The Congressional Budget Office recently reported that under existing commitments, the already sizable federal deficit will grow faster than previously expected. Even before this Congress got to work in January, it had inherited less budgetary freedom — which I call fiscal democracy — than any previous Congress. Before appropriating a dime for anything, Congress had just 11 percent of this year’s federal revenue left after paying interest on the debt and funding mandatory commitments: generally, permanent and often growing obligations that don’t require appropriations, such as Social Security, Medicare, Medicaid, retirement benefits for federal workers and the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps). That’s the lowest annual share of uncommitted dollars in our country’s history, other than at the height of the Great Recession, when revenue plummeted.
As “fiscal democracy” declines, each generation of voters gets less say over spending and taxes. Without fiscal flexibility to make change — and with truth bombarded by unsustainable promises from the right and the left — populism finds platforms on which to sell its shoddy wares.
The costs are being incurred now; they’re not waiting for some fiscal blowup. The evidence is abundant: Education spending and other federal investments in children, as a share of gross domestic product, will fall by about one-eighth in about a decade. Programs that might promote economic mobility and opportunity for everyone make up an ever-smaller portion of the federal budget. Support for working families declines. College students get stuck with huge debts. Anyone visiting from abroad finds our airports and other transportation infrastructure second-rate. International affairs get short shrift, and despite a deficit-financed short-term increase in Pentagon spending, defense capabilities fall. These stories all relate to the decline of fiscal democracy.
By 2029, without legislated changes, the fiscal democracy index will be nearly zero, meaning almost all revenue will be
committed to previously mandated programs. Almost every dollar that Congress designates for nonmandated programs such as education, defense and most of the basic functions of government will be financed by borrowing.
Think that’s bad? It’s worse than it looks.
As the economy expands, it provides additional revenue that can finance new initiatives. Traditionally, if past Congresses were a bit too profligate, a congressional stalemate might reduce the deficit by minimizing new giveaways while revenue grew. No longer. Now that spending is scheduled automatically to grow faster than revenue, a budget stalemate only adds to future deficit woes — even before each new Congress and president feel compelled to enact new spending or tax cuts they can call their own. By 2029, under current law alone, the federal government will take in about $1.2 trillion more, adjusted for inflation, than it did last year. Congress could do a lot with that money, including promoting opportunity and helping the working families it has largely abandoned. But about 128 percent of that amount — more than $1.5 trillion — has already been committed by law.
Even that dire projection is optimistic. It assumes that we avoid a major recession, that many of the 2017 tax cuts expire, that taxes rise significantly as a share of GDP, and that no unusually large natural disasters or off-budget wars occur.
All the future increases in committed spending will essentially cover just three areas: health, mainly Medicare; Social Security; and interest on the debt. All other expenditures will basically stay the same in inflation-adjusted dollars, which means that as a share of national income and of the federal budget, they’ll decline substantially.
Most of the past and future growth in health care and Social Security spending derives not from rising numbers of elderly people and other beneficiaries, but from significant increases in lifetime benefits per person. These programs automatically provide each new generation of retirees more years of benefits as people live longer, higher annual benefits as they earn higher wages, and new health-care goods and services as those become available. After adjusting for inflation, a couple earning average wages who retired in 1960 got about $320,000 in lifetime Social Security and Medicare benefits; baby boom couples retiring in 2015 will get about $1.1 million in their lifetimes. Millennial couples retiring in about 30 years are scheduled to get about $2 million, and, though this can’t continue, we’re still rolling down that track.
Stories about how long-lost bipartisanship used to enable compromise and action in Washington usually miss a basic point: There’s not much Congress can do to make new commitments if far more than all the money the government takes in is already spent for old ones. Back when fresh resources provided by growing revenue were not committed in advance, Congress found it easier to make deals that allowed for both sustainable budgets and some new benefits or tax cuts. Now lawmakers’ main job when it comes to the budget is to renege on past untenable promises — not a sure route to electoral victory.
With the failure to engage in realistic budget policy, it’s no wonder politicians turn to blaming their opponents and a polarized culture for the government’s failure to adapt to modern needs. To justify putting off budget reform, they cherry-pick pieces of theories that, at best, only occasionally support more deficit spending: Keynesian stimulus when there is underemployment; supply-side economics when high tax rates reduce incentives to invest and work; and two modern theories centered on today’s low interest and inflation rates — one suggesting that we should spend more, say, on infrastructure and worthy social programs, and another labeled “modern monetary theory,” which supports increasing spending simply by creating new money.
Whatever their merits, these theories give comfort to any politician who wants to get through the next election by dodging fiscal democracy issues. They disregard the political and legislative consequences of unsustainable commitments that voters have come to view as obligated contracts; the squeeze on resources for children, working families and programs supporting opportunity and growth; and the anti-democratic aspects of determining today every priority for tomorrow’s voters. No theory justifies a budget that forever mandates spending to grow faster than revenue.
Reform requires nothing less than an agreement to abandon attempts to fully control an unknowable future. Democrats need to agree to limit automatic growth in spending and tax subsidy programs, and Republicans must agree to collect enough taxes to pay our bills when economic times are good. Congress must restore to voters, and to itself, the fiscal flexibility to make budgetary decisions as needs and circumstances arise.
We’re a rich country with huge opportunities to do many things newer and better. Elections are meant to allow us to choose different pathways. But candidates live in denial when they suggest they can sustainably pursue new opportunities without first restoring fiscal democracy.