It’s a difficult time to be a deficit hawk.
In March, Congress passed the CARES Act, named to show what lawmakers on both sides of the aisle wanted to be seen to be doing in the wake of the economic devastation caused by the outbreak of COVID-19. They cared to the tune of about $2.2 trillion, all of it billed to the deficit, making it the single biggest legislative care package in history by a wide margin. It was the first time Congress had ever passed a bill with a trillion-dollar price tag. As a point of comparison, the Affordable Care Act, the 2010 health law that would be known as Obamacare, which was viewed as unusually costly, had to be whittled down during the legislative process so as not to technically exceed the trillion-dollar mark. Its 10-year price tag, at the time of passage, came in around $940 billion.
But any real worries about those sky-high figures appear to have melted away in the face of the pandemic, which has exposed the underlying unseriousness of Washington’s approach to budgeting. For nearly 40 years, federal lawmakers have been trying, or at least pretending to try, to reduce the deficit. But when asked to make tough budgetary choices, they consistently buckle under the pressure of partisan politics. This, in turn, has given rise to simplistic economic theories designed to justify whatever outcomes are most convenient.
The CARES Act followed a series of smaller relief bills and would be succeeded by a $310 billion top-up to the original bill’s small business loan program, bringing Congress’ total coronavirus relief spending to nearly $3 trillion. And that was just for starters. By summer’s end, House Democrats and Senate Republicans were haggling over a new round of stimulus, with Democrats pushing a $3 trillion aid package and Republicans, representing the limited-government side of the argument, backing a mere $1 trillion in additional deficit spending.
When their bickering went as congressional bickering often does—nowhere—President Donald Trump eventually stepped in to impose extensions via executive fiat of some of the original CARES Act programs, including a boost to unemployment insurance that would cost tens of billions more. Did it matter that Trump’s unilateral move raised questions about his constitutional authority to authorize such spending? Not really. There was money to spend, or maybe, given the state of the federal fisc, there wasn’t, but either way, some politician, somewhere, somehow, was going to find a way to spend it. Trump even argued that his orders were designed to prod recalcitrant lawmakers into making a deal, which is to say, a deal to spend more.
Even before the virus wreaked havoc on the economy, projections showed that America’s 2020 budget deficit—the gap between federal tax revenues and total spending—would surpass $1 trillion for the first time in nearly a decade, and would continue to do so for years to come. The Medicare and Social Security trust funds, meanwhile, faced insolvency.
In 2016, Trump had campaigned on eliminating the national debt in under a decade. Yet by June 2020, the federal budget deficit had reached $864 billion…for just the month. That was more than the entire budget gaps in either 2017 or 2018. By September, the nonpartisan Congressional Budget Office (CBO) was projecting a $3.3 trillion annual deficit in 2020. Federal debt levels, which equaled just 35 percent of the economy in 2007 and 79 percent of the economy in 2019, would reach 98 percent. The CBO had previously warned that persistently high debt and deficits would have consequences: slower economic growth, an ever-increasing share of the budget consumed by interest payments on the debt, and reduced capacity to act should a major crisis arise.
And yet as the virus consumed the nation, even many deficit hawks were recommending more spending, at least in the short term. In April, the Committee for a Responsible Federal Budget (CRFB), perhaps the foremost organization devoted to advocating lower federal deficits, issued a statement saying “today’s high deficits are needed to combat the current crisis” while also warning “they are by no means free.”
“It is strange to be a deficit hawk advocating for higher deficits,” CRFB Senior Vice President Marc Goldwein says, “until you realize why we are fiscal hawks in the first place: so you have fiscal space when you need it.” That was the bigger problem: It wasn’t just $3 trillion in new deficit spending; it was $3 trillion on top of the tens of trillions that had built up during so many decades past.
Deficits hawks have never had it easy. Although they were occasionally afforded a measure of superficial respect, the last two decades have seen them increasingly branded as scolds who want to raise taxes and force cuts to entitlements, domestic programs, and defense spending. Elected officials, who prefer to promise voters pretty much anything but that, tended to pay lip service to the idea of balanced budgets and paid-for legislation—and then tended to ignore the deficit, except to score points against their political opponents.
Even still, this time seemed different. COVID-19 wasn’t just a novel virus. It was a novel economic problem, and the old guardrails suddenly seemed to vanish. While both parties had often used gimmicks and conveniently magical economic theories to justify shrugging at past pile-ups of debt, they had typically striven to maintain the pretense of fiscal responsibility. Now even that appears to have fallen away, another victim of the pandemic.
How will we pay for all this? As Congress debates trillions more in aid spending and Democrats prepare to erect a vast new infrastructure of federally funded programs should they win in November, it increasingly looks as if the answer is: Actually, we won’t.
