Debt Digest | The Debt Ceiling Increase Is a Striking Display of Fiscal Hypocrisy
Links & Fiscal Facts
Here are this week’s reading links and fiscal facts:
OBBBA is a classic case of “dessert now, spinach later” budgeting. Cato’s Michael F. Cannon argues that the reconciliation bill epitomizes a “dessert now, spinach later” approach to budgeting, where ‘dessert’ refers to tax cuts and spending increases, while ‘spinach’ refers to revenue increases and spending reductions. According to Cannon, about 65-68 percent of the bill’s ‘spinach’ is delayed until the second half of the coming decade (see figure below), making it highly likely that many of those fiscally responsible provisions will never materialize. “Postponing spending cuts often means they won’t occur, because Congress constantly reneges. Congress has reneged on statutory cuts to farm subsidies and military spending. It enacted cuts in 2011, partially reneged on them in 2013 and 2015, and then fully reneged in 2018 and 2019. In 2023, it limited future spending, then immediately undermined those limits. Earlier this year, it again waived cuts that otherwise would have occurred,” he explains. Cannon adds that the bill’s projected savings heavily rely on reining in runaway health care spending—but delaying those reforms only gives the health care lobby more time to “work [its] magic.”
Congress should enforce discretionary spending caps. Rep. Glenn Grothman (R-WI) has reintroduced the Enforce the Caps Act, which would enforce the Fiscal Responsibility Act’s discretionary spending caps for FY2026–FY2029 (currently non-binding)— through sequestration. This is what Boccia and Dominik Lett had to say about the bill: “Rep. Glenn Grothman’s Enforce the Caps Act takes a much-needed step toward restoring fiscal discipline. With binding spending caps set to expire after FY 2025, Congress should prevent a surge in discretionary spending that could fuel inflation and deepen the U.S. debt crisis. Locking in previously agreed upon spending caps—with a real enforcement mechanism—will help focus taxpayer dollars on core government priorities by forcing tradeoff considerations, and helping Congress do what every family must do: budget within limited means.” In their recent paper, Boccia and Lett also called for limiting the abuse of emergency designations—one of the most common tactics used to circumvent discretionary caps.
The Epoch Times’ Kevin Stocklin quotes Boccia on MMT and the OBBBA. The Epoch Times’ Kevin Stocklin explores how the OBBBA aligns with modern monetary theory (MMT) in its disregard of increasing deficits. He quotes Boccia: “The [budget bill] may resemble MMT in practice—massive deficit spending without serious regard for fiscal sustainability—but that’s not by design [...]. The real problem is that both parties are acting as if deficits don’t matter—whether they believe in MMT or not [...].” Boccia also critiqued the theory itself: “MMT is neither valid nor a coherent theory; it’s a dangerous justification for reckless fiscal policy [...]. It ignores basic economic principles of scarcity and trade-offs and falsely assumes that inflation can be easily managed after the fact.“ Lastly, she commented on the current $2 trillion deficit: “This isn’t temporary stimulus; it’s a baked-in mismatch between entitlement promises and government revenues [...].” For more on MMT and the OBBBA, read here and here.
Blaming the Fed distracts from fiscal responsibility. Cato’s Norbert Michel argues that the Federal Reserve “does not have precise control over interest rates,” and its ultimate goals are limited by the laws of economics and fiscal policy. For example, if the Fed pushed interest rates below their equilibrium level, artificially loose credit conditions would fuel inflation, eventually driving interest rates back up. Furthermore, low demand for Treasuries can also interfere with the Fed’s efforts. For example, despite rate cuts between September and December last year, 30-year Treasury rates went up from 3.94 percent to 4.98 percent. Michel writes: “[T]his singular focus on the Fed’s supposed rate setting absolves the elected officials who directly control the government’s borrowing and spending habits. [...] [I]f Congress and the administration continue to focus on scapegoating the Fed instead of fixing the nation’s fiscal and economic policies, they will not improve anything.”
The debt ceiling increase is a striking display of fiscal hypocrisy. Fox Business’s Amanda Macias quoted Boccia on the $5 trillion debt ceiling increase enacted as part of the OBBBA. She called it a “striking display of fiscal hypocrisy” and noted: “Republicans have long argued that the debt ceiling is one of the few leverage points to enact spending reductions. But this debt ceiling increase flips that script—it’s nearly a dollar-for-dollar increase in debt for new deficits, with far more modest spending reductions that are delayed, increasing the risk that they could be overturned.” Even when Congress has the procedural tools to rein in unsustainable entitlement programs, it repeatedly fails to act—underscoring the need for a different approach. As Boccia has argued, lawmakers should consider an independent fiscal commission, modeled after the successful BRAC process, to take on the politically difficult task of addressing the primary drivers of rising debt—entitlement programs and interest costs.
