Read an Excerpt
Running on Empty
BANKRUPT PARTIES, BANKRUPT NATION
When the towers fell, I was out of town attending a corporate board meeting (which promptly adjourned) and spent the rest of the day watching cable news and trying to call my wife and family in Manhattan. Four days later, when I finally managed to get a plane home, I saw a New York--and an America--transformed. I saw parents doting on their kids and neighbors helping neighbors and college students lining up to donate blood and cars and streets in a sea of flags. Out of tears and tragedy there came a new sense of community purpose and determination. Like many Americans, I asked myself, Why can't citizenship in a great nation always be like this?
But within a few months our leaders had reverted to their old habits. The nastiness returned. It was business as usual--the same politicians leaping at each other's throats while saying nothing sensible about what America can do or be.
This brought home for me why a growing number of Americans are so disaffected with politics and parties. There seems such a vast gap between what our democracy ought tobe and what it is, between the decency of ordinary citizens and the horrible warping of their votes and desires once they get translated into partisan politics. It's gotten so bad that millions of Americans who once worked, led, and campaigned for our major political parties have severed--or are at least rethinking--their attachment to them. These Americans once served as full-fledged "Republicans" and "Democrats." But a growing number now doubt their affiliation. They no longer want to belong to either camp--or at least want to remove the insignia from their old uniforms.
My own example is instructive. As a Republican, I have served as a cabinet member (once), as a presidential commission member (three times), as an all-purpose political ombudsman (many times), and as a relentless crusader for fiscal responsibility whom some would call a crank (throughout). During most of my service, I have been careful not to subscribe to party dogma that violated my common sense, nor assume that a constituency is sacrosanct just because the party says so, nor believe that the other party is automatically the enemy. Yet that's just the problem. Increasingly, those who serve my party are subject to all of these pressures. And I know many Democrats who feel just as I do about their own party.
I believe this political dysfunction poses a clear danger to our nation. It does so by paralyzing our capacity to make elementary fiscal choices--the kind of choices, which, if left unmade by a person or family, would quickly lead to ruining their career or their life. First we had the ideologues of tax and spend. Then we had the ideologues of don't-tax and spend. Today, both have triumphed, with the result that the United States is committed to spending literally trillions of dollars more in personal benefits and collective security over the coming decades than citizens either expect or can afford to pay. The Democrats and the Republicans, with their lopsided and mutually irreconcilable worldviews, have found only one important way to compromise, and this is for both sides to takewhat they want (low taxing and high spending) and send the bill to our kids. These two parties have launched America into the new century on a course of vast and mounting budget deficits which, if left unaltered, can only end in an economy-shattering crisis or crushing burdens on America's younger generations--or both.
Steered by bankrupt parties, in short, we will soon become a bankrupt nation. That is what this book is about.
What Went Wrong with the Party of Abraham Lincoln
I have been proud to be a Republican. For me, the Republican Party has always embodied the unique American dream of self-direction and unlimited individual achievement--even for those of very modest means (as was my own parents' family). Republicans believe that being a citizen of a "republic" entails duties as well as rights.
Fiscal stewardship has likewise been a bedrock principle of the Grand Old Party since its origins in the 1850s. Republicans have traditionally believed that America should invest in the next generation and that good citizens should never allow government to undermine such efforts by burdening posterity with unsustainable liabilities. When debts are incurred, they are to be paid back as soon as possible. At various times in our history (especially after wars), Republican leaders have honored this principle by advocating and legislating painful budgetary retrenchment, including spending cuts and tax hikes.
At times they overdid a good thing. Herbert Hoover (the only former secretary of commerce to win the presidency, I note without comment) has rightly been condemned for pushing fiscal restraint when he should have been pushing fiscal stimulus. Blame him, if you will, for the severity of the Great Depression or for worshipping at "the temple of the balanced budget." But don't blame him for his intentions--and don'tblame the Republican Party for principles of fiscal responsibility that have helped make America the most envied and future-oriented nation on earth. Principles are important only to the extent that they restrain us from what we might otherwise find tempting. Over much of its history a younger, less educated, poorer, and sometimes desperate America was no doubt tempted to borrow from the affluence they (rightly) expected their offspring would someday enjoy. But the people and their leaders chose not to. And today we thank them for it.
Over the last quarter century, unfortuantely, the Grand Old Party has abandoned these original convictions. Without ever renouncing stewardship itself--indeed, while talking incessantly about legacies, endowments, family values, and leaving "no child behind"--the GOP leadership has gradually embraced a more indulgent fiscal philosophy. It now seems to believe that deficit spending energizes America by liberating taxpayers from the need to pay their own way. Deficits have become like aspirin, a sort of fiscal wonder drug. We should take them regularly just to stay healthy and take lots of them whenever we're feeling out of sorts.
