Since last month’s elections, there has been a mood of optimism among the deficit hawks around town, whether they are Democrats or Republicans. Most of these budget wonks freely admit that the change of power in Congress had nearly all to do with the war in Iraq and hardly anything to do with the fiscal irresponsibility that has plagued our federal government since 2001. Yet most also astutely observe that the resulting re-divided government—last seen with a Clinton White House and a Republican Congress—is likely to bring some urgently needed discipline back to the budget process.
Regardless of the most recent upturn in revenues and downturn in the deficit, the longer-term budget outlook has dramatically deteriorated over the past few years of single-party control, with huge new spending commitments—mainly the Medicare prescription drug program—that were passed without sufficient recognition of their cost and with no requirements that such costs be offset. Under single-party control, no restraint has been placed on that party’s favored tax cuts either. In fact, because the financing of these programs has not taken place through obvious offsets elsewhere in the current budget, but rather by issuing more debt, the true costs of these expensive policies have been largely hidden from the American people.
The unfortunate thing is that most people—politicians and ordinary citizens alike—seem to view deficit spending as “funny money.” They tend to underestimate (or even ignore) costs that don’t have to be paid until later. This isn’t just a problem with government spending; it’s a problem in our personal finances as well. It’s just so easy to run up our credit card balances without considering that eventually the bill will have to be paid.
The irony is that while the cost of deficit spending is discounted in people’s minds, in truth, the real cost of new spending or tax cuts is magnified when we put off paying the bills—because of the curse (for debtors) of compound interest. For example, whether we’re talking about adding to our own personal debt or the federal government adding to the public debt by pursuing additional tax cuts or spending that are not immediately offset, under a pretty low 6 percent interest rate, $1,000 of debt taken out today would turn into more than $3,200 (more than triple) in two decades, just because of the accumulating interest. (Raise the interest rate to 8 percent, and in just a single decade the amount owed is more than doubled.) In other words, the true price of tax cuts or greater spending received by current generations is that future generations will have to face higher taxes and lower spending that will be many-fold times the initial value of the additional debt.
If the American people were more honestly told what a bad deal deficit-financed tax cuts and spending really are, they surely wouldn’t choose to take it—nor would they continue to support politicians who pursue the bad deal. In fact, some of us budget wonks—including Comptroller General David Walker and others covering the ideological spectrum from liberal to conservative—have been out around the country trying to spread this warning, participating in the Concord Coalition’s “Fiscal Wake-Up Tour.” The hope is that the message will seep up to our political leaders from a grass-roots groundswell, but many of us are carrying on this conversation directly with Members of Congress as well.
Since 2001 the federal government has been getting away with fiscally-irresponsible deficit spending largely because the so-called “pay-go” rules expired, and with single-party control of the government there has been little support to put meaningful budget rules back in place. Instead of “paying as we go,” we’ve been saying we’ll “pay after we’re gone.”
But the fiscal conservatives didn’t disappear in 2001. In fact, many Members of the House and Senate—and from both sides of the aisle, albeit not enough of them to make an influential-enough majority—have consistently and vigorously argued that the pay-go rules, applicable to both tax cuts and spending, must be reinstated. Now that some of the most vocal proponents of such fiscal discipline are in charge of the budget committees, there is talk that effective budget rules will indeed reemerge.
Real progress on deficit reduction will require more than new rules, however. Doing the “fiscally right” thing is always a politically-difficult task, because votes are not typically won by proposing the necessary tax increases or spending cuts. Moreover, no politician wants to be the first mover on offering up their (painful) suggestions for reducing the deficit before the other side offers theirs up, too. Thus, the new leaders of the budget committees recognize that meaningful progress on deficit reduction will require as well a renewed willingness of both parties in Congress and the administration to work together to compromise on “balanced” solutions that involve both sides of the budget and that are large enough to actually get rid of our deficits sooner rather than later. Now that we have the chance for a bit of a “fresh start” in Congress, it’s time to get past partisanship politics and get down to real policy progress—for the sake of our children and grandchildren, who don’t deserve to be left paying for the debts we negligently leave behind.