Debt Digest | Government Investment and Budget Compromise
Links & Fiscal Facts
Here are this week’s reading links and fiscal facts:
Stabilize the U.S. debt. Representative Jared Golden (D-ME) has put forth a fiscal plan on his own Substack. He proposes reverting discretionary spending back to FY22 levels and rescinding unspent and fraudulent Covid-19 funds among other proposals. Beyond immediate budget planning, “Good fiscal policy should be a moving target free from political dogma. An example of a long-term fiscal goal for Congress would be to stabilize the debt-to-GDP ratio.” Boccia agrees. See her fiscal agenda for the 118th Congress for more ideas on how to control the growth in federal spending. Rep. Golden concludes, “With the costs of inaction worsening each year, we need an honest debate about the nation’s financial future. We cannot afford to kick the can down the road forever.”
Investing in private equity markets to shore up Social Security? Sen. Bill Cassidy (R-LA) proposed, “[Congress] create a fund that’s separate from social security. We put in $1.5 trillion in it, and we allow it to be invested in the nation’s economy…in the end, it helps bridge social security to sustainability.” Michael Tanner argues investment should be done by individuals, not the government. “Government investment would allow the federal government to become the largest shareholder in every American company, posing a potential threat to corporate governance and the specter of social investing.” Instead, Boccia suggests that “Americans [should] control more of their own retirement savings.”
Budget outlook worsens. Goldman Sachs has updated their budget projections. “After ten years, we project federal debt to reach nearly 120% of GDP, with interest expense topping 4% of GDP.” After accounting for the potential of recessions and rising borrowing costs, “public debt as a share of GDP could double over the next 30 years if policy remains unchanged.” Goldman Sachs identifies the “dwindling balances in the trust funds that finance Medicare and Social Security [as] medium-term catalysts for policy changes.” Boccia explains why the Social Security and Medicare trust funds are unsustainable here. Read more about budget and economic projections here.
Unprecedented debt requires unprecedented cooperation. Democrats and Republicans have been working together behind the scenes to avoid defaulting on the national debt. In a leaked bipartisan Problem Solvers Caucus plan, they call for creating a “BRAC-like external Fiscal Commission to review and recommend a package to stabilize long-term deficits and debt.” As Boccia explains, “The [Base Realignment and Closure] commission was successful because it was independent, composed of parties external to Congress. Commissioners were unelected appointees, not members of Congress.” See her proposal to use bipartisan committees to break gridlock here.
Reevaluating budget priorities. With the debt limit approaching, the Republican Study Committee polled members’ debt limit policy priorities. The top three priorities include (1) increasing domestic energy capacity by reducing regulatory barriers, (2) cutting discretionary spending, and (3) reforming taxes to promote growth. See the full list of options below. “In an attempt to score a short‐term win, Congress should not lose sight of the magnitude of compromise required to stabilize U.S. debt over the next decade and beyond,” wrote Boccia. Read more of about how lawmakers can use the debt limit to budget sustainably here.