With the arrival of Ronald Reagan in the White House, this idea was first introduced as part of an extraordinary "supply-side revolution" in fiscal policy, needed (so the thinking ran) as a onetime fix for an economy gripped by stagflation. To those who worried about large and chronic deficits, they said, Relax, it won't happen--we'll "grow out of them." But we didn't. During Reagan's administration the federal government borrowed more from the public (in inflation-adjusted dollars) than it did during all of World War II. For the first time in U.S. history, people began to explain large swings in interest rates, the stock market, and the exchange-rate value of the dollar by pointing to large, erratic jumps in federal indebtedness.
After George Bush, Sr., famously broke his promise of "no new taxes" in 1990, he lost his party's right wing immediately--and his presidency two years later. Tax cuttingthereafter became the GOP's core platform. By 1996 even Bob Dole, who had been a leading deficit hawk during the 1980, ran for president as a supply-side evangelist. A growing number of Republican leaders argued that deficit finance was nearly always a permissible strategy, though much of this bold talk could be excused as the bluster of a party that didn't have to lead the country. Then, with the Republican takeover of the White House in 2001, the party's tax cut agenda ascended to a new level of irresponsibility. For the first time ever, a Republican leadership in complete control of our national government would embark on a policy of massive and endless debt creation.
The numbers are simply breathtaking. When President George W. Bush entered office, the ten-year budget balance was officially projected to be a surplus of $5.6 trillion--an unexpected blessing, which the new team firmly promised would be used "as a means for shoring up the economic and fiscal environment that our children and grandchildren would inherit." In February of 2001 the new administration's first budget outlined a plan to use at least $2.0 trillion of this surplus to pay down the federal debt. Much of the rest would go for other future-oriented purposes, such as a "contingency reserve," reform of Medicare, and (possibly) a pre-funding of the future cost of Social Security. Amid heady talk about "the largest debt reduction ever achieved by any nation at any time," White House officials publicly worried about how the Federal Reserve would function once the public no longer owned Treasury notes or bonds.
They didn't need to worry long. Soon hit by recession together with the bursting of the stock market bubble, and then by 9/11, the surplus projections fell. When Bush went ahead with two large and heavily back-ended tax cuts in 2001 and 2002, they fell much further. By the end of 2002 all but $1.0 trillion of the ten-year surplus had vanished--with no contingency reserve and nothing done about Medicare or Social Security.Unfazed by this turnaround, the Bush administration pushed a third tax cut package through Congress in the spring of 2003 in the face of huge new fiscal demands, including a war in Iraq and an urgent "homeland security" agenda. By August the Congressional Budget Office (CBO) officially projected the ten-year fiscal balance at a deficit of $1.4 trillion.
Along the way, The Concord Coalition (on which I serve as a cofounder) tried to warn policymakers about the perils of this fiscal deterioration. In the spring of 2001 five board members of The Concord Coalition, former senators Sam Nunn and Warren Rudman, former Fed chairman Paul Volcker, former Treasury secretary Bob Rubin, and myself, held a press conference. We argued that fiscal stimulus made plenty of sense so long as it was (first) temporary, (second) targeted at individuals or businesses that would spend it, and (third) not going to worsen our longer-term fiscal outlook. The Bush administration went in the opposite direction on all three counts.
Two years later The Concord Coalition, together with the Committee for Economic Development and the Center on Budget and Policy Priorities, released a statement in which we explained why the growth of the deficit was so dangerous. We explained that the tax cuts would do little to benefit an economy that was already recovering, but would add to long-term deficits that were already unsustainable. Again the administration did not respond with any change in its fiscal policy.
Indeed, there was more red ink yet to come before 2003 was over--this time on the spending side. In November Congress passed and President Bush signed the Medicare Prescription Drug, Improvement, and Modernization Act, the largest legislated entitlement expansion since the heyday of the Great Society. The stated intent was to address the legitimate needs of the small share of poor seniors who have trouble affording prescription drugs. The result, an unfunded universal benefit to all 40 million Medicare beneficiaries, is so expensive thatbudget experts still have trouble putting any upper limits on its eventual growth. The political goal was clear: to preempt the number one issue on the Democratic agenda.
When the bill came up for its final votes, the CBO declared it would cost $400 billion over the next ten years. Just two months after the bill had passed, the President's Office of Management and Budget (OMB) confessed that under its own assumptions, which were conveniently not released until after the bill was enacted, the cost would be more like $535 billion. Because the program is phased in, moreover, the estimates for the initial decade are deceptively small. In its second ten years, this new "Medicare Part D" benefit is expected to cost well over $2 trillion. And even that number is low, since the White House and Congress designed absurd coverage gaps or "doughnut holes" into the benefit formula in the full expectation that seniors would later insist that these holes be filled with more coverage. It's the old sales tactic: hook the customer on the basic home first, then sell the floors and the plumbing.
