Debt Digest | Bipartisan Irresponsibility
Links & Fiscal Facts
Welcome back from holiday hibernation! Here is the first Debt Digest of 2024:
Pandemic ‘hoarding’ scam. In 2021, Democrats passed a $2 trillion pandemic spending package with funds set to expire in 2024. “However, the Biden administration swooped in with a rule (published late on a Friday to obscure it from notice) that would change basic spending terms in a way that gives governments more time to select boondoggles and handouts. It could cost a staggering $1,200 per household,” explains David Ditch of the Heritage Foundation.
Legislative backscratching. Democrats want humanitarian aid for Gaza and military support for Ukraine. Republicans want border security. “What is Congress likely to do? Pass all of it,” writes Tax Policy Center’s Howard Gleckman. “[T]he $14 billion in military aid to Israel and the humanitarian assistance for Gaza could not have been anticipated. But the vast bulk of the new money was completely expected. [...] Republicans will swallow Gaza and Ukraine aid in return for Democrats agreeing to more border security money. […] Each of these initiatives may have merit. But adding another $100 billion to a projected fiscal year 2024 deficit of $1.6 trillion, with no serious thought of paying for it, is bipartisan irresponsibility.”
Tax increases scheduled for 2026. “As Congress tackles tax reforms in 2025, it should balance broader budgetary constraints, additional tax simplification, and economic growth. Many of the provisions […] interact with each other, and the reforms proposed will have implications for other parts of the tax code that should also be addressed,” argues Cato’s Adam Michel. See his cheat sheet on major tax changes here.
Bipartisan problem, implausible solutions. Republicans and Democrats agree that federal spending is on an unsustainable trajectory driven by Social Security and Medicare. However, Democrats’ solution of taxing the rich and Republicans’ solution of igniting explosive economic growth are both implausible, argues George Will. “[N]early $1 trillion could be saved in a decade by curtailing subsidies to agribusinesses and trimming Social Security and Medicare benefits for wealthy retirees. The two parties could sheathe their daggers and achieve progressive redistribution goals without the economic harms of large tax-rate increases. Something they might consider — tomorrow.”
Social Security deficit. The Peterson Foundation explains, “Primarily due to an aging population and revenues that haven’t been able to keep pace with expenses, Social Security has been incurring an annual deficit since 2009. In 2022, Social Security spent $147 billion more than it brought in, and that gap is expected to widen to $670 billion in 2033. In total, Social Security is projected to incur cash deficits of $4.5 trillion over the next decade.” Commonsense changes, like indexing benefits to grow with inflation rather than wages, can prevent Social Security insolvency.
Federal overspending. Cato’s Chris Edwards writes, “Currently, the federal government accounts for about two-thirds of the nation’s government spending, with state and local governments accounting for one-third. We face a debt crisis because spending is dominated by the level of government that is devoid of restraints. We should slash federal aid to the states to invert that structure and aim for the fiscal structure of Switzerland, where just one-third of government spending is federal.” Limits on spending and debt growth are especially important as the size and scope of government expands. The graph below shows how federal spending has changed over time since 1961.
