{I} t won’t surprise conservatives to learn that Biden’s spending and inflation pushed the federal budget deficit to a massive $1.7 trillion last fiscal year. But this isn’t a case of plus ça change — the more things change, the more they stay the same. The federal debt as a share of the economy is now so large, and the outlook for future budget deficits is so bleak, that conservatives need to seriously consider backing the creation of a bipartisan fiscal commission — even if that means a substantial revenue hike.
The nation’s fiscal outlook makes for very unsettling reading. The Manhattan Institute’s Brian Riedl, in his annual budget book, makes that crystal clear. Riedl’s 133 charts and graphs paint a very ugly picture. Among the “highlights”:
These forecasts look much worse than they did the last time conservatives worried about the deficit and the debt, during Barack Obama’s first term. The deficit that shocked them then peaked during the height of the Great Recession at 10 percent of GDP. Furthermore, federal debt held by the public had risen to only 75 percent of GDP by 2014. Both metrics are far worse today.
The Obama-era concerns nonetheless led to the creation of the bipartisan Simpson-Bowles fiscal commission. That commission negotiated a set of spending cuts and tax hikes that would have substantially reduced deficits during the 2010s. They never came into effect, however, because a faction of conservatives would not sign off on the tax hikes and a group of progressives would not agree to the spending cuts. The two parties agreed instead to implement caps on budget increases, which lowered federal spending a bit over the next few years.
The caps’ collapse is a telling tale of why our fiscal situation has deteriorated. Democrats wanted more domestic spending, while Republicans wanted to increase the defense budget. Their solution was to do both at the same time without raising any significant revenue. Base constituencies were thus placated, but deficits soared to record highs.
The conservative’s first response might be to emulate Bill Buckley and “stand athwart the tide of [fiscal] history, yelling Stop!” That’s a noble impulse and one that in principle I agree with. But it stands little chance of succeeding in the near future for a few reasons.
The fact that Social Security and Medicare are at the heart of the long-term deficit problem means that conservatives, or even Republicans, are very unlikely to solve the problem alone. These programs are considered “mandatory spending,” which means they are not subject to the annual budget fights on Capitol Hill. Changing their trajectory requires amending the statutes that authorized them, and that cannot be done through annual appropriations bills or the reconciliation process.
The Senate filibuster is another barrier to conservative-only solutions. Democrats would surely filibuster any entitlement-reform bill that even slightly reduces the rate of spending growth; any bill that promises to meaningfully cut future benefits would be assaulted by Democrats as the revenge of Scrooge McDuck. Republicans would be able to break such a filibuster only with 60 Senate seats — and they haven’t had more than 55 since before the Great Depression.
Just as important are the geopolitical considerations of our time. China is spending massively on its military. We will need to hike our defense spending significantly to keep up even with allies such as Japan and South Korea, who are substantially increasing their budgets. It’s unfair that this imperative will likely require unpalatable trade-offs, but that’s the reality.
The sheer magnitude of our debt burden requires a change in priorities. Riedl points out that interest on the debt is already 10 percent of the federal budget and larger than any other program besides the two old-age entitlements and defense. Unless the deficit is lowered quickly, net interest paid is forecast to grow larger than defense spending by the end of the decade and exceed Medicare by 2038. Imagine telling Americans they have to pay higher taxes just to pay back billionaires and banks.
For Republicans, re-evaluating spending priorities means compromising with Democrats, who will want more domestic spending and revenue hikes. That’s not desirable, but the alternatives are accepting the status quo or maintaining the unrealistic belief that the GOP will get historically large congressional majorities in the near future. Between Scylla, Charybdis, and a fiscal commission, the commission is the least bad option.
There are plenty of things that conservatives should offer as part of such a commission to provide extra revenue without job-killing tax hikes. Taxing large university and nonprofit endowments as if they were for-profit companies can bring in billions. So can eliminating tax breaks for the super wealthy, such as the SALT deduction. As the late Senate Republican leader Everett Dirksen supposedly said, “a billion here, a billion there, and pretty soon you’re talking real money.”
Participating in a bipartisan a commission is not without risk. It would need to be carefully constructed so that any deal it reaches contains real, enforceable spending cuts. It would also need to be politically managed so that it doesn’t become a public-relations vehicle for progressive priorities. “Trust but verify” needs to be the watch-phrase for conservative leaders embarking on this journey.
The outcome won’t be conservative nirvana. The best we can hope for is steady growth in the military budget, slower growth in domestic discretionary spending, and real cuts to future entitlement spending that prevent fiscal Armageddon. But these relatively prosaic outcomes might be enough to conserve American military and economic power, which are essential for American independence from China. This should be good enough for conservatives.