October 25, 2016

Key Questions Voters Should Ask Candidates About Our Fiscal Future (Fall 2014)

As in past economic recoveries, the short-term federal budget picture has been improving. But deficits are projected to begin rising again in a few short years, Congress flounders over what were once considered routine decisions, and the nation remains on a long-term fiscal path that is simply unsustainable.

Voters should expect candidates for federal office this fall to explain how they intend to deal with the huge challenges ahead. These include some   problems that must be addressed in the very near future.

This is no time for vague rhetoric and petty partisan jabs; voters should insist on credible solutions -- the more specific, the better. Some of those solutions won’t be easy because the problems go far beyond the “waste, fraud and abuse” we hear about so frequently in campaign speeches.

Our nation is undergoing an unprecedented demographic transformation against the backdrop of a slow economic recovery, uncertainty about future health care costs, and a national debt that is already quite high by historical standards and expected to rise rapidly in the years ahead.

The retirement of the baby boomers, which started in 2008, is ushering in a permanent shift to an older population -- and with it, increases in the size and cost of programs such as Social Security, Medicare and Medicaid. Those three programs already comprise 47 percent of the entire federal budget.

Another difficulty is that Americans have become accustomed to huge tax-code subsidies for everything from home mortgage payments to employer-provided health care benefits. These subsidies cost the government about $1 trillion a year in lost revenue.

The current plan to finance all this is for the government to keep borrowing more money. However, that will mean paying more and more each year just to service the expanding debt. These payments will rise even higher when interest rates, which are now extremely low, inevitably start to rise.

Some say that our political system only responds to a crisis. Yet the problem with our growing debt is its slow and steady negative impact on economic growth and the standard of living. We can't simply wait for a sudden crisis. And the longer we wait to put the budget on a more responsible path, the more difficult it will be. Delay will only make the necessary spending cuts and tax increases larger.

Doing nothing now is the height of fiscal and generational irresponsibility. So what do the candidates propose? Voters have a right and a responsibility to find out.

Key Questions

Do you support developing a fiscal sustainability plan by considering all parts of the federal budget? If not, what parts would you target and what would you exempt?

Nearly everyone running for public office expresses concern about the federal budget and the debt. But many candidates focus their rhetoric as well as any specific deficit-reduction proposals they have on only one part of the federal budget rather than all of it. That’s a good tip-off that a candidate either does not really understand the fiscal challenges or is not serious about addressing them.

The budget’s structural problems include unfunded commitments and a perpetual gap between revenue and spending. These are so large at this point that a comprehensive approach to deficit reduction is required. Spending cuts and revenue increases should all be on the table, and the cuts will have to be made throughout the budget rather than in just a few of the less popular federal programs.  

Could you identify some areas in the budget where you see particular opportunities for bipartisan cooperation on reform?

Neither political party has the strength in numbers or the public credibility to force through its own agenda, and this year’s elections will not change that. And if only one party is involved in a reform effort, it would present the other party with an almost irresistible opportunity for demagoguery.  

So compromise will be necessary. Candidates should have at least a few specific areas where they can suggest credible ways to move forward in a bipartisan manner. Those who can offer voters nothing more than complaints about the other party are unlikely, if elected, to get anything done.

Voters should also be skeptical of candidates who say further study is needed before they can suggest reforms. The nation’s fiscal challenges have already been studied extensively by the Simpson-Bowles commission, the Rivlin-Domenici task force and other bipartisan groups that have put forth detailed proposals. Serious candidates for federal office should be familiar enough with this work to identify at least a few proposals that they can endorse.

How should the government curb the growth of its health care spending in programs such as Medicare, Medicaid and Tricare (which serves military families and retirees) while maintaining or improving the quality of care?

In recent years the growth rate of health care costs has slowed. This has led to lower growth projections in Medicare and other government programs. Yet great uncertainty remains about how much of the slowdown represents a permanent shift to a more efficient health care system.

Continuing the positive trend will require an ongoing transformation of health care through means that are still mostly untested and uncertain. And even successful transformation would simply hold spending to the current problematic projections. These show health care programs still growing more quickly than any others in the federal budget.

Candidates should specify what further steps are needed. The sooner those steps are taken, the better.

Candidates should not merely rehash old debates over the Affordable Care Act (ACA). Discussion needs to turn to whether the ACA’s cost-control goals are being met. If candidates don’t see this happening, they should specify how they would encourage and reward greater efficiency and effectiveness.

