What's In Uncle Sam's Wallet?

Too Many Credit Cards, Too Little Cash

This month’s Harvard-Harris poll reconfirmed voters’ views on America’s growing fiscal crisis. The media have pointedly ignored it.

Harvard-Harris asked what the public wants Congress to do. Two poll responses (on slide 29) showed clear bipartisan consensus amid the sea of discord on the Hill. The questions are worth verbatim repetition here.

“Do you believe the current level of US federal government debt is sustainable or unsustainable?” That’s clear enough. 66% of Dems, 63% of Reps, and 74% of Inds answered “unsustainable,” for a blended figure of 67%, exactly two-thirds of respondents.

What to do? “Do you think the US Government should move in the next few years to balance the budget or is that unrealistic and it should continue to run significant deficits?” 76% of Dems, 92% of Reps, and 79% of Inds said balance the budget, a blended figure of 82%. That’s called consensus.

There was also a “how” question on slide 30. “To reduce the budget deficits do you think we mostly need to reduce government expenditures or to increase taxes?” 83% favored reducing expenditures. Some Republicans may want to overread this, but the language says nothing about cutting taxes.

Combining these answers, most voters, by a wide margin, want to move quickly toward a balanced budget, more with cutting spending and less with raising taxes.

Washington’s response: House Republicans approved an outline for the budget reconciliation that raises projected deficits by $2 trillion, ignoring the public’s frequently expressed wishes.

The tax cuts proposed in the outline would mostly help retirees, restaurant servers, manufacturing employees (~7% of the workforce), and higher bracket householders with large mortgages in high tax states. Are these supposed to become the key drivers of America’s future economic growth?

Who would the resulting higher deficits hurt? Every American, one way or another. Interest on the debt reduces spending or increases taxes somewhere. Or, if Washington continues to borrow more to pay the interest, we’re into the credit card death spiral that now imperils the nation’s future.

The government knows that. The Congressional Budget Office (CBO) annually projects the federal budget for the succeeding ten years, assuming current laws remain in force. Never before have those prospects been so grim.

The first four columns are CBO’s estimates from last month, rounded to one decimal place.* The last two columns reflect the House budget blueprint adopted this week, with an added $2 trillion of debt, which I have straight-lined over the 10 years for simplicity.

I have argued before that this pathway is unsustainable, that the US would face a revolt by our lenders, a loss of faith in the dollar, and a fiscal crisis before 2035 on these assumptions. Note that CBO doesn’t contend otherwise. This is just a numerical exercise based on current law and certain assumptions. If that exercise generated a quadrillion dollar debt, so be it.

But my point here is not unsustainability; it is the failure of democracy. A sizable and durable majority of voters don’t want that table above to become reality. We want progress toward balancing the budget, not toward increasing the deficit. How can it be OK for our Representatives to ignore voters’ expressed preferences on something so fundamental? If it isn’t OK, how do we fix that?

The ballot box is not the pathway—at least not now. I wrote a book two years ago endorsing that path; No Labels tried; polls said it was feasible; and it went nowhere. The parties choked it to death, with malice aforethought. Nothing will change in that respect until it is too late to matter. We must persuade those already in office, hundreds of them, to support a process to generate deficit reduction now, during the 118^th Congress, with huge decisions already in the offing.

That will take commitment and courage by organizations like Committee for Responsible Federal Budgets, Concord Coalition, Manhattan Institute, Peter Peterson Foundation, and Tax Foundation that have preached budget sobriety, with no success so far.

They might move with vocal popular support; popular support might emerge if the organizations committed—a chicken and egg, Gordian Knot dilemma. Some hero needs to cut this knot soon. Action after another huge debt increase may prove too late.

* Four cautionary notes: CBO assumes 1) steady inflation, 2) steady interest rates, 3) a 20% cut in defense spending (which would make Xi happy), and 4) steady economic growth with no recessions over the 10 years. I find those assumptions implausible, but I’m adopting them for discussion purposes