I couldn’t agree more with David Leonhardt’s anti-alarmist framework regarding the “debt and entitlements” question that’s likely to come up in tonight’s final (woo-hoo!!) presidential debate. David’s rap is much like my own in this recent testimony. It’s particularly germane in this political context because alarmism is often a tactic by those whose true motivation is to undermine and cut social insurance.
–Our debt forecasts have fallen dramatically. There’s still a real, long-term mismatch between tax receipts and spending obligations, but it is much diminished. See Figure 1 here from recent work by budget wiz Richard Kogan.
–Why is it diminished? David appropriately highlights the decline in the pace at which health care costs have grown, a huge source of fiscal oxygen and an important signal of where we have to build on the progress we’ve made. But, as shown in Kogan’s figure 2, declining debt service costs—a function of lower than expected interest rates—is an equally important source of the reduced debt burden.
–Yes, the remaining mismatch is significant, but to call it an “entitlement crisis” merely shows where you put your thumb on the scale. I think of it as a revenue shortfall. Moreover, growing debt simply implies a gap between spending on everything government does and its tax receipts. Thus, one could just as easily label this a “defense crisis,” or a crisis of the unwillingness of Congress to close a bunch of wasteful tax loopholes of the type Trump taps.
–Some in the alarmist crowd like to argue a false equivalency between Trump and Clinton in this space, proclaiming that neither are willing to tackle this long term imbalance. But his plan loses $6 trillion in revenue while hers raises $1.4 trillion. She uses that to pay for her programs, so she’s deficit/debt neutral relative to the baseline. To attack them equivalently on this front is to fail to distinguish between digging the hole much deeper and not doing so.
–So am I (and Leonhardt) absolving presidential candidates from explaining to us how they’re going to deal with this imbalance? I certainly don’t think we could have that discussion rationally in this campaign. Ultimately, the solution involves some combination of higher revenues and spending reductions, but for many years now, congressional Republicans have allowed only the latter. Simply put, we cannot close the budget gap without more revenues. Republican fiscal plans go in exactly the other direction, and I’m not just talking Trump here. Speaker Paul Ryan’s plan is actually quite similar in its damaging budgetary impacts. I give Clinton credit for raising revenues in her plan, though we will ultimately need to get below her $250,000 cutoff.
End of the day, at some point we have to admit that we can’t have $X worth of government forever while raising a fraction of X in revenues. I’m not sure when that conversation should start but I guarantee you it won’t be tonight.