Some of the less popular features of the ACA -- new taxes, reduced payments to providers, and mandatory insurance coverage -- are intended to make the more popular features affordable. These popular features prohibited certain restrictions that were imposed by insurance companies in the past, and expanded coverage with subsidies for many individuals. If candidates call for dropping the unpopular provisions in the law, they should explain how they would pay for the popular ones.

As for the Tricare program, some reforms are clearly needed. Its extremely low premiums and deductibles -- much lower than can be found in most private insurance plans -- discourage young military retirees from obtaining insurance coverage through their second-career employers. And many older retirees with substantial resources do not need such heavily subsidized care.

The Defense Department supports Tricare reforms because it sees health care expenditures crowding out other spending that more directly supports its primary mission: national defense.

What changes would you like to see in the federal tax system? Are there some examples of tax preferences favoring specific categories of taxpayers that you would support eliminating? If so, would you favor using the resulting revenue to reduce federal borrowing, lower tax rates, or both?

The exemptions, deductions, credits and preferential rates within the federal income tax system are often called “tax expenditures” because they are essentially spending programs in disguise. They have much the same impact as if the government had simply written checks to the beneficiaries. These tax  expenditures total about $1 trillion a year in foregone revenue to the government.

Many bipartisan groups have suggested cutting these provisions back to simplify the tax code, make it more fair, and boost the economy. To gain significant revenue, however, Congress would need to reduce or do away with some of the largest and most popular tax breaks, such as deductions for   home mortgage interest and for charitable contributions.

Candidates should be specific about what changes in the tax code they would support and what tax expenditures they would like to keep.

Reducing or eliminating tax expenditures could enable the government to reduce overall tax rates, which would have economic benefits and help ease the sting some people would feel from lost tax breaks. The money could also be used to reduce federal borrowing.

Some candidates would use all of the additional revenue to cut rates. Others would increase federal spending elsewhere. Either course overlooks the benefits to future generations of using at least some of the additional revenue from tax reform to improve the long-term fiscal outlook.

Are there federal programs that you consider clearly wasteful or subject to widespread fraud and abuse, and how much savings would you expect to recover by reforming or eliminating these programs?

Candidates and elected officials like to talk about eliminating waste, fraud and abuse in the abstract. Unfortunately, there is no line-item in the budget labeled “waste, fraud and abuse,” and consensus is often lacking about what belongs in this category. What some people call waste may seem to others like valuable government services.

It is important for candidates to be as specific as possible about the programs they would target and the corrective actions they would seek. Are the candidates relying on reasonable sources of information that can be verified, or are they simply passing along gossip and speculation about programs they would dislike anyway? Are they focusing on small-budget items or on areas where reforms would actually produce significant efficiencies and savings for taxpayers?

Policymakers should of course take the opportunity to cut truly wasteful spending when they find it. The Government Accountability Office (GAO), for example, issues reports that highlight programs that are at “high risk” of mismanagement or that involve much duplication and overlap. But even substantial improvements in efficiency, effectiveness and enforcement would not be enough to cure the government’s budget woes. More will have to be done, and voters should support candidates who understand that.

Social Security is projected to run increasingly large cash deficits as the population ages and more people qualify for retirement benefits. In addition, beneficiaries of Social Security disability insurance face an automatic 19 percent across-the-board cut in their benefits unless Congress makes changes within the next two years. How should we address these problems?

The 2014 Social Security Trustees’ Report warns that the program cannot sustain its projected long-run costs, and calls for prompt legislative action. The key challenge is demographic change. Before the baby boomers began to retire, there were 3 taxpayers paying into the system for each person receiving benefits. That ratio will drop to only 2 to 1 in the coming years.

Some people point out that Social Security has a surplus for the combined trust funds that will be sufficient into the 2030s. But the system’s cash flows are more significant than trust fund holdings, which are simply internal government IOUs. When Social Security cashes some of the bonds in its trust fund to pay benefits, the government must still come up with the money from somewhere.

 Since 2010, Social Security has been paying out more than it takes in. Under current law this is projected to continue indefinitely, requiring higher taxes, cuts in other spending, or more borrowed money. And there would still be retirement benefit cuts of roughly 25 percent when the combined trust funds are exhausted in the 2030s.

In addition, under current projections the Disability Insurance portion of Social Security will not be able to pay full benefits as soon as 2016. This calls for at least some changes in Social Security in the immediate future. Elected officials should resist the temptation to temporarily shore up the Disability Insurance program by simply shifting revenues or bonds from the rest of Social Security. What’s needed is a comprehensive plan that sets the entire Social Security system on a sustainable course.

