What America Should Do About Its Ballooning Debt

A lot of the news coverage of hitting the federal debt ceiling has been political: The motion to vacate! The discharge petition! The trillion-dollar platinum coin workaround!

I prefer to look at the debt ceiling from the perspective of economics. Because whether you’re a Republican or a Democrat, it’s hard to deny that the United States has piled up a lot of debt. And as this chart from the nonpartisan Congressional Budget Office shows, the nation is on a path to incurring annual deficits that will make the debt much bigger in coming decades.

Unless you subscribe to modern monetary theory, which holds that deficits don’t matter unless they cause inflation, something has to be done, and soon. In textbook macroeconomics, higher debt leads to “higher real interest rates, greater interest payments to foreign investors, reduced business investment and lower consumer investment in durable goods,” James Poterba, a public finance economist at the Massachusetts Institute of Technology, wrote for the Peter G. Peterson Foundation website in 2021.

Instead of plotting parliamentary maneuvers against one another, members of Congress should be talking about how to cut spending or raise taxes or accelerate economic growth — or, realistically, do all three things — to slow the increase in debt as a share of gross domestic product. And the White House should eagerly participate.

“What everyone should do is put out their own preference for a budget,” Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, told me this week. She added, “It’s a frustrating abdication of responsibility that so few members feel it’s incumbent on them to say what they would do.” To say it bluntly: Put up or shut up.

MacGuineas also said that the proposals people put forward need to be realistic, in two ways. First, the numbers need to add up. You can’t claim to save $1 trillion if your identified cuts add up to only $100 billion, and you can’t plug a big budget hole with a claim that a miraculous economic growth spurt will fill it with higher tax revenue. Second, the plan needs to be at least faintly plausible politically. Otherwise, you’re making an ideological statement that will charge up fellow ideologues but achieve nothing else.

With those caveats in mind, consider an influential document, the Republican Study Committee’s “Blueprint to Save America,” which was released in June for the fiscal year that began Oct. 1. It’s important because the Republican Study Committee includes three-quarters of House Republicans and encompasses outspoken conservatives — including Lauren Boebert of Colorado, Paul Gosar of Arizona and Marjorie Taylor Greene of Georgia — along with power brokers such as Steve Scalise of Louisiana, the majority leader, and Elise Stefanik of New York, the Republican conference chair (but not Speaker Kevin McCarthy).

When you hear conservative House Republicans saying they have a plan to balance the budget, it’s possible this blueprint is what they’re referring to. The 122-page document is detailed. It would take away the Department of Agriculture’s responsibility for catfish inspection, for example. It would eliminate funding for the Corporation for Public Broadcasting. It would get rid of operating and capital grants for Amtrak, which would be privatized. Agree with such ideas or not, you have to give the study committee credit for specificity.

On the big-ticket items, there would be dramatic changes. The blueprint would gradually raise the normal retirement age for Social Security to 70 for those reaching 62 in 2040 (instead of 67 for those reaching 62 in 2022). It would also raise the eligibility age for Medicare. It would hand responsibility for Medicaid to the states and cut federal support for it to about half from the current 62 percent or so. These are likely to be unpopular measures, especially the Medicaid cuts, and that may be why you haven’t heard a lot of House Republicans playing them up. But there they are in the document. Props for that. The Republicans would also extend existing tax cuts and add fresh ones. That makes deficit reduction harder because tax cuts do not — sorry — pay for themselves through higher growth.

On paper, the blueprint’s ability to reduce deficits is impressive. It has the federal budget moving into surplus in fiscal 2029, just six years from now.

The problem, I think, is whether the blueprint meets the two standards for realism, namely math and politics. For instance, it has Medicare declining to 2.6 percent of G.D.P. in 2032 from 3.2 percent this year because of various cost-saving measures, including the higher age for eligibility. That’s a 19 percent cut for a crucial safety-net program in a society that’s getting older and more in need of it. In the biggest cut of all, it has “other mandatory” spending — which includes crop price supports, student aid, federal employee pensions and veterans’ benefits — falling to 0.7 percent of G.D.P. in 2032 from 1.9 percent this year. That’s a cut of 63 percent.

It’s possible that the changes specified in the Republican blueprint aren’t big enough to achieve the percentage reductions that are claimed, in which case the math doesn’t work. Or maybe the math works, but the politics don’t. It’s hard to tell. A spokeswoman for the Republican Study Committee declined to supply details on how the calculations were done. Kent Smetters, the faculty director of the Penn Wharton Budget Model, which measures the fiscal impact of public policies, said, “There’s not enough information for us to understand the math behind the qualitative statements they’re making.”

The Blueprint to Save America isn’t the only one in the drawer. For example, in December the Congressional Budget Office issued “Options for Reducing the Deficit, 2023 to 2032,” which has 17 options for large reductions and 59 options for smaller reductions. (As a nonpartisan operation, it doesn’t advocate any of them.) Some of the options overlap with the Republican plan by going after the biggest budget items, Social Security and Medicare. Others are quite different in that they would raise revenue: “increase individual income tax rates,” “impose a new payroll tax,” “impose a tax on consumption.”

No one likes higher taxes, but I don’t see how it’s possible to reduce deficits purely through spending cuts. So the C.B.O. document is useful. MacGuineas said the same thing: “The problem is just too big to have any part of the budget off the table.”

This, anyway, is the conversation we should be having as the United States rattles on toward the X Date, probably this summer, when the Treasury Department runs out of tricks to stay under the debt ceiling. Not brinkmanship.

The Readers Write

In your Wednesday newsletter you wrote, “To some people, any government role in technology smacks of socialism.” This is why a relatively incompetent Chinese regime is running circles around us!

Bob Nelson
Brooklyn

Quote of the Day

“The market came with the dawn of civilization and is not the invention of capitalism. If the market leads to the improvement of people’s daily lives, then there is no contradiction with socialism.”

— President Mikhail Gorbachev of the Soviet Union, in a speech to the founding congress of the new Russian Communist Party, quoted in the Washington Post (June 19, 1990)

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