‘A Bad Idea Whose Time Has Come’
The modern movement to control the deficit can be traced back to 1985 and the passage of the Gramm-Rudman-Hollings Balanced Budget and Emergency Deficit Control Act. President Ronald Reagan is often remembered as a hero to proponents of limited government, and it is certainly true that he spoke their language. But under his watch, federal spending grew. By the middle of the decade, deficits had more than doubled. In 1980, the gap was about $74 billion, equal to 2.6 percent of the overall economy. By 1983, it was about $208 billion, or 5.6 percent of the economy.
In theory, this was a bipartisan issue, with concerned legislators on both sides of the aisle wanting to be seen as fiscally responsible. The deficit had grown too large. Something had to be done. But what?
Looked at one way, the solution was straightforward, even obvious. Reagan had slashed tax rates while increasing federal spending, particularly on the military. With more federal spending and lower tax rates, the gap between outlays and revenues—that’s the deficit—had grown. To reduce the size of the deficit, lawmakers had essentially two levers they could pull: increasing revenue via tax hikes, and cutting spending.
On the one hand, this was fairly simple. On the other hand, it was incredibly complicated, because those who make a living asking large numbers of people to vote for them tend to be wary of pulling either lever. Broadly speaking, voters like tax cuts and spending hikes, not the reverse. Looked at this way, the solution was not obvious at all.
Gramm-Rudman-Hollings was an attempt to solve both the deficit problem and the political problem it created. Its congressional namesakes were two Republicans, Sens. Phil Gramm of Texas and Warren Rudman of New Hampshire, and a Democrat, Sen. Ernest Hollings of South Carolina. What they realized was that the real problem wasn’t pulling the two levers—it was being seen to pull them. Hence the insight that informed their solution: What if no one pulled them at all? What if, instead, they just magically pulled themselves?
Gramm-Rudman-Hollings was intended to put the United States on a path to a balanced budget in five years via a forcing mechanism: If Congress failed to hit certain deficit reduction targets each year, it would trigger a round of automatic spending cuts, reducing spending across every category by a certain percentage, via a process known as sequestration.
The idea that neither party’s policy priorities should take precedence was one that would guide budget reform efforts for years to come: The deficit would be reduced through shared pain and shared responsibility.
In theory, lawmakers could avoid these across-the-board cuts by settling on other methods for hitting the targets. But if Congress could not agree on an alternative, the program’s broad-based reductions would go into effect, whether anyone thought they were a good idea or not. Any automatic spending cuts would be calculated and carried out by the comptroller general, whom the president would nominate from a list of options provided by Congress. The important thing was that no one in Congress would be directly responsible.
The distribution of the spending reductions was also important, because among the problems facing Congress in pursuing deficit reduction was a basic disagreement over which programs to trim. Republicans favored reducing domestic spending and preserving spending on defense. Democrats preferred the opposite. If the automatic reductions kicked in, everyone’s priorities would be affected.
Imagine a debate between doctors about which of an ailing patient’s limbs to amputate: The Republican doctors say the patient needs arms to fend off attackers. The Democratic doctors say the patient needs legs to walk. The sequester would resolve this impasse by amputating all four hands and feet.
It was ugly by design, and no one thought this was a particularly good solution—not even Gramm, Rudman, or Hollings. Rudman famously referred to the legislation as “a bad idea whose time has come.”
As it turned out, it was a bad idea that didn’t work. In 1986, the Supreme Court found that the arrangement with the comptroller was unconstitutional. Under the Constitution’s separation of powers, Congress has the power to pass laws but not to execute them. Since the comptroller would be fireable by Congress, he or she would be essentially an agent of the legislative branch. And just as Congress cannot play any role in the execution of laws, neither can it delegate that power to an agent.
After the Supreme Court issued its ruling, President Reagan concluded that “now Congress must make the difficult choices” and “act promptly” to control the deficit. Legislators, the Court had determined, would have to pull the levers themselves.
As if to demonstrate that Congress was the kind of organization that could really get things done, congressional lawmakers acted promptly to ensure that they would not have to.
Congress passed, and Reagan signed, the Balanced Budget and Emergency Deficit Control Reaffirmation Act of 1987, which reaffirmed lawmakers’ commitment to avoiding the sort of difficult budgetary choices they had been attempting to avoid from the beginning. Sequestration authority was moved to the Office of Management and Budget (OMB), a body inside the executive branch, in order to conform to the Constitution’s separation of powers. Told to make hard choices, Congress had once again assigned someone else to make them.
Lawmakers also bought themselves time. The follow-up raised legally allowable debt limits and extended the original five-year deadline for balancing the budget by an additional two years.
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