The recent agreement to increase the debt ceiling and set spending limits for two years served to avoid another political battle and potential default on certain federal obligations. The more recent transportation agreement also helps to break a longstanding deadlock in Congress. These agreements have something else in common: They fail to deal with the related systemic challenges and basically kick the can of tough choices down the road again.
It’s time to start addressing the real fiscal challenge that we face — the need to reduce direct and indirect mandatory spending, better target discretionary spending and increase critical infrastructure investments. This will require new approaches, tough choices and real presidential leadership.
Mandatory direct spending (e.g., Social Security, Medicare/Medicaid, civilian/military retirement benefits, agricultural subsidies and interest on the debt) now comprises about 68 percent of federal spending, up from 3 percent in 1913. That share is projected to grow due to known demographic trends, rising health care costs and projected increases in interest expense. In fact, over the next 10 years, interest expense is expected to be the fastest growing part of the federal budget. And what do we get for interest? Nothing, of course.
Tax expenditures are essentially indirect mandatory spending. In fiscal 2015, they reduced federal revenues by about 36 percent and exceeded discretionary spending by about $100 billion.
Believe it or not, so-called “discretionary spending” (e.g., defense, homeland security, foreign affairs, judicial system, education, transportation) has declined about 30 percent as a share of the economy from 2010 through 2015. This is due to the elimination of non-recurring spending associated with foreign conflicts and domestic stimulus/bailout spending, and the tough spending controls Congress enacted after the GOP takeover of the House of Representatives in 2010.
While discretionary spending controls are appropriate, the current “one size fits all” cutting and sequester approach that focuses on discretionary spending does not make sense. This approach needs to be replaced with a more targeted, future focused and evidence-based approach to discretionary spending.
For most of America’s history, the federal policymakers have been fiscally responsible and committed to not mortgaging the future of younger generations. In fact, other than the debt incurred to win World War II, gross federal debt as a percent of the economy has never exceeded 35 percent.
But American politicians have lost their fiscal discipline and forgotten their stewardship duty in recent decades. Gross federal debt (i.e., debt held by the public and various federal trust funds) has grown from 31 percent of the economy in 1980 to 54 percent in 2000 to about 102 percent at the end of fiscal 2015. In addition, according to the non-partisan Government Accountability Office, gross federal debt/GDP could rise to as high as 173 percent by 2040.
It seems that too many American politicians have become addicted to spending, deficits and debt. The debt ceiling limit has proven to be ineffective and has been used more as a political weapon than as a real fiscal reform impetus.
It’s time to recognize reality. We need to repeal the debt ceiling and replace it with a more effective fiscal control mechanism that will force policymakers to start treating the real disease — mandatory spending programs and tax expenditures. For example, we should move to a pro-growth and meaningful spending constraint mechanism focused on debt/GDP. This would include enacting specific debt/GDP targets by year that could only be waived with a formal declaration of “war” or a super-majority vote (e.g., 60 percent) by each house of the Congress. The targets would be backed up by automatic triggers and enforcement mechanisms that would reduce mandatory spending, tax expenditures and discretionary spending to make up for any short-fall. Any waivers would have to be accomplished on a yearly basis for transparency and accountability purposes.
Achieving the needed transformational reforms over time, especially in connection with mandatory spending programs, will require extraordinary leadership from the president. The kind of leadership that Gov. Jeb Bush recently exhibited in outlining a number of specific Social Security and Medicare reform proposals during a presidential primary campaign.
Governor Bush’s Social Security reform framework includes a number of provisions that have achieved significant support from representative groups of informed voters. Reforms like a higher minimum benefit, a more progressive benefit structure and a gradual increase in the retirement eligibility age for younger workers.
His Medicare framework also includes elements that have the potential to gain broad-based public support. These include increasing means-testing for premium subsidies, improved management practices, alternative payment systems that focus more on outcomes than activities, and additional personal savings arrangements to help seniors cope with their out-of-pocket health care costs.
Achieving sustainable success will also require a significant fact-based and solutions-oriented public education and engagement effort combined with an earnest private outreach and negotiation effort with congressional leaders on a bipartisan basis. We need to pursue non-partisan reform packages that can gain meaningful bipartisan support in Congress. And we need a president who has a proven record of achieving real reforms on a bipartisan basis.
It’s pretty clear that with a more effective fiscal discipline mechanism, committed presidential leadership, new ways of engaging the public on principle-based and goal oriented solutions and private discussions and negotiations with key legislators and stakeholders, we can defuse our ticking debt bomb and create a better future for all Americans. That’s an outcome worth fighting for!
Hon. David M. Walker served as comptroller general of the United States from 1998-2008. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.
