The national debt isn't very high up on the list of political issues being debated in the 2018 midterm elections, but that isn't because the long-term problem has been solved. In fact, the crisis that dominated our politics in 2011 is still looming, even if both parties have decided they're better off ignoring it.
[Read: National debt jumps $1.2 trillion in fiscal year 2018]
Brian Riedl is just as frightened as ever. A senior fellow at the Manhattan Institute and former senior Republican staffer, Riedl is out with a new paper outlining the problem, and proposing a solution aimed at putting the debt on a sustainable trajectory over time by asking both sides of the ideological spectrum to compromise.
Though it's a valiant effort, the exercise just reinforces how impossible the debt problem will likely be to solve, given the state of our nation's politics.
The math is daunting. Medicare and Social Security are carrying a $100 trillion cash deficit and the national debt is on track to reach the value of two years' worth of economic output by the time today's babies start raising their families. This is going to force lawmakers into a crushing set of policy choices in the coming decades involving massive tax increases, severe and sudden spending cuts, or some combination of the two. The longer we wait, the more difficult the trade-offs become. "Unless reforms are enacted, global markets will, at some point, stop lending to the U.S. at plausible interest rates," Riedl writes. "When that event occurs, or even approaches, interest rates will soar, and the federal government will not be able to pay its bills, with dire consequences for the U.S. economy."
What's amazing about the Riedl proposal is that it sets off a goal that at the outset seems relatively modest, and yet the concessions that even the relatively modest goals would require on both sides are well beyond the boundaries of our current political discourse. His proposal does not aim to pay off the debt, or balance the budget, or even return debt to historical levels. He only aims to reach a level that's theoretically sustainable over time, of public debt that's 95 percent of GDP in 30 years.
To put that in perspective, in 2007 (after years of the wars in Iraq and Afghanistan and George W. Bush tax cuts) debt was 35.1 percent of GDP. Within 5 years, as the economy tumbled and Baby Boomers began retiring, it had doubled to 70.1 percent and has not looked back. So Riedl is not even trying to return to Bush-era debt, or even sustain our currently high debt — he's just trying to stop the march to 200 percent of GDP and beyond. Yet even this is not achievable by tinkering around the edges of the budget or by imposing some of the popular tax increases on the wealthy proposed by Democrats.
What Riedl proposes is for both sides to accept concessions. According to his math, achieving a 95 percent debt-to-GDP ratio would require reducing the gap between spending and revenues by 6 percent of GDP annually, Based on today's GDP, that would be the equivalent of $1.2 trillion each year. Those numbers assume that a plan is enacted within 5 years -- if it takes until 2030, it would rise to 9 percent of GDP; and if delayed until 2035, the number becomes 12 percent (or $2.4 trillion if translating to today's GDP).
Riedl's proposal argues for reductions in mandatory programs, particularly in the form of cutting Medicare and Social Security benefits for seniors with higher incomes and transitioning Medicare to a premium support system in which seniors could pick among subsidized plans (with more generous subsidies than previous GOP proposals). He also proposes raising the Social Security retirement age and making up the balance of the fiscal gap with higher taxes. The balance he proposes would be about $3 of spending cuts for every $1 in tax increases.
Herein lies the problem. Riedl pitches his plan as representing "politically realistic solutions rather than partisan fantasies" but in reality, getting Republicans to agree to significant tax increases and Democrats to agree to significant reforms and cuts to Medicare and Social Security is beyond the realm of possibility. Neither party has indicated any interest in tackling the debt.
Republicans just passed a significant tax cut without any offsetting spending increases and have not agreed to a major tax increase since 1990, a deal that helped destroy George H.W. Bush's political career. Under President Trump, who has eschewed entitlement reform, Republicans are actually running for office as guardians of Medicare.
Any tax increases proposed by Democrats, meanwhile, will be to expand government spending by trillions or even tens of trillions of dollars — on healthcare, education, guaranteed jobs, child care, and so on. There is no constituency within the current Democratic Party for taking drastic measures to reduce the long-term debt burden. When they look back at Barack Obama's presidency, liberals see it as a major mistake that he even negotiated with Republicans on debt reduction.
At this point, a bipartisan fix is no more realistic than one side gaining enough power to simply impose its preferred debt management strategy.
Furthermore, even if some sort of "fix" to the long-term debt problem would miraculously pass, that's only half the battle. Because these changes would have to be implemented over the course of decades, the biggest challenge would be getting future congresses to maintain the changes. History does not provide us with much reason to be confident.
The political earthquake caused by the Tea Party led to a spending deal built around caps and sequestration that was significantly more modest than anything on the scale Riedl is proposing. Yet within a few years, much of the hard-fought spending reductions melted away in a series of subsequent deals. If a Republican Congress cannot maintain a relatively modest deal (with the House led by Speaker Paul Ryan, R-Wis., who built his reputation around a plan to tackle the long-term debt), how can we expect any massive deal with large tax increases and major changes to popular programs to survive the amount of turnover in Washington one could expect over the course of several decades?
Though my preferred solution to the debt crisis would involve keeping tax rates at historical rates and significantly downsizing the footprint of federal entitlements, I applaud Riedl for at least attempting to draw the attention of lawmakers to the most significant long-term issue facing the country. Sadly, though, it's inevitable that lawmakers are going to ignore the problem so that future congresses can do what they do worst — govern in the midst of a catastrophic economic crisis.