Last week, eight House Republicans joined every House Democrat in voting to remove Kevin McCarthy from the speaker’s office. While the reasons for these Republicans choosing to remove one of their own may vary, all have referenced the United States’ $33–trillion-and-growing national debt as part of their calculus.
These lawmakers are right that our rising debt and deficits are unsustainable. According to the latest forecast from the nonpartisan Congressional Budget Office, debt held by the public will rise steadily from 97 percent of GDP in 2022 to 115 percent in 2033—the highest level on record. Since that forecast was made in June, interest rates on the debt have soared, pointing to a deteriorating fiscal outlook. And while history will be the judge of the 118th Congress’ spending record, the present day demands solutions, not theatrics.
If House Republicans are truly serious about tackling the national debt, there are a number of steps they must demand of themselves and the next speaker.
To begin, they must acknowledge that so long as we have divided government, compromise remains the only path to a budgetary solution. Structures should be put in place to facilitate sensible compromise rather than political theater. That means establishing a bipartisan commission, with assistance from outside experts, to set specific, tangible, and attainable targets. Balancing a budget in 10 years is admirable, but a more realistic and sustainable goal would be to stabilize debt as a share of GDP at or below current levels.
The next step is to tackle the largest drivers of our debt. The two leading candidates for the White House in 2024 have stated they will never touch Social Security or Medicare. Congressional leaders on both sides of the aisle need to tell their respective party leaders that they are wrong. Mandatory spending on these two programs alone will be responsible for nearly 80 percent of the deficit’s rise between 2023 and 2032.
It may feel like another lifetime, but the political will for Social Security reform existed not long ago. In 2010, President Obama’s “National Commission on Fiscal Responsibility and Reform” produced what came to be known as the Simpson-Bowles plan. Among its many proposals, the plan would have slowed benefit growth for high-income earners, raised the retirement age, and changed how cost-of-living adjustments were calculated.
The Simpon-Bowles plan was not without its faults, but some of its smartest ideas can be found in legislation that has been introduced by policymakers in both parties.
But Medicare was never put on sound fiscal footing, and both parties have contributed to its never-ending expansion. Worse than giving the program a blank check, lawmakers have incentivized Medicare to reward quantity of service rather than quality. There are no guardrails in place to ensure providers who are seeing Medicare patients focus on outcomes.
Competition lowers prices and increases quality. Reforming Medicare’s incentive structure would force the program to consider what it is costing the government immediately, and lead to higher quality care for our seniors.
Lawmakers should know that countries have found the most sustainable success in reducing deficits when they have focused on decreasing spending. But that does not mean an increase in revenues needs to be off the table—if both sides have the will to keep the tax debate focused on non-distortive taxes, instead of proposals that will wreak havoc on the economy.
Countries around the world have shown which taxes work and which ones don’t. Tax hikes on income and business investment cost jobs and comparative advantages for business. They also weaken the federal government’s tax base and its ability to pay down debt over the long term. Broad-based consumption taxes would grow revenue streams more effectively, with minimal harm to the economy.
These policy prescriptions are not new, nor are they exclusive to one economic school of thought. Policy experts across the political spectrum acknowledge the budget process itself is broken. Even if the ideal solution to extend Social Security and Medicare’s solvency is debatable, no one can reject the truth that these entitlements are driving our debt. No serious model shows that tax hikes focused on high-earners and corporations can stabilize the growing debt burden.
But the time for those debates to take place in the halls of think tanks—for us to trade spreadsheets with theoretical solutions—has passed. Only those with the power of the purse can put the country on a path to fiscal sustainability.
The left has signaled what they would do with a full majority: repeat the stimulus packages from the COVID era that contributed to record inflation and added more to our debt than any other legislation in American history. But Republicans haven’t shown voters they have the will to legislate fiscally responsibly, either. Removing a speaker isn’t a policy solution; advancing actual legislation is.
Markets are listening to Capitol Hill. Inflation remains above ideal target rates and interest rates are hitting new highs daily. If Wall Street stays on this path, history has shown what will happen next: It’s the middle class who pays the price.
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