MY VIEW: Marc Goldwein: Candidates' budget plans don't add up
Marc Goldwein is the Senior Vice President and Senior Policy Director of the Committee for a Responsible Federal Budget. He gave an interview to the Orlando Sentinel that appeared online. It is reposted here.
A budget analyst says presidential candidates aren't being realistic about deficits and debt.
Recently the Congressional Budget Office reported that federal deficits, after declining since 2009, are rising again; they're on track to exceed $1 trillion by 2022, if not sooner. You wouldn't know it from the presidential candidates. Republicans are calling for big tax cuts, and Democrats are promising more spending. We discussed the state of the budget and the disconnect with the campaign with Marc Goldwein, a senior vice president with the bipartisan Committee for a Responsible Federal Budget. An excerpt follows. A longer transcript and video are at OrlandoSentinel.com/opinion.
Q: Why do you think just 6 percent of Americans picked the deficit as the nation's No. 1 problem in a recent Gallup poll?
A: I think the deficit is the disease that causes a lot of symptoms, and Americans are worried about many of these symptoms: lack of jobs, lack of sustainability, lack of planning for the long term. So even though the deficit may not appear at the top of their list, I think a lot of the issues that Americans do care about play in with the deficit pretty closely.
Q: Florida Sen. Marco Rubio warned of a looming debt crisis in a recent debate. Why isn't there more talk about it?
A: Politicians don't like to talk about the debt, because then they have to talk about the solutions. And the sad fact is all of the solutions involve taking away something from someone. They either mean that future Social Security benefits are going to be a little bit lower, or the Defense Department isn't going to get as much money, or somebody's going to have to pay more taxes. Policymakers don't like talking about pain; they like talking about giveaways: tax cuts, new programs, expanded benefits for veterans. I'm not surprised at all that it's not been a big discussion. Sen. Rubio, though, is right on the mark: We do have a debt problem, and what's driving it is the growth of our entitlement programs: Social Security, Medicare and Medicaid.
Marc Goldwein is a senior vice president with the bipartisan Committee for a Responsible Federal Budget.
Q: Candidates who talk about slowing the growth of entitlement programs only seem to get punished for it. Even a generation ago, Republicans lost seats in Congress after Ronald Reagan talked about slowing Social Security spending. So why should a candidate running for office risk that kind of talk on the campaign trail?
A: It's funny: Candidates lost their election after Ronald Reagan brought up Social Security in 1981. But when we actually fixed Social Security for what we thought was 75 years and ended up being 50 years in 1983 on a bipartisan basis, as far as I know nobody lost their election because of that. In fact, it helped a lot of people to say we now made this program solvent. And there was pain in there. We raised the retirement age, we raised the payroll tax rate. So I think the problem is talking about pain without actually having the upside of the solution. If we can come together and have a solution that makes Social Security solvent and sustainable for the next 50 years, puts our debt under control, reforms our tax code, I think there's a lot of political upside.
Q: The Social Security trust fund is projected to last until 2033; why push a solution now?
A: I think it's a silly argument that because there's 17 years until the trust fund runs out of money, we don't have a problem. Let's put this in context: somebody retiring today at age 62, when they're 80 years old, under current law, their benefits will be cut by about 20 to 25 percent. Someone that's 45 today, the trust fund will run out before they retire. So this is a serious problem for people that are in retirement or near retirement; not just for folks that are my age. And with all politicians basically promising not to affect current beneficiaries or folks that are over the age of 55, we really have only a few years left to make thoughtful, intelligent, gradual changes to the program that give people time to plan and adjust to the future.
Q: How much time do we have to do something about Medicare?
A: Medicare … has the hospital insurance trust fund, and that's projected to run out of money in 2030; and it has the physician insurance and drug insurance plans, and those don't operate on the same trust fund basis. But when I look at Medicare, I don't think that the problem is that its trust fund is running out of money; the problem is that the costs are growing unsustainably faster that the economy, and that's both due to rising health costs and an aging population. So I don't think there's a specific deadline, but I think every year that we don't take action, our costs are going a little bit higher, and that's going to either mean higher taxes, lower spending on other priorities like education or defense or infrastructure, or more borrowing – a lot from foreign countries that don't like us.
Q: Instead of cutting costs in Social Security and Medicare, why not just cut the defense budget?
