Debt Digest | Fed Silence, $2 Trillion Deficit
Links & Fiscal Facts
Here are this week’s reading links and fiscal facts.
Earmarks galore. The Senate voted 35-62 to reject a proposal by Mike Braun (R-IN) that would have prevented $3.8 billion in earmarked spending from going to 1,270 projects that senators included in the minibus comprising the fiscal 2024 Military Construction-VA, Agriculture and Transportation-HUD appropriations bills, reports Roll Call’s Caitlin Reilly. Earmarked spending is most often improper spending, unnecessary, and distracts from more fundamental governing responsibilities, argues Boccia. “Such a misdirected focus inevitably invites fraud, waste, and abuse.”
The Fed’s silence on the deficit. “‘We don’t comment on fiscal policy,” Fed Chair Jerome Powell told a questioner after a speech last week. ‘We know that we’re on an unsustainable path fiscally,’” reports Greg Ip. “What [Federal Reserve officials] won’t say is that political leaders should therefore do something about the deficit…there is the risk that if Powell has skin in the fiscal game, critics read ulterior motives into his actions. In 1990, the Fed, under Chairman Alan Greenspan, cut rates after then-President George H.W. Bush and Congress reached a deficit deal. Since then, the Fed has generally avoided so explicit a link between monetary and fiscal policy.” Romina Boccia warns that “when excessive deficit spending on an already enormous federal debt pushes up interest rates, as we’re witnessing right now, using the Fed’s money‐issuance powers starts looking more appealing.” “To limit the dangers of resorting to fiscal QE [quantitative easing]“, George Selgin urges the Fed to restore its pre‐crisis operating: “A corridor system reform would guard against fiscal QE by constraining the size of the Fed’s balance sheet.”
Bipartisan fiscal commission is overwhelmingly popular. Nine in ten US voters are “calling for a bipartisan fiscal commission to address the rising national debt,” according to the Peterson Foundation. “With interest costs rising rapidly and essential programs like Social Security on unstable footing, now is the time for a responsible, forward-looking approach to stabilize our debt [and] put America on a stronger, more prosperous path,” says CEO Michael A. Peterson. Boccia explains how to design a successful fiscal commission here.
Health provider consolidation. As explained in The Economist, “The Affordable Care Act of 2010 limited the profits of health insurers to between 15% and 20% of collected premiums, depending on the size of the health plan. But it imposed no restrictions on what physicians or other intermediaries can earn. The law created an incentive for insurers to buy clinics, pharmacies and the like, and to steer customers to them rather than rival providers…According to Irving Levin Associates, a research firm, between 2013 and August 2023 the nine health-care giants spent around $325bn on over 130 mergers and acquisitions.” As Cato’s Michael Cannon explains, “to the extent ObamaCare (1) increases regulation generally, (2) encourages excessive insurance, or (3) expands government purchasing of medical care (e.g., via Medicaid), it encourages provider consolidation. As it happens, ObamaCare does all of these things.”
Gerontocracy? Urban-Brookings Tax Policy Center C. Eugene Steuerle and Stanford’s Glenn Kramon write, “We older Americans are not only controlling national politics; we are consuming an ever larger share of our economy’s resources through programs like Social Security and Medicare, leaving younger Americans to foot growing bills for their parents’ and grandparents’ retirements. And politicians of both parties are refusing to recognize the consequences.”
Social Security insolvency. The Washington Post editorial board writes, “There is no serious approach to fiscal sustainability that excludes Social Security. The Congressional Budget Office estimates Social Security’s price tag will nearly double between now and 2033, to $2.3 trillion, or 24 percent of federal spending.” The WaPo editorial board highlights several promising reforms to make Social Security more fiscally sustainable, including raising the retirement age and making the formula that adjusts benefits for inflation more accurate (chained CPI). Boccia highlights commonsense Social Security reforms here.
Deficits double. Bloomberg’s Christopher Condon and Chris Anstey write, “In a year when the US economy exceeded almost everybody’s expectations, the underlying federal deficit roughly doubled, spotlighting a dire fiscal trajectory likely to only worsen the partisan budget battles in Washington. The government ran a $2.02 trillion deficit for the fiscal year through September…The gap is $1.02 trillion more than the prior year.” See the Bloomberg graph below explaining the budgetary changes underlying the growth in the federal deficit.
