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As Democrats race toward squandering another $4.1 trillion — perhaps with some Republican help — we are being told over and over how the biggest stumbling block is figuring out how the new spending will be “paid for.”
There are technically two different bills being negotiated. One is a $3.5 trillion reconciliation bill that includes a wide range of liberal priorities. And the other is an infrastructure bill that would introduce an additional $600 billion in spending that a group of Republicans, for some reason, are still pursuing. But Democrats have indicated that if the bipartisan deal fails, that spending will end up being added to the reconciliation bill anyway, bringing the combined total to $4.1 trillion.
It should be noted that this may even be charitable. The way Democrats have structured the reconciliation package is to set expiration dates for certain policies with the hope that once enacted, they would be hard to eliminate, and they would thus become permanent parts of the budget. According to an analysis from the Committee for a Responsible Federal Budget, the true cost of the reconciliation plan could be as high as $5.5 trillion (not including the additional spending from the bipartisan package).
Senator Joe Manchin (D., W.Va.), who is trying to maintain his image as a moderate, insisted that he doesn’t believe the spending should be passed if it isn’t fully financed. “Everything should be paid for,” Manchin has told reporters. “How much debt can y’all handle?”
Republican members of the bipartisan group have also made similar comments.
From a relative fiscal perspective, finding a way to pay for new spending is better than merely running up new deficits. But it is folly to consider massive amounts of new spending to be “responsible” as long as members of Congress come up with enough taxes to raise (or other spending to cut) to offset it.
In reality, new spending adds to the obligations of the federal government. And any combination of tax hikes or offsetting spending cuts that would be used to finance that new spending is money that is no longer available to help us meet existing government obligations.
To use some tangible numbers, according to its most recent estimates, the Congressional Budget Office expects that the federal government will run $12.1 trillion worth of deficits over the next decade. If lawmakers approve $4.1 trillion worth of new spending and offset that with new taxes or savings elsewhere in the budget, it’s true that the deficit figure would remain the same. However, there is an opportunity cost. Were lawmakers, in an alternate scenario, to use that same $4.1 trillion to pay for existing obligations rather than creating new ones, they could be reducing projected deficits by more than one-third.
This is not some esoteric matter. Even before the fiscal crisis, the U.S. was on an unsustainable fiscal trajectory driven by spending on Social Security, Medicare, and Medicaid. As a result of $6 trillion of deficit spending during the pandemic, our cumulative debt exceeded economic output for the first time since World War II. This is a threshold that we were previously not expected to cross until the 2030s. Essentially, the pandemic moved up our day of reckoning by about a decade.
Under current long-term CBO estimates, debt is never again expected to dip below 100 percent of gross domestic product, and within 30 years it is projected to hit 202 percent of GDP. That would be the equivalent of $45 trillion in debt-adjusted to the size of this year’s economy.
Politicians in both parties have decided that debt does not matter and that we can continue our reckless fiscal policies without consequence. But we are on a collision course with fiscal reality. At a future date, we will have to make extremely difficult decisions about the combination of tax increases, spending cuts, and inflation we are willing to endure. Tapping resources now for the purposes of financing a massive amount of new spending will reduce the already limited menu of options we have for averting fiscal catastrophe down the road.
At some point in the next few weeks, Democrats (and possibly Republicans) will announce that they have reached a deal on some sort of major spending compromise. They will claim that it is fully paid for, and assert that it is fiscally responsible. But there is nothing responsible about adding trillions in new obligations at a time when the nation is already heading for fiscal catastrophe.