Bipartisan panels and others have suggested an array of thoughtful proposals that could help. Some would reduce benefits for at least some recipients. Other recommendations would raise additional revenue through the system’s payroll tax. Many proposals would make the program more progressive, trimming net benefits for higher-income households while increasing benefits for lower-income households. Candidates should be clear with voters about which options, if any, they favor.

Should military spending be reduced, kept the same or increased?

As recent events in the Middle East and elsewhere have demonstrated, the U.S. military may face unexpected challenges in the years ahead. But after years of large budgets to fight two ground wars abroad, the Pentagon also faces demands for substantial belt-tightening.

The Pentagon recently estimated that current budget caps, if kept in place over the next five years, would reduce projected spending by $115 billion. This partly reflects congressional efforts to deal with increasing pressures on the entire federal budget. Yet lawmakers with parochial perspectives also frequently undermine military reform efforts.

A third of the defense budget goes to personnel compensation, and officials fear that health care costs are squeezing other priorities like troop readiness and modernization efforts.

Pentagon accounting needs improvement. The Defense Department cannot fully audit its own budget and keep track of all expenses. Accounting gimmicks are sometimes used to avoid the budget caps, and cost overruns are frequent.

Candidates should explain how large they think the defense budget should be and what reforms they would support to save money and improve efficiency. Candidates who advocate increased defense spending should explain in detail how they would finance that. 

The highway trust fund is expected to run out of money next year and has a cumulative shortfall of more than $100 billion over the next decade.  How can we ensure a high-quality highway system in the years ahead?

Congress has failed to pass a normal 5-year highway bill, stumbling over how to fix the Highway Trust Fund. In August, with the fund reportedly within days of insolvency, lawmakers passed legislation that punts the problem into next year.

The trust fund, which finances about a quarter of all public highway and mass transit spending across the country, receives federal fuel taxes. These taxes, however, have not been raised in 21 years even as construction and maintenance costs have gone up. The growing use of  fuel-efficient vehicles has aggravated the shortfall.

While deep spending cuts could theoretically fix the shortfall, there is fear that would lead to other difficulties, from more traffic accidents to maintenance delays to slower economic growth. The funding shortfall could also create difficulties for state and local governments.

The fuel tax on gasoline now stands at 18.4 cents a gallon. Closing the trust fund shortfall solely by raising fuel taxes would require an increase of 10 to 15 cents a gallon. That would put fuel taxes at roughly where they would be now if they had been pegged to inflation for the last two decades.

Candidates should be asked for specifics on how they would close the shortfall between transportation spending and dedicated revenue.  

Spending caps over the next decade will reduce “discretionary” spending – the money for programs that Congress approves on an annual basis for defense and many domestic programs – far below its average post-World War II level. Are these caps realistic? If not, how should we modify them?

Although politicians often promise more cuts in discretionary spending, these programs are already subject to tight caps over the next several years. While no part of the budget should be exempt from further scrutiny, the discretionary programs are not the key drivers of the large projected budget deficits we face.

Voters should look for candidates who understand this and offer serious proposals for deficit-reduction in other parts of the federal budget as well -- notably the entitlement programs and spending embedded in the tax code.

The current caps will leave discretionary spending at its lowest level relative to GDP since 1962, when the government first started tracking this measure. Discretionary spending accounts for 33 percent of the budget this year, and under current law it will drop to 24 percent in ten years.

Candidates should say whether they believe the scheduled caps on discretionary spending are realistic, and they should explain any changes that they would make in them. Voters should ask how any proposed increase in the caps would be paid for. If candidates propose reductions in these programs below the caps, they should be specific about where these cuts would be made and how they would affect government services.

What changes would you like to see in the budget process?

The current budget process has become dysfunctional and ineffective. Reforming the process will not alone resolve our long-term challenges, but it could help by enforcing greater fiscal discipline.

Lawmakers have great difficulty completing the appropriations process every year. This has led to recurring threats of costly government shutdowns like the one that took place in 2013. Similarly, Congress has often hesitated to raise the statutory debt limit even while acknowledging that the government should not default on obligations it has already incurred.  

Candidates should say whether they support changes to the budget process like a two-year budget cycle and debt limit reform, both of which would be constructive. If candidates do not support these reforms, they should identify any other changes they think could improve the budget process and remove the bitter partisanship that has fueled its dysfunction over the last few years.


The Concord Coalition is a nonpartisan, grassroots organization dedicated to fiscal responsibility. Former Congressmen Michael Castle (R-Del.) and John Tanner (D-Tenn.) serve as Concord's co-chairs.

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