by Paolo von Schirach —
WASHINGTON — On the surface, it looks like a spirited fight over matters of real substance. The GOP controlled House of Representatives insists on obtaining significant federal budget cuts in return for a green light to legislation authorizing a federal debt ceiling increase. “Ok, Joe Biden, you want to borrow more money. We will allow that. But in return we want from you a pledge to have meaningful federal budget cuts. No more profligate spending. We need to recreate fiscal discipline”.
Both parties guilty of over spending
It sounds nice and reasonable. Except that it is mostly political theatre. The Republicans long ago abandoned any allegiance to their core “small government” principle. Along with their equally guilty Democratic comrades, they voted to increase federal spending. Year after year. Then the Covid 19 emergency came along, and all remaining fiscal restraints were cheerfully abandoned by both parties. Hundreds of billions of extra spending overnight became trillions. Gigantic, as opposed to extremely large, annual deficits became the norm. The already dangerously high national debt in a couple of years became monstrously large.
But even that, apparently was not enough. With Joe Biden in the White House, the Democrats doubled down on yet more spending. Under Biden’s guidance, the Democrats passed one last, truly gigantic $ 1.9 trillion Covid stimulus spending bill. And then there was more spending for green energy. The only justifiable spending measure was for badly needed investments in infrastructure. This bill was passed with the support of Republican votes.
But now, after the midterm elections of 2022, the GOP controls (by a tiny margin) the House of Representatives. Speaker McCarthy, disliked by the truly bizarre, “anti everything” fringe of his caucus had to prove that he can do real tough opposition. Hence this “budget cuts in return for raising the debt ceiling” showdown with the Biden White House. McCarthy wants to prove that the Republicans, all of a sudden, have regained their long abandoned fiscal prudence credentials.
The real issue
But, on close inspection, this fight is mostly window dressing. While the Covid extra emergency spending is over, surely we can cut some here, and cut some more there in a federal budget of approximately $ 6.2 trillion. And this may do some good. But anybody who knows anything about the composition of US federal spending knows very well that the real spending and therefore the main driver of our dramatic, and growing fiscal imbalances are the major entitlement programs: first and foremost Social Security, Medicare and Medicaid. And these programs (they carry on on a sort of automatic fiscal pilot) are not on the McCarthy spending cuts agenda. And for good political reasons.
No discussion on entitlements
No one –Democrats or Republicans — wants to touch them for fear of a violent voters’ backlash. Indeed, how do you explain to millions of US citizens who count on receiving a certain level of benefits that these programs need to be reformulated because they are headed towards bankruptcy? Most Americans would smell a sinister Washington plot to cut their benefits. They will rally, with the 38 million members strong American Association of Retired Persons (AARP) in the lead, writing millions of letters to their Congressmen and Senators. There would be a bombardment of TV ads against any changes, and more. Which is to say that any effort at serious entitlements reform would require ample, bottom up, bipartisan accord. For such a complex effort to succeed, both parties have to agree. And this is a distant dream in the current hyper toxic Washington environment in which Democrats and Republicans agree on almost nothing. This is why these huge and super expensive programs are not on the McCarthy spending cuts agenda.
The problem with entitlements
But why are these critical entitlement program now a real fiscal nuclear bomb? Very simple. These important “safety net” programs were designed in another era, with completely different demographics. At the time, there were millions of active people in the US who paid into the system; while the number of retirees was relatively small; and they did not collect benefits for many years, because people did not live as long as they do today. But now the picture is completely different. The money that goes out in payments to the millions of covered US citizens who live longer is no longer matched by the monetary contributions coming in. Overtime, these entitlement programs have become gigantic, largely because of the increased cost of health care and the simple fact that millions of recipients keep receiving benefits for many more years, because they live longer. If you add Income Security Programs and Veterans Benefits, taken together, all these entitlements make up over 60% of total US federal spending. National Defense is now at 12%. Then every year you have to set aside money to pay interest on the existing national debt; and this is about 8% of federal outlays. You have to pay that interest to bond holders. All these items are MUST SPEND MONEY.
Of course we could argue, and we always do every year, about the overall size of the Pentagon budget. However, anybody who knows anything about the status of our military preparedness would strongly state that, if anything, we need more money, not less, for national defense. Cuts would be most unwise.
Discretionary spending does not amount to much money
So, once we take all these big ticket items –all entitlements, national defense and interest on the debt– off the table what is left to argue about? What is left is called “non defense discretionary spending”. And how much is that? Less than 20% of total federal spending. And with that money Washington has to pay for everything else that the federal government does: transportation, justice, foreign affairs, agriculture, commerce, education, energy, scores of federal agencies, and so on.
So, here is the picture. Entitlement spending, already out of control, will grow, as more Americans get benefits, for many more years, since they live longer; while the pool of working Americans progressively shrinks due to lower and declining fertility rates. We are not going to gut defense. Therefore, its share of federal spending, now 12%, is not going to be reduced. Finally, we must pay interest on the existing national debt. The bigger the debt, the larger the portion of federal spending that must go to pay interest, every year.
This being the case, in order to have meaningful spending reductions it is not enough to cut a bit here and a bit there in the relatively small slice of the federal spending pie that goes under “non defense discretionary spending”. To have noticeable, but still not transformative, spending cuts, we would have to eliminate entire federal departments. And this is not going to happen.
Therefore, the unpleasant yet stark reality is that, without a meaningful restructuring of entitlement programs and their cost, America is well on its way to fiscal catastrophe. Expect larger annual federal deficits and the continuous growth of our national debt, now in excess of 31 trillion dollars. (each trillion is a thousand billion). and growing.
A serious debate about spending must include proposals for restructuring entitlements
Where am I going with all this? Very simple. Any serious debate on reducing federal spending, the deficit, and the national debt has to include entitlements reform. If these programs are not on the table, then any discussion is mostly cosmetic stuff, political theatre. I am not saying that upon review it is not possible to identify wise and appropriate spending cuts in the Department of Agriculture or Commerce. By all means, if we want to be good stewards of tax payers’ dollars, let’s save money wherever we can.
But the notion that by cutting some “fat” at the Department of Energy, and some more at the Department of Education we can have a meaningful inflection in the upward trajectory of the federal spending curve, with real decreases year after year, resulting in smaller and smaller federal deficits, and eventually a balanced budget, is pure fantasy. As I said, we could abolish entire departments and we still could not balance the federal budget.
There will be a deal
That said, I am confident that, after the posturing and grandstanding by the White House and the House Republicans during these protracted negotiations, some deal will be struck. Speaker McCarthy will get some spending cuts and the Biden administration will be able to obtain the GOP votes necessary for increasing the national debt. No doubt, both sides will declare victory and will do their best to use this complicated fight as material for their political arguments in the upcoming presidential campaign. But this is mostly hot air.
We need real leaders
Let’s dream for a moment about having real leaders, in both parties, who really care about this country and are therefore willing to tackle the real issues, even if they are politically dangerous. If we do not act to fix Social Security and Medicare, resulting in financially self-sustaining programs, pretty soon on account of fiscal catastrophe we shall have neither.
Paolo von Schirach is the Editor of the Schirach Report He is also the President of the Global Policy Institute, a Washington DC think tank, and Professor of Political Science and International Relations at Bay Atlantic University, also in Washington, DC.