Where are Simpson and Bowles when you need them? Former Republican Sen. Alan Simpson and former White House Chief of Staff Erskine Bowles, a Democrat, chaired in 2010 the National Commission on Fiscal Responsibility and Reform. It was the last serious effort to combine revenue increases with spending reductions to restore the country’s fiscal health.
But, alas, the Simpson-Bowles vision seems nowhere to be found in today’s Congress. What we have instead is a tax reform proposal that aggravates, not reduces, the nation’s economic fragility. That Maine’s debt-hawk-in-chief on the state’s balance sheet, Rep. Bruce Poliquin, actually supports debt expansion on the national balance sheet is indicative of just how broken Congress has become.
The U.S. national debt stands at $15 trillion, or about $120,000 for every American household. With continuing high levels of deficit spending, the Congressional Budget Office projects that this debt will rise to $25 trillion over the next 10 years, or close to $200,000 for every American household. And that’s without the deficit-increasing tax reform bill.
Social Security’s unfunded liability isn’t even counted in official measures of the national debt. According to the 2017 Trustees report, the cost of Social Security benefits already exceeds payroll taxes collected by $50 billion annually, and that gap will rise to more than $300 billion a decade from now. Making the program financially solvent would require an immediate increase in the Social Security payroll tax rate from 12.4 percent to 15.16 percent or an immediate 17 percent reduction of benefits paid for current and new beneficiaries.
[I’m all for tax reform, but this isn’t it]
That President Donald Trump and most Republicans in Congress want to advance tax reform that casually raises the national debt by at least another $1.5 trillion, or $12,000 per household, is mind boggling in my view. What are they thinking?
This is not a tweak of policy here, and a tweak there, and all will be fine. This is serious stuff.
If we are to continue to engage in extreme deficit spending when economic conditions are strong, what will we do at the next downturn? Even without the tax plan, the institutionalization of deficit spending across macroeconomic cycles has effectively disabled fiscal policy as a macroeconomic tool of economic stabilization. The option of short-term fiscal stimulus to soften future recessions is largely lost.
What will we do when the cost of our borrowing rises from the historically low interest rates we are paying today? Using the 10-year Treasury bond as a reference, the interest cost of federal borrowing is 2.25 percent right now. What will we do when the rate goes back to its average of the last 50 years, which is 6.48 percent, or its peak in the 1980s at over 15 percent. How will we pay our bills then?
To what extent will U.S. foreign policy interests be compromised, when our ability to apply economic leverage and impose economic sanctions is immobilized by exploding debts to nations around the world. What happens to us when they call in that debt? And in the meantime, do we really want to keep selling American-owned assets to foreign owners just to perpetuate a deficit-spending addiction at home?
Most cataclysmic of all, if the world fears that the U.S. government could potentially default on its financial obligations, the national and world economy could collapse.
[Trump promises Americans ‘huge tax cut’ for Christmas]
Tax reform is not inherently a bad idea. It is reasonable to discuss the apportionment of taxes across richer and poorer households, and between individual and corporate payers. It is reasonable to discuss trade-offs between tax rates and tax expenditures for education, child raising, home ownership, charitable giving, business expensing and depreciation, retirement saving, and other aspects of tax policy. Those discussions are appropriate and probably overdue.
What is crazy, however, is that the only absolute in the Republicans’ developing tax plan is its $1.5 trillion debt-increasing bottom line.
The Simpson-Bowles plan, by contrast, reduced through 2020 the national debt by about $4 trillion, and stabilized it from further growth. Its reforms combined about $2 in spending reductions for every $1 in increased revenues. It was also serious in reforming the tax code — actually lowering rates yet still increasing revenues by eliminating tax advantages. Such a plan is more urgent today than when they released it in 2010.
Our national debt is a ticking time bomb. This tax reform plan aggravates and accelerates all of its risks. I hope that Maine’s delegation, and indeed a majority of Congress, agrees.
Dick Woodbury is an economist and former state senator from Yarmouth.
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