By January of 2004 the CBO's ten-year fiscal projection had worsened to a deficit of $1.9 trillion. But if you assume, as many prudent forecasters do, that all the recent tax cuts will become permanent (which is what the President wants) and that total "discretionary" or appropriated spending grows as fast as the economy (we have, after all, a very expensive foreign policy agenda), the number is much larger. According to the CBO, it comes to a deficit of $6.0 trillion. That means deficits averaging $600 billion per year over the next decade.
Gazing over the Fiscal Brink
So there you have it: in just three years U.S: voters witnessed a negative swing of over $10 trillion in the ten-year federal deficit outlook. By the year 2014, that will amount to $90,000 in additionalfederal debt for every household. Much of this swing was driven by forces at least partly beyond this administration's control--including the recession, the war on terror, and even the Medicare expansion (since many Republicans feared the other party would kill them politically if they did not pass it). Still, at least one-third of the entire ten-year deficit swing can be accounted for by tax cuts imposed solely under the White House's unflagging leadership. And these are large, back-ended tax cuts--with nearly all of the costs arriving after the presumed need for fiscal stimulus has passed. Whatever the president's rationale back in 2001, his team's endless quest for more such reductions even while fiscal projections were plunging suggests that common sense had been blinded by ideological partisanship.
Apparently it is always the right time for a tax cut. Coming into power, the Republican leaders faced a choice between tax cuts and providing genuine funding for the future of Social Security (what a landmark reform this would have been!). They chose tax cuts. After 9/11, they faced a choice between tax cuts and paying for extensive measures needed to protect this nation against further terrorist attacks. They chose tax cuts. After war broke out in the Mideast even while senior lobbies were clamoring for a drug benefit, they faced a choice between tax cuts and galvanizing the nation behind a policy of future-oriented burden-sharing. Again and again, they chose tax cuts.
By February of 2004, with the economy reviving, many Washington hands doubted the White House would persevere in its tax cut plans. Personal income tax revenue, which had hit $1 trillion in 2000, had fallen so far that the CBO projected that it would not reach that dollar mark again until 2007. Why keep cutting and going deeper in debt when the economy no longer needs the boost? The president's FY 2005 budget proved the doubters wrong. It was déjà vu all over again.
In order to justify further tax cuts--while still loudly promising"to cut the federal deficit in half" by 2009--the administration engaged in a disingenuous rhetorical ploy. When arguing for the original tax cuts, the Bush team okayed a congressional gimmick to "sunset" all of the cuts (wink, wink) by the end of the decade, supposedly to prevent any long-term harmful effects on the budget. Now, in its FY 2005 budget, the team argued that making the tax cuts permanent is affordable because only the next five years should matter--failing to mention in this sleight of hand that more than 80 percent of the ten-year revenue loss will occur after the year 2009. Neat, isn't it? The team also proposed new tax-free personal saving and retirement accounts. How to afford them? Make the payouts from these accounts tax-exempt (rather than the contributions), so that most of the revenue losses won't occur for decades.
Other budget hurdles were cleared less artfully. Every tax expert knows that Congress must fix the alternative minimum tax or "AMT" before it unfairly hits more and more middle-class taxpayers. The Bush budgeteers agree, but since the fix is costly they decided to patch it one year at a time. Do we still need to do something about Social Security or health insurance? Sure, they said, so long as they don't cost anything. Another war in the Mideast? We'll do an end-run around the budget and fund those through "emergency" appropriations.
Despite the subterfuges, the Bush team could not make its deficit target without yet another stunt, and this one isn't pretty: a one-half percent annual growth cap on all domestic, discretionary spending unrelated to homeland security. This amounts to a 10 percent cut over the next five years, in real dollars per capita, in federal spending on everything from justice and education to clean water and immigration. Almost no one in Washington believes that Congress will pay any attention to this "one-half percent" cap. Proposed in a number-fudging budget during an election year--and following severalyears of rapid spending growth--not even fiscal conservatives take it seriously. Most budget experts believe that deficit spending will increase rapidly with no end in sight. They also understand that, thanks to an impending retirement boom, all of the fiscal projections will get much worse during the next decade.
Loss of fiscal credibility leads to loss of overall credibility--even for a leader with the able command skills of this president. "This will take time and sacrifice," announced President Bush upon declaring war on Iraq. "Yet we will do what is necessary, we will spend what is necessary." What he deftly left unmentioned is who will do the sacrificing and who will pay for the spending. While America's young men and women were being asked to risk their lives, the president boldly asked the rest of us to "sacrifice" by agreeing to permanent reductions in our own taxes. Such tax cuts, unmatched by spending cuts, are precisely equivalent to shifting even more of our future federal spending burden onto these young soldiers' future income. Keep in mind that these young people, according to official Social Security trustees' numbers, are already expected to pay the equivalent of 25 to 40 percent of their payroll into Social Security and Medicare before they retire just to keep these programs solvent.
