My last post, described a plan by Brian Riedl at the Manhattan Institute to fix our debt problem in a bipartisan manner.  It won’t be easy, of course, but he shows how it can be done.  Today I highlight another article by Mr. Riedl, explaining why it is such an enormous political problem to get there.

Consider:

• The faster government escalates towards an inevitable debt crisis, the less politicians and voters seem to care. In the 1980s and 1990s, more modest deficits prompted six major deficit reduction deals that even balanced the budget from 1998 through 2001.
• In the past eight years, Presidents Trump and Biden enacted $12 trillion in deficit- expanding legislation, even as Social Security and Medicare shortfalls drove baseline deficits even higher. When even liberal economists warned that the post-pandemic economy faced a modest degree of rising inflation, Congress responded by enacting the $2 trillion American Rescue Plan.  When inflation and mortgage rates resultantly surged to 9.1% and %7.8%, respectively, lawmakers continued the inflationary spending spree.
• We have apparently convinced ourselves that 1) deficits do not matter, 2) deficits have become a weapon to be politicized rather than a problem to be solved, and 3) few are willing to face the unpopular reality that the problem cannot be solved without fundamentally reforming Social Security, Medicare and middle-class taxes. We cannot grandfather out of reform the 74 million baby boomers whose retirement costs are driving the enormous shortfall.
• Up through the mid-1990s, Republicans and Democrats – despite public bickering – often collaborated well behind the scenes. Currently, we have 24/7 partisan warfare.  The last attempt at reform, from former House Speaker Paul Ryan, earned him bipartisan hatred from voters and an attack ad portraying him murdering a senior citizen.
• There are simply no easy solutions. Demanding a balanced budget amendment to fix $2 trillion annual deficits is absurd.  Proposing that taxing the rich will eliminate the problem is equally absurd.  Defense spending has already fallen from 6% of GDP in the 1980s to currently 3% of GDP and can’t realistically go much lower.  Medicare for All is not a serious savings proposal and would only shift private healthcare expenses from the private sector to the public, making deficits even worse.
• The painful reality for the Republicans: the long-term debt cannot be stabilized with tax revenues remaining at 18% of GDP. The most conservative, but plausible, proposal would limit long-term spending to 23% of GDP, which would require revenues of 20% of GDP to stabilize the debt (taking economic growth into account).
• The painful reality for Democrats: you cannot chase spending heading to 32% of GDP by increasing taxes on the rich or even the non-rich.
• The reality for both parties: you have to work together.  The political model is the 1983 Social Security reforms where both parties worked together and were overwhelmingly reelected.
• The most important reform variable is the voters. Lawmakers will not act as long as they fear that even discussing deficit-reduction proposals will provoke a furious backlash.

Conclusion.  Brian Riedl has outlined a workable deficit reduction proposal, but it cannot be implemented without an honest effort by both parties to work together.  Furthermore, the voters have to be brought along so that members of Congress will not be penalized by cooperating on this critical and urgent task.

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