A: There's certainly plenty of waste in the defense budget, and there's plenty of ways that we can reform the force structure and the way the benefits structure works to save money as well as weapons systems that frankly we don't need and only exist because somebody has a manufacturer in their congressional district. But with that being said, we've now cut defense twice; once with the budget control act in 2011, and again through the sequestration. And as we look at it, defense isn't what's driving the debt. Of the $2.7 trillion increase in spending over the next decade, about $100 billion of that is defense — maybe $150 billion. That means that $2.5 trillion of the $2.7 trillion is not defense. It's mostly Social Security, Medicare, Medicaid and interest on our debt. So I'm all about continuing to find waste in defense spending, but it's not what's driving our spending growth.
Q: Both Democratic presidential candidates are talking about enhancing Social Security benefits. Good idea?
A: Look, there are some folks that are still in poverty despite being on Social Security. We have enough money to have basically zero senior poverty, and we still have 5 to 8 percent senior poverty. So there's certainly an argument for enhancing benefits for those low-income individuals who aren't getting enough to live off of — maybe for the very oldest, for widows — but these broad-based expansions, giving everyone more Social Security benefits, just doesn't make sense in the context of a system that can already only afford to pay 75 percent of current benefits. So what I would say is let's do this: let's figure out how to get the taxes and the spending in line so Social Security is solvent over the next 75 years, and then we can have a discussion if we want to enhance benefits or not. But let's not put the cart before the horse.
Q: So is there room in a solvency plan for enhancing benefits for the poorest recipients?
A: … There's absolutely room to enhance benefits for those who need it most, as part of a plan that overall slows the growth of benefits and increases the revenue coming into the system.
Q: The deficit has dropped by two-thirds since 2009. Some candidates say it's not a big problem. Why are they wrong?
A: Let's start with some context: the deficit actually came down even more: 70 percent since 2009. But that was after it grew 800 percent in the prior two years. It's easy to reduce it from a very high base. And deficits are no longer declining. 2015 will probably be the lowest deficit year in the history of the United States going forward. The deficit in 2016 will be about $100 billion higher than 2015; 2017 will be about $100 billion higher than that. Under current law projections, which make this wacky assumption that Congress acts responsibly over the next few years, trillion dollar deficits will come back by 2022, and we'll be back to our record levels by 2026 or 2027. Now, if the unthinkable happens, and Congress continues to act irresponsibly, trillion dollar deficits will be back by 2020. So, no, I don't think we've solved this problem, although we do have a little bit of a reprieve here, with deficits briefly coming down.
Q: Plenty of economists say the austerity that would be needed to reduce the deficit — tax hikes, spending cuts, or both — would hurt the U.S. economy the way it has hurt economies in Europe. What do you say?
A: I think we need to separate austerity from fiscal responsibility, because austerity is making big cuts in the immediate term, and you shouldn't do that when the economy is in recession. That can take money out of the economy, both by taking away tax dollars and by taking away government spending, which infuses dollars in the economy. Fiscal responsibility is about getting our long-term fiscal house in order: making gradual changes to the growth of spending, gradual accelerations to the growth of revenue, so that over time we get our debt on a more sustainable path. The problem with the most recent recession was we saw the big immediate deficit, which wasn't really a problem — that was because of the Great Recession — and we responded by trying to reduce the big immediate deficit. We didn't respond by trying to deal with the long term, which is the real fiscal issue we face as the baby boom population retires.
Q: What's the problem with our current deficit and debt? Our creditors are still lending. Our interest rates are low.
A: … Historically we've had a debt that is equal to about 40 percent of [U.S. gross domestic product] – two-fifths of a total year's production in our domestic economy. And we've been able to sustain that just fine. In fact, that debt can be good for the economy. Now we're at about double that. We're at 75 percent of GDP, and we're projected to rise forever. There's a few problems with that. One is, as the economy recovers, it is going to start putting upward pressure on interest rates. There's no way to avoid that; it's just a basic economic principle. … And that's not just going to lead to higher government interest rates. It's going to lead to higher interest rates on mortgages, car loans, student loans. It's also going to reduce investment and thus slow wage growth. The nonpartisan Congressional Budget Office, which is the official scorekeeper for the entire federal government, they estimate that wages and salaries and incomes will be about $8,000 lower in two decades if debt is rising as opposed to if debt is on a downward path relative to GDP. And lastly I would say it's just unsustainable. You can't forever have a debt that is growing faster than your economy. So we could disagree over whether 40 percent is the right amount or 75 percent, but it can't infinitely grow as a share of GDP. At some point, we're going to have to stop that. If we do it now, we can make thoughtful, gradual changes that people can plan for, that can be targeted to protect low-income folks, protect our important investments, important defense. If we wait until the crisis point, we are going to have to make the exact type of austerity … that Europe did, that Greece did, where we have to make major immediate cuts, huge tax increases, and it's going to be painful for everyone.
