Budget ‘death spiral’ increasing likely

by Chris Reed

“The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money,” Alexis de Tocqueville supposedly said after an 1831 visit to the United States. Whether or not the French diplomat and political scientist actually made this observation is a subject of debate. But whoever came up with the line was onto something. The events of the last four years should mortify Americans who believe the government should be run by responsible adults.

Then-Vice President Dick Cheney famously observed in 2003 that “Reagan proved that deficits don’t matter.” But after Republicans took control of the House in 2010 and challenged then-President Barack Obama’s progressive agenda, there was actually a six-year span in which spending growth was relatively restrained.

Even so, in January 2017, with the national debt at $20 trillion, the Congressional Budget Office issued a report warning that continuing to run annual budget deficits in the $500 billion range was a recipe for disaster. It said debt interest payments would continue to grow, squeezing the federal budget and making a “death spiral” more likely — one in which the U.S. government would have to borrow money to fund its operations at increasingly higher interest rates because potential investors would lose confidence in the viability of a nation that had spent beyond its means for decades. Those higher interest rates would sharply boost the cost of federal borrowing and thus make the fiscal crisis even more difficult to address.

So what’s happened since? Once in control of both the White House and Congress, each party has taken the opportunity to make this severe threat much worse. In December 2017, President Donald Trump and House and Senate Republicans approved massive tax cuts that mostly helped affluent Americans and large U.S. corporations. The CBO estimated it would add $2.3 trillion to the national debt over 10 years.

Some Democrats — including Rep. Scott Peters, D-Calif. — denounced this ballooning of the debt as irresponsible. But other Democrats said that if Republican lawmakers didn’t give a damn about red ink, they wouldn’t when the Democrats were in charge.  Congressional Democrats approved a $1.9 trillion measure on March 10 and President Joe Biden signed it on March 11, billing the pork barrel package as “pandemic relief.” It is more accurately seen as intergenerational fiscal abuse.

Yes, of course, some of the emergency spending measures adopted in 2020 — on bipartisan votes — were necessary to help the millions of people who lost their jobs in the early days of pandemic lockdowns and to help public schools and local and state governments deal with COVID-19.

But only 5% of the “pandemic relief” is going to pandemic public health needs, according to the Commission for a Responsible Federal Budget. By far the biggest chunk — more than $900 billion, per the commission — is being given to individuals and states regardless of whether their finances actually took a major hit.

Remember, the great majority of Americans never lost their jobs during the pandemic recession. So why should people who make $75,000 (a middle-class income in most states) or less get a $1,400 cash payment and additional $1,400 payments for each dependent child? And why should couples who make $150,000 (an upper-class income in many states) or less each get $1,400 and additional multiples for their dependents? Why can’t this aid be means-tested?

Remember, state revenue didn’t take nearly the hit expected at the start of the pandemic. Overall, it was only down 1.6%, according to the National Association of State Budget Officers. While of course states had to pay for unexpected costs related to the pandemic public health emergency, the $300 billion already provided by the federal government should have covered their costs. Yet the “pandemic stimulus” includes $350 billion more for states, many of which will just roll these borrowed federal dollars into their rainy-day funds. Why can’t this aid be means-tested?

Republicans are right to howl about these massive giveaways. But they have no credibility after their massive 2017 giveaways to wealthy individuals and corporations — which Democrats were right to howl about at the time.

If CBO analysts fretted in 2017 about America surviving with $500 billion annual deficits, this fiscal year’s $4.2 trillion deficit should freak them out. But having the national debt jump to $30 trillion should freak everyone out — especially the younger and poorer people likely to pay the heaviest price when the “death spiral” arrives and their nation goes broke.

Chris Reed is the deputy editorial and opinion editor of The San Diego Union-Tribune.