Debt Digest | Trillion-dollar Deficits and Debt Limit Dealmaking
Links & Fiscal Facts
Here are this week’s reading links and fiscal facts:
Common ground on a debt limit deal. Republican’s newly introduced Limit, Save, Grow Act features several potential areas of bipartisan agreement including “work requirements for benefit programs, discretionary spending caps and a fiscal commission.” Lawmakers should build on the GOP’s “worthy and modest opening bid” and “strengthen new discretionary spending limits by closing commonly abused loopholes to secure the $3.2 trillion in 10‐year savings as intended,” Boccia writes.
CBO debt-to-GDP projections are too conservative. A new American Enterprise Institute paper argues that the CBO, Treasury, and the Social Security and Medicare Trustees projections wrongly assume that “many key variables, like real interest rates, health care cost, and economic growth [will reflect] a continuation of past trends.” The scholars’ alternative modelling projects “debt-to-GDP will be 132 percent in 2032, compared to CBO’s recent projection of 115 percent. In 2052, [they] project 258 percent compared to CBO’s 189 percent.” Boccia and I discuss CBO’s projections in detail here.
Four debt limit proposals. The Tax Policy Center’s Howard Gleckman discusses four major ideas to address the debt limit. The House GOP plan returns discretionary spending levels to FY 2022 and caps spending growth at 1 percent annually. Biden’s plan increases spending by about $3 trillion which would primarily be paid for by raising taxes on high income households and corporations. The Problem Solvers Caucus, a bipartisan group of House members, want to extend the debt limit to 2025, adopt spending limits and budget reforms, and establish a BRAC-like fiscal commission to recommend long-term debt stabilization. The fourth plan by Rep. Jared Golden (D-ME) adopts a mix of GOP caps on domestic spending and Dem’s proposed taxes.
Zombie spending just won’t die. Each year Congress is supposed to reauthorize and re-evaluate the funds it provides. Last month, “CBO identified a total of 1,108 authorizations of appropriations that expired before the beginning of fiscal year 2023 and 355 authorizations that are set to expire before the end of the fiscal year…$510 billion in appropriations for 2023 was associated with 428 expired authorizations of appropriations.” Boccia argues that maintaining so-called zombie appropriations “reduces oversight and increases spending that’s of dubious nature.” Read more here.
Biden normalizes trillion-dollar deficits. According to the Congressional Budget Office, Biden is on track to match Trump’s total addition to the national debt in just three years. “If Biden’s 2024 proposed budget actually passed, he would add as much to the national debt as Trump and Bush 43 combined,” writes David Winston. The Concord Coalition graph below shows how “a larger national debt inevitably means a smaller capital stock upon which future economic growth depends.” Boccia and I explain why Biden’s budget misses the mark here.