Q: Some candidates argue that with interest rates low, now is the time to invest to improve our infrastructure and create jobs. What's the matter with that idea?
A: I think there could actually be a win-win trade with investing a little bit more now and paying for it with policies that reduce the debt over the long term … I'm all about doing more investment when interest rates are low, but we need to plan to pay that back. You wouldn't take out a mortgage with no plan to pay it down. You wouldn't take out a business loan with no plans for returns on your investment. And the government shouldn't invest in infrastructure without a plan to pay it back.
Q: Sen. Bernie Sanders, one of the Democratic presidential candidates, has proposed Medicare for all, free college and expanded Social Security benefits. What's your reaction?
A: I'll start by giving Sen. Sanders credit: he's proposed tax increases to pay for all of that, so we may disagree on the policies, but in terms of fiscal responsibility, he's not pretending it's totally free. He's saying somebody's got to pay for it with higher taxes. Now I have two concerns. One is that when we look at the numbers, we don't think they add up. We think his health care costs are likely to be higher than what he says, the revenue from his taxes are likely to be lower, so even though the sentiment is right, I think the numbers may not work. My other concern is that there is a limit to how much you can tax. I'm not a supply sider … But we added up all of Sen. Sanders' taxes, and his top tax rate would be about 85 percent. … And he has no plan to pay off or pay down or make sustainable the debt. His plan is just to pay for his new initiatives. So I don't know where that money is going to come from to also address the debt.
Q: How much over 10 years would Sanders' taxes fall short of the spending he has proposed?
A: I think there's a lot of uncertainty around this … If you take the most [pessimistic estimates] just on his health plan, we're talking a $17 trillion gap. If you take the low version, we're talking about maybe a $2 trillion gap. It's really too early to tell. We need to study more details from the campaign to know for sure.
Q: Have you analyzed Hillary Clinton's campaign proposals?
A: … Sen. Clinton's proposals are much more modest in size, overall. … She raises a little bit of taxes and a little bit of spending. …
Q: What does the committee think of the tax cut proposals from the Republican presidential candidates? Even some conservative think tanks have concluded they would add trillions of dollars to deficits.
A: … Donald Trump's plan would cost somewhere between $9.5 [trillion] and $12 trillion over his decade, which, to use his word, is huge. You add his veterans plan, you add interest, by our calculations his plan would add $12 [trillion] to $15 trillion to the national debt. … It would raise the debt to 140 percent of GDP. Now how's he going to pay for that? Donald Trump has said Social Security is not on the table other than fraud, Medicare is not on the table other than fraud and negotiating better prices, he's going to make the military great. If you take those three programs off the table, he'd literally have to cut the rest of the government 100 percent, which is just not possible…. To pay for his plan and balance the budget, as he says he wants to do, the numbers just don't work. Now he says it'll galvanize economic growth, and setting aside the fact that that big an increase in debt will probably hurt economic growth … by our math, it would have to increase economic growth from 2 percent a year to 10 percent if we was going to pay for it, let alone balance the budget. It's just not realistic. We've never experienced 10 percent real growth. This is inflation adjusted; with inflation, we'd be talking about 12 percent or 13 percent growth. It's just not going to happen. Our previous record for any 10-year period is less than 5 percent growth. … If we got to 3 percent annual growth, we would consider ourselves very, very lucky.
Q: What's your overall impression of this year's presidential campaign so far?
A: What we've found is a disappointing amount of overpromising. You can't be for a multitrillion-dollar tax cut, for protecting entitlement programs and for balancing the budget. Those three don't work together. You can't be for a much bigger government and only want to charge the top 1 percent of Americans. Those numbers just don't work. I think what we're finding, really sadly, is the candidates just want to promise a lot without hurting anyone, and that's just not a realistic view of a world where you have a rising and growing national debt.
"My Views" are works published by members or staff of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the committee.