Relative to the size of our economy, the recent $10 trillion deficit swing is the largest in U.S. history other than during years of total war. With total war, of course, you have the excuse that you expect the emergency to be over soon and thus to be able to pay back the new debt during subsequent years of peace and prosperity. Yet few believe that the major causes of today's deficit projections, most certainly not the war on terror, are similarly short-term. Indeed, the biggest single factor in the projections--the growing cost of senior entitlements--is certain to become much worse just beyond the ten-year horizon when the huge baby boom generation starts retiring in earnest.
Two facts unmentioned in the deficit numbers cited abovewill help put the cost of the boomer retirement into focus. First, the deficit projections would be much larger if we took away the "trust-fund surpluses" we are supposed to be dedicating to the future of Social Security and Medicare. And second, the assets in these trust funds, even if we were really accumulating the surpluses--which we were not--are dwarfed by the $27 trillion in total unfinanced liabilities still hanging over both programs. (This is the official number cited in the 2004 federal budget; as we shall see, other estimates of our future fiscal imbalance range much higher, as much as $74 trillion.) A longer time horizon does not justify deficits over the next decade. If anything, the longer-term aging of America is an argument for sizable surpluses over the next decade to prepare for the tide of red ink we know is coming.
How big is the problem, practically speaking? Look at it this way. If we wanted to balance the budget by 2014, on our current track we would either have to raise both individual and corporate income taxes by 38 percent or cut both Social Security and Medicare by 55 percent. Further on, with the Woodstock generation retiring en masse, the trends begin to worsen very quickly. To balance the budget by 2030 (assuming we do nothing until then), we would have to raise all payroll taxes by 100 percent and individual income taxes by 50 percent or we would have to cut Social Security and Medicare benefits in half and cut all nondefense discretionary spending by half.
"If all these numbers are making your head spin, don't worry; just remember that they are all big, and they are all bad," explains David Walker, comptroller general of the nonpartisan General Accounting Office, which generated the 2030 numbers I have just cited. Walker has a fifteen-year statutory appointment, so he is beholden to no one. He goes on: "Deficits do matter, especially if they are large, structural, and recurring in nature. In addition, our projected budget deficits are not 'manageable' without significant changes in 'status quo' programs. We cannot simply grow our way out of this problem."
RINOs, Starve-the-Beasters, and Big-Government Conservatives
One might suppose that a reasoned debate over this deficit-happy policy would at least be admissible within the discussion tent of the GOP. But party discipline is absolute in the Bush administration. I've seen Republicans get blackballed for merely observing, in point of fact, that national investment is limited by national savings; that large deficits typically reduce national savings; or that higher deficits eventually trigger higher interest rates. (The latter proposition was denied by the former chairman of the Council of Economic Advisers, Glenn Hubbard, until someone inconveniently pointed out that he affirmed it himself in a textbook he wrote before joining the administration.)
I've seen other Republicans get pilloried for picking on the wrong constituency--for suggesting, perhaps, that a tax loophole for a corporation or wealthy retiree is no different, ethically or economically, than a dubious welfare program. Let me mention a fascinating example of this ideological bias. From 1990 to 2002 the Budget Enforcement Act required Congress to follow a "pay-go" rule that made it difficult to enact a permanent new spending hike or tax cut without also enacting an offsetting spending cut or tax hike. The Bush team let the BEA expire at the end of fiscal year 2002. In 2004 they want to reenact the pay-go rule--but only for spending hikes. Tax cuts will henceforth always be favored in the budget process. A new tax loophole for (say) offshore banks or vacation homeowners will automatically receive a green light in Congress ahead of a new benefit provision for disabled widows.
Leaders of GOP antitax activists take pride in how effectively their groups can target, and thus intimidate and defeat, any Republican legislator who votes in favor of any tax increase for any reason. "We want to be seen as the tax cut enforcer in the party," says Club for Growth president Stephen Moore, noting that 85 percent of his party's senators and 95 percent ofits congressmen have signed antitax "pledges." Even war is no excuse. "Nothing is more important in the face of war than cutting taxes," said House majority leader Tom DeLay while missiles were flying over Iraq, in a dictum that surely would have arched the eyebrow of Abraham Lincoln or Franklin Roosevelt. To be concerned about deficits is to be--that reviled word--a "moderate." "I happen to think moderate Republicanism represents traditional Republicanism," observes Maine senator Olympia Snowe, whose vocal complaints about deficits made her a target of vicious attack ads by the Club for Growth. They have also earned her, along with a shrinking minority of other GOP legislators, the "RINO" label among activists ("Republican in Name Only").
For "supply-side" Republicans, the pursuit of lower taxes has evolved into a religion, indeed a theology that discards any objective evidence that violates the faith. Even after the explosion of federal debt in the eighties, an explosion supply-siders had predicted would never happen, leading prophets like the late Bob Bartley, editorial editor of The Wall Street Journal, called for more tax cuts to kick off another "seven fat years." Any tax cut, anytime, always generates prosperity. It may sound illogical, but as Jude Wanniski once put it in his seminal 1978 book, that's just The Way the World Works.
