In theory, the American people’s elected representatives decide every so often how much to tax the public and how to allocate the revenue among various priorities, both short-term and long-term.
In practice, however, Congress and the president have almost no such fiscal latitude. The vast majority of anticipated tax proceeds, roughly 80 percent at present, are already committed to be spent — on programs such as Social Security and Medicare and in interest on the national debt — before the House and Senate convene each January.
By 2023, the figure will approach 100 percent if current trends continue. Consequently, the federal government would have to borrow its entire discretionary budget, for things such as disaster relief, infrastructure and education.
This near-total loss of “fiscal freedom” is the theme of “Dead Men Ruling,” a short, superb new book by C. Eugene Steuerle, from which the above statistics derive; the title nicely expresses the fact that today’s lawmakers are tightly constrained by the accumulated, and seemingly unalterable, decisions of their predecessors. Government is not just out of their control; it’s beyond their control.
Steuerle persuasively argues that the nation’s budget challenge is not simply a matter of deficits and debt, important as they are.
Rather, the point is to restore a long-term balance between spending and revenue so that the federal government can invest in new priorities without further indebting an already dangerously indebted country.
Declining fiscal freedom is politically toxic, too. The two parties define themselves by past achievements — New Deal and Great Society programs for Democrats, low tax rates (and various tax breaks) for Republicans — and then fight uncompromisingly to perpetuate them.
“What began as legitimate desires to create a safety net and reduce very high tax rates,” Steuerle writes, “has now morphed into a situation in which both liberals and conservatives live in the past — ruled over largely by the decisions and dictates of dead or retired officials — and seek mainly to protect and build on those victories.”
No matter that neither entitlement programs nor the tax code operates with anything like optimal efficiency in a society that is far different demographically than the ones in which they were first enacted.
No matter that the net effect of the partisan impasse over fiscal policy is to shift the costs of current spending onto future generations — even though it is highly unlikely that economic growth will be sufficient to cover the government’s accumulated debt, as it sometimes has been in the past. And no matter that the standoff over spending and taxes generates excess political anger, which flows into other struggles such as immigration or guns and makes them worse.
Steuerle’s book is an effective riposte to those who would argue that fiscal concerns are overblown in light of recent progress against the deficit or that “deficit hawks” are just rationalizing mean-spirited “austerity” to punish the poor and elderly.
To the contrary, what Steuerle shows is that the issue is long-term fiscal sustainability, which would provide flexibility.
A government that lives within its means would be freer to stimulate the economy during recessions or to devote more resources to the needs of poor children — as opposed to maintaining the current consumption of older middle- and upper-middle-class voters, which is the unstated but actual purpose of the status quo.
A senior policy expert at the centrist Urban Institute and former Treasury Department official during the Reagan administration, Steuerle is a veteran of the 1986 tax reform fight and therefore not naive about the political heavy lifting it would take to restore America’s lost fiscal freedom.
Titanic as that 1986 battle was, Steuerle acknowledges that its equivalent will have to be fought on multiple fronts if the United States is to escape its fiscal predicament and avoid the long-run stagnation that will otherwise prevail.
He reckons that the only precedents are the “fiscal turning points” the United States faced when it had to finance Revolutionary War debt at the end of the 18th century and when it had to institute an income tax and the Federal Reserve at the dawn of the 20th. Those reforms took decades; ditto, probably, for the institutional changes we need today.
At least Steuerle, unlike other budget pundits, is upbeat about the challenge, emphasizing the opportunities for policy innovation and reinvigorated governance that would result from the restoration of “fiscal freedom.”
As the intellectually sterile election campaigns currently underway show, however, few politicians, if any, have figured out how to express Steuerle’s combination of realism and optimism and sell it to voters. The future might belong to the one who finally does.