Federal fiscal policy threatens ‘a less prosperous future’

The nation’s current fiscal policy threatens “a less prosperous future,” says the Concord Coalition’s executive director.

Last week, Robert Bixby, who also is member of the Debt Reduction Task Force of the Bipartisan Policy Center (BPC), together with Rachel Snyderman, a veteran of the Office of Management and Budget and director of Economic Policy at the BPC, spoke to an online forum hosted by the Warren B. Rudman Center by the UNH Franklin Pierce School of law.

“This is a very risky path we are on,” Bixby said.

The Concord Coalition was formed in 1992 on the initiative of Senators Warren Rudman, a New Hampshire Republican, and Paul Tsongas, a Massachusetts Democrat, in response to the rising budget deficits and growing national debt following the round of tax cuts and the increase in defense spending of the Reagan administration.

Robert L. Bixby, executive director of The Concord Coalition

Bixby distinguished between annual budget deficits, when spending outruns revenue, and the national debt, the cumulation of those deficits. Deficits and debt are best measured as a share of the economy, measured by Gross Domestic Product. In 1946, after running continuous deficits to finance World War II, the debt reached $242 billion, or 106% of GDP. By 1974 sustained economic growth pared the debt to 24% of GDP despite wars in Korea and Vietnam and the introduction of major entitlement programs, particularly Medicare and Medicaid.

According to the U.S. Treasury data, since 1981 the amount of debt and ratio of debt to GDP have grown steadily, falling only President Clinton’s second term between 1996 and 2000. Since then the debt has grown from $3.28 trillion, or 32% of GDP, to $33.17 trillion, or 123% of GDP in 2023 and recently topped $34 trillion.

Both Republican and Democratic administrations have driven the increase, beginning with the deficits of the Reagan administration. President George W. Bush undertook a round of tax cuts, expanded entitlement programs and pursued two wars in the Middle East. To overcome the Great Recession, former President Obama bailed out the stricken financial sector and introduced an $831 billion economic stimulus package. Following President Trump’s round of tax cuts, President Biden has thrown billions at COVID relief, infrastructure investment and support for Ukraine.

Asked what is a reasonable ratio of debt to GDP, Bixby replied “there is not a good answer to that,” then added “but the ratio is projected to rise to 200% of GDP in 30 years. That is the path we are on.”

Bixby said that, as the debt has grown interest on the debt has “metastasized.” Snyderman remarked that while “borrowing is easier than raising taxes,” interest payments, increased by high interest rates, are adding to it. Net interest costs in fiscal year 2023 were $659 billion, 39% more than the prior year and ranked as the fourth largest expenditure behind Social Security, Medicare and defense spending.

Moreover, Bixby said the challenge is compounded by an aging demographic, which drives the rising costs of Social Security, Medicare and Medicaid while at the same time slowing the pace of economic growth. In particular, he singled out the increasing cost of health care. “If there were one thing, reform the health care system,” he said.

Rachel Snyderman, director of economic policy, Bipartisan Policy Center

But, Bixby stressed there is no one simple, painless solution. “The problem is so big, no one thing would be enough,” Bixby said. “One thing didn’t cause it and one thing won’t solve it.” Eliminating waste, fraud and abuse, he said, is “not enough to make a dent.” Cutting taxes to stimulate the economy, he said, would forego revenue while expecting “an implausible rate of economic growth.”

Instead, Bixby stressed “all sides of the budget must be in play. Revenues need to be on the table.” He noted that “you can raise revenues without raising rates by eliminating exemptions and deductions in the tax code and widening the tax base.”

Both Bixby and Snyderman were encouraged by the prospect of Congress conveying a bipartisan fiscal commission to address the worsening fiscal situation. Last week the House Budget Committee voted 22 to 12 to form a panel of 16 members, with six voting members from each party and four outside experts. Senators Mitt Romney (R-Utah) and Joe Manchin (D-W.Va.) have introduced a companion measure in the Senate.

“It’s a great idea, and the only game in town,” said Bixby, while Snyderman called it “a tremendous opportunity.”