For other Republicans, the fat-years language is merely tactical. Many partisan Republicans will admit, in private at least, that the supply-side argument is a charade. But they support tax cuts anyway because they believe that America suffers from too much government and that this is the only strategy that will reduce its size. Shut off government's source of revenue, say these "starve-the-beast" strategists, and the Democrats will have no choice but to shut off spending or risk economic disaster. For too long the politics of pleasure have only helped big-spending Democrats; now, say these partisans, it's time for small-spending Republicans to do some payback.
It's akin to the parent who holds a gun to his child's head inorder to get the other parent to agree with him--in an argument over the child's future welfare, no less. But the strategy is not only perverse, it's clearly ineffective. Over the last three years it hasn't persuaded Democrats to become more cooperative or to reduce their spending agenda. If anything, using the deficit threat as a bargaining chip has encouraged many Democrats to grow more cavalier themselves: if you can borrow for your big tax cut, well, we can borrow for our big health insurance plan.
Or why just talk about Democrats? Casual deficits have encouraged Republicans to become reckless with outlays--"to spend like drunken sailors," to borrow a phrase from one of several conservative groups expressing growing discomfort with the president's fiscal policy. Excluding homeland security, domestic discretionary outlays have soared 7 percent annually over his first three years, in part due to pork-laden appropriations bills. One bill that (barely) did not pass, a bloated "energy" proposal, was so full of special interest "earmarks"--often a euphemism for pork--to Rust Belt companies and shopping malls that Senator John McCain memorably blasted it as "spending for Hooters and polluters." Another bill that did pass, the 2004 omnibus appropriations package, contained some 7,900 spending items specially "earmarked" for lawmakers' home districts, everything from art exhibits in Iowa to a new senior center in Valdez, Alaska. By all accounts, there is vastly more earmarking today--perhaps five or ten times as much--than there was a decade ago.
It is not clear why President Bush doesn't veto this pork. Maybe he's a "cafeteria Catholic" who likes to pick and choose where to be virtuous. Maybe executive approval on spending is the price he pays for lawmaker approval on taxes. All we know is that he is currently on track to become the first president since James A. Garfield never to veto a bill--and Garfield died after only six months in office. To find a nonvetoing president who served more than a year, you'd have to go all the way backto Millard Fillmore, America's last "Whig" president who later on (by the way) became leader of the Know-Nothing Party. To find one who served a full term, you'd have to go back to John Quincy Adams, and there you're within hailing distance of the founders.
President Bush now promises that he will put domestic appropriations on a very tight leash. But even if we believed him, the fact remains that this leaves out most of the federal budget. In other words, it's hard to be impressed by the starve-the-beast argument when GOP leaders do nothing to reform entitlements, urge greater spending on defense, and allow debt-service costs to rise along with the debt--and when these three functions (benefits, defense, and interest) constitute over four-fifths of all federal outlays. "I don't think you'll find anybody in any party who takes seriously the administration's promise to hold down spending," says well-known conservative Bruce Bartlett. "The president has never made small government a major element of his philosophy."
There's yet another view of Republican intentions, but it's hardly more flattering. According to some observers, the policies of George W Bush and his congressional allies represent the ascendancy within the GOP of "big-government" conservatism (or, as George Will puts it, "strong-government" conservatism).
Big-government conservatives don't bother much about balanced budgets or the size of government. Abroad, they care about "national greatness" and national security. At home, they care about a powerful and popular government that can put together winning political coalitions. They will embrace big spending to outflank the Democrats and cement the loyalty of Americans whom they regard as their natural constituency--the employed, the affluent, the invested, and the retired. Meanwhile, neoconservatives (who coined the term) want "big government" to help them restore what they allege to be the lost moral fiber of the American people. Few care which politicalor economic principles are discarded along the way--prompting not only fiscally responsible GOP "moderates" but plenty of GOP libertarians to wonder if the party of the rustic log cabin is turning into the party of imperial bread and circuses.
Is President Bush a big-government conservative? Surely much of the description fits. Surely, too, big government will quickly find favor with any leader, liberal or conservative, at a time when the public is fearful of war and attack. But to explain Bush's embrace of big-government conservatism--if that's what it is--is not to excuse the manner of his embrace. A nation cannot mortgage its long-term future to purchase any "greatness" worthy of the name.
What Went Wrong with the Party of Thomas Jefferson
Not surprisingly, many Democrats have thrown a spotlight on the GOP's internecine quarrel over taxes and spending in order to improve their own party's image with voters, even to the point of claiming to be born-again champions of fiscal responsibility. "Squandering our future" and "disinheriting the next generation" have recently become crowd-pleasing attack lines among Democratic contenders for the White House and Congress.
All this comes from the party that has, over the course of several decades, turned the federal government into a massive entitlements vending machine which operates by dispensing new benefits in return for organized political support and by deferring costs as far as possible into the future. These federal benefits, in real (inflation-adjusted) dollars per capita, have expanded sixfold since 1965. This fact undermines Democratic charges that the Republicans have "slashed" our safety net in the "mean" age of Reagan or the Bushes. It also makes many Americans wonder if we've seen anything close to a sixfold improvementin the nation's biggest domestic challenges, from poverty to education.
