any new spending or tax cuts are not only offset, they are more than offset, say by 150%, so every bill is also at least a down payment on fiscal improvement.
Beyond that, we need to implement a debt reduction plan to stabilize the debt as the share of the economy, or get the deficit to 3 percent of GDP — the minimum goals we should aim for. To get there, it will take roughly $9 trillion in savings over the decade — a large amount for sure, that will require us to do a little bit of everything. We need a plan to make Social Security solvent, including lower benefits for the well-off, raising the retirement age for younger workers, and lifting the payroll tax cap. We need to fix our health care system, both by reducing inefficiencies and the many ways industry stakeholders and states game the system, along with more structural reforms including how benefits are delivered and how prices are structured.
We should comb through every other area of the budget, from agriculture to welfare to the defense procurement process. If we save 10 percent of the $89 trillion we are projected to spend over the decade, we are more than the full way there — just 5 percent would get us most of the way. We should likewise reduce spending through the tax code, which is roughly $25 trillion over the decade. To that end, if we cap all the tax breaks any taxpayer can receive at either a dollar amount or a share of their income, along with interest savings, we can achieve our fiscal target.
Every year we wait, the task gets more difficult and the chance that we have an inflation or debt crisis is greater. The time for casting blame and running away from our collective responsibility has passed if we hope to avoid a crisis.
Maya MacGuineas is the president of the bipartisan Committee for a Responsible Federal Budget.