But some say, Oh no, those old paleoliberals are no longer around. A fresh generation of neoliberal Democrats believes government can be mean and lean, efficient and market-oriented, "steer" the economy without "pulling" the oars, and so on.
Really? Take another look at the six major contenders for the Democratic presidential nomination at the beginning of 2004. Though all of them excoriated Bush for his tax cuts, the four leading "centrists" (John Kerry, Wesley Clark, John Edwards, and Joe Lieberman) refused to roll most of them back except for "the rich" or the "wealthiest" Americans. This means most of the revenue loss would remain. Meanwhile, their web sites brim with "bold" and "generous" and expensive new spending programs--for seniors and youth, for energy and the environment, for education and vets, for the disabled and the uninsured. According to one estimate, their proposed new spending agenda ranged from $170 billion per year (for Lieberman) to $369 billion per year (for Dick Gephardt). In all of their two-hundred-odd budget proposals announced by their campaigns or drafted in bills they've submitted to Congress, only two would reduce spending.
Though I welcome any newcomers to the cause of genuine fiscal stewardship, I sincerely doubt that the Democratic Party as a whole is any less dysfunctional than the Republican. It's just dysfunctional in a different way. Like two partners in a troubled marriage, these two parties mirror, react to, and ultimately thrive off the other's pathology. It is said that two type A personalities can sometimes become a successful couple because, in a kind of interlocking neurosis, the rocks in one head fill the holes in the other's. Unfortunately, that never seems to happen in politics.
Yes, today's Republican leaders demonstrate a reckless disregard for widening long-term deficits. But it was the Democratswho, long before Ronald Reagan, labored patiently to purge America of its traditional aversion to deficits. They did so first as Keynesian academics in the 1940s and 1950s. They did so later as the best-and-brightest advisers who successfully urged President Kennedy to abandon the Republicans' "fiscal puritan ethic" in 1962 (explaining why JFK would later become a hero to many GOP supply-siders). They did so still later as the pump-priming allies of Lyndon Johnson. As recently as 1997 thirty-five Democratic senators killed the efforts of a bipartisan Senate majority to pass a balanced budget amendment--and defied the 80 percent of Americans who said they favored the amendment. During the Clinton years, the government's official deficits did go down. But the government's accounting (or "accrual") deficits, which include charges for unfunded liabilities in Social Security and Medicare, continued to climb, and President Clinton did nothing to stop them. If Democrats want to be the antideficit party, they have a lot of history to account for.
Yes, the Republican Party line often boils down to cutting taxes and damning the torpedoes. And yes, by whipping up one-sided popular support for less taxes, the GOP preempts responsible discussion of tax fairness and forces many Democrats to echo weakly, "me too." But it's also true that the Democratic Party line often boils down to boosting outlays and damning the torpedoes. Likewise, Democrats regularly short-circuit any prudent examination of the single biggest spending issue, the future of senior entitlements, by castigating all reformers as heartless Scrooges. No national candidate who says the affordability of these entitlements is a problem or challenge has a prayer of winning a primary. Nothing better reveals the heart of "the Democratic wing of the Democratic Party," as Governor Howard Dean liked to put it, than the furor over Dean's discussions with GOP leaders in the mid-1990s about a plan to reduce the annual growth rate of Medicare from 10 percent to 7 percent. For this apparent outrage, Dean wasattacked for weeks. You might have thought he was accused of child abuse or cross burning.
Republicans don't like to gaze at the future of their deficits. But do Democrats enjoy gazing at the future of their favorite programs? Social Security, as officially projected, will be able to pay only 74 percent of its now scheduled benefits by the year 2045. Will Democrats face that fact or bury their heads in the sand? I have often and at great length criticized the free-lunch games of many GOP reform plans for Social Security--such as personal accounts that will be "funded" by deficit-financed contributions. But at least they pretend to have reform plans. Democrats have nothing. Or, as Bob Kerrey puts it quite nicely, most of his fellow Democrats propose the "do-nothing plan," a blank sheet of paper that essentially says it is OK to cut benefits, by 26 percent across the board whenever the money runs out.
Assuming that Democrats really care about the lower-income widows and orphans who would be most affected by such a cut, I have suggested to them that maybe we ought to introduce an "affluence test" that reduces Social Security for fat cats like me. My reasoning was that, to preserve our safety net for the truly needy, maybe we need to economize on our hammock for the well-off. Put differently, if everyone is on the wagon, who is going to pull it? To my amazement, Democrats angrily respond with slogans like "programs for the poor are poor programs" or "Social Security is a social contract that cannot be broken." (I keep telling them, I don't need these benefits, but they tell me I must get them anyway--for the benefit of others. In other words, we must bribe the rich so they will help the poor.) In 2003 most Democrats, along with the AARP, had trouble swallowing a provision to require the wealthy to pay higher premiums to participate in Medicare. Apparently it doesn't matter that Medicare is already unsustainable, and that the new drug benefit will increase the cost of the program by another 30 percent in 2030. They cling to the mastand are ready to go down with the ship. To most Democratic leaders, federal entitlements are their theology.
To be sure, Republicans can be shameless when they dress up tax cuts in patriotic colors--as though accepting a tax cut were somehow equivalent to wartime sacrifice. Yet Democrats do the same with entitlement expansions. When they talk fulsomely about their more expensive benefit proposal, such as a Medicare drug benefit that outspends the GOP plan, they like to say it reflects their stronger commitment to the greatness and generosity of America.
Either way, Republican or Democratic, it's astonishing how we can congratulate ourselves on our own civic virtue when we give ourselves bigger presents and send bigger bills to our kids. In today's Washington, a "courageous" politician is one who takes money from the next generation and passes it out to friends; a "selfish" politician is one who does the reverse.
The same holds for national security and sacred-cow interests. Yes, the GOP has its ties to Main Street and Wall Street. But Democrats cling to their own graven images. In the wake of 9/11, for instance, the Republicans cleverly mousetrapped the bill on terrorism insurance by tying it to litigation reform, and the bill on airport security by tying it to civil service reform. Democrats saw it coming but still couldn't help themselves. They noisily delayed the bills until they passed muster with the trial lawyers' lobby and the government employees' union--a crass favoritism that hurt them in the subsequent 2002 elections. The Republicans, framing the issue as a choice between national security and special interests, were delighted to put them in that box. They knew the Democrats' hands were tied. Loyal supporters must be serviced.
So let's be honest: both parties are the problem. If the Republicans have been culpable for most of the recent follies, it's only because they have recently been pulling the leadership levers. Before them, the Democrats have plenty to answer for. The high priests and assorted ayatollahs of the RepublicanParty have never met a tax they didn't want to cut. The revered theologians and ragtag mullahs of the Democratic Party have never met an entitlement program they didn't want to expand.
When in power, the two parties often end up doing injury to the very constituencies they pledge to help. The Republicans champion a family-oriented opportunity society, yet busily rig the economy with debt explosives that sabotage every parent's hopes to raise capital for a new business or pass on assets to their children. The Democrats champion the working classes, yet happily steer their New Deal entitlement ship of state, with all of its top-heavy new rigging, toward an unyielding demographic iceberg that threatens to leave these hardworking Americans adrift without a lifeboat.
When out of power, the two parties have forgotten what it means to constitute an honorable opposition--forgotten, that is, how even the minority party, by force of good example, can serve the country and encourage the majority party to do the right thing. Clever partisans who advise political campaigns like to laugh with delight whenever the opposition candidate takes a dogmatic or demagogic or plain idiotic stand in public. "More leverage and running room for our guy!" they cheer. In truth, even as they cruise to victory, they should be mourning. They will have to live with what happens to their country long after they (and everyone else) will have forgotten about their campaign and even their candidate.
How to Build a Better Future
We all recall the old philosophy riddle: What happens when an irresistible force meets an immovable object? At least one answer to that conundrum lurks somewhere in America's not-so-distant future. The irresistible force is benefit growth in entitlement programs. This growth is automatic. It is linked to the upward march of wages and medical prices, and to the agingof the population. It is scheduled to happen even if Congress never passes another law--and relatively few legislators wish to terminate their careers early by being the first to try to stop it. The immovable object is taxes. Tax bills must start in the House, the GOP majority in the House seems (at this point) very durable, and nearly all of these Republicans have sworn to an oath never to hike a tax. And in any case many Democrats would stand by them.
It's useless to speculate which party has the better excuse for inaction. Yes, benefit spending is the fiscal category that has changed and will change the most over the long haul--in an upward direction--which suggests that it's the Democrats who should yield first on entitlements. On the other hand, all spending promises should in principle be funded until the promises are changed, which suggests it's the Republicans who should yield first on taxes. Behind these arguments lie fundamental differences in each party's vision for America. In one party's "virtuous" America, government is smaller and favors liberty a bit more. In the other party's "decent" America, government is larger and favors equality a bit more. I certainly don't mean to minimize these differences. They are important.
But there are degrees of importance, and only blind ideologues cannot recognize this. Let me explain. Americans may have very different views about whether they would prefer, come the year 2030, to see the federal government both taxing and spending at 18 percent of GDP or to see it both taxing and spending at 32 percent of GDP. Yet very few budget experts, even the most partisan ones, believe that either outcome is likely to wreck our economy and ruin our nation. Now consider a scenario in which by 2030 we are taxing at 18 percent of GDP and spending at 32 percent. This certainly would wreck and ruin us. It would do so long before we even reached 2030. And this is the future, according to the General Accounting Office (GAO), we are now embarked upon if current tax policyand current spending policy get locked in stone. Should this future ever materialize, no one will ever care which party, circa A.D. 2004, was pursuing which vision.
This book is my effort to explain the critical fiscal choices we face as a nation.
Chapters 2, 3, and 4 lay out the overall dimensions of this challenge. In Chapter 2 I examine the budget projections themselves. How do we account for government liabilities? What do the deficit forecasts say? Why are structural deficits so bad, anyway? And how do today's budget plans determine the trade-offs boomers will have to make in their retirement--between their own living standards and those of their children? In Chapters 3 and 4 I cover the two great drivers of future fiscal pressure, the aging of America and the emergence of new dangers abroad. The first driver is part of a historic demographic transformation sweeping over most of the world, excepting only the poorest of countries. It has profound implications for our society, our culture, our family life--and of course our federal budget. This domestic driver alone is enough to break the bank. The second driver encompasses not just the spending needs of America's new war on terror but also the many perils of America's "twin deficit" dependence on foreign borrowing. This global driver accelerates the timetable for necessary action.
Chapters 5, 6, and 7 cover the origins and history of today's partisan gridlock. How did all this get started? Which party did what, and when? Are there lessons to be learned? Many Democrats may not want to hear, in Chapter 5, about their party's central role in setting this whole train of unsustainable promises in motion back in the 1960s and 1970s. Many Republicans may not want to hear, in Chapter 6, about how their party dug America into a deeper hole by trading away fiscal candor for electoral advantage during the 1980s and 1990s. Chapter 7 is all about the myths that each party has inventedover the years to justify its lopsided perspective on the budget. To Democrats, endless spending growth is somehow never a problem. To Republicans, endless deficit growth is somehow never a problem. To paraphrase Josh Billings, it's not what our party leaders don't know that gets us in trouble. It's what they know that just ain't so.
In Chapter 8 I try to assess a few of the deeper reasons why our country seems to have difficulty focusing on its long-term fiscal future. Many say that it's the American people who have basically changed in their attitudes and habits. They say that rising individualism, more mobility, weaker family ties, and new forms of fast-paced media (like TV and the Internet) are undermining our sense of community and by extension our connection to the future. It's not hard to find evidence of "short-termitis" or a grab-it-now, live-for-today outlook on life. Yet while some of these trends are real, I believe that most of the responsibility lies with our elected representatives and the dysfunction of their political parties. Most of our bad choices have not been "forced" on Washington by voters. Washington made them on their own--and the fact that most voters do not trust their government is good evidence that they do not feel well represented. Even today's young adults, those who show the most disengagement from political life, can be re-engaged if leaders made a real effort. Sadly, few leaders feel it's worth the trouble.
So what can Americans do about it? In Chapter 9 I outline a few large steps we could take--starting with reforms of Social Security and our major health care programs that would bring long-term spending back in line with long-term revenues and enhance our rate of household savings. I advocate a stronger budget process in Congress to help ensure that America never again wanders near the fiscal precipice. I admit that all these reforms are powerful medicine--but then again so is the challenge we face. Since fiscal policy is designed by politicians, I also outline an agenda that I think would bring new healthback to our system of political parties. It consists of a few simple reforms in redistricting, fund-raising, and public education that would help reverse the trend toward partisan gridlock and give the moderate mainstream more reason to get involved. With our party system on the mend, perhaps we can face both the challenge and the medicine.
The last chapter is a letter to the rising generation. Americans these days love to talk about their children--and about the importance of doing all the right things for them. In their families, Americans really are raising a confident, high-achieving, team-playing crop of new kids. Yet the greatest failing in our political system is our inability to translate what we do in our family lives over to what we do in our national life. If we fail our kids collectively as a nation, if we saddle them with unaffordable liabilities and do not leave them the fiscal and economic resources they need to meet their own new challenges, it won't be enough that we "meant" well. Posterity may never entirely forgive us for squandering the national opportunities that our own ancestors safeguarded for us.
When President Bush repeatedly announces to great applause that "I did not take this office to pass on problems to future generations," I believe he is sincere. I believe the enthusiasm of the crowd is genuine. What's missing is any attempt by either his party or the opposition party to educate voters about the very large problems we are indeed passing on to them. And even when voters find out, our parties and leaders offer no real remedies.
Dietrich Bonhoeffer was a German theologian who witnessed firsthand the rise of fascism in Germany. Though he could have fled to America, he stayed in his homeland to help Jews and other persecuted people to safety until he was arrested. Among the many penetrating thoughts he penned while awaiting execution, one has always caught my attention. "The ultimate test of a moral society," Bonhoeffer wrote, "is the kind of world it leaves to its children." Few of us will ever becalled on to pay the price he paid. But most of us understand that one essential duty of any citizen is speaking up and taking action when we see a great wrong threatening our republic's future. What is now happening fiscally is a great wrong. And all of us can say or do something to help avert it.
Copyright © 2004 by Peter G