December 21, 2014

‘Dead Men Ruling’ Examines Harmful Fiscal Legacy, Yet Offers Hope

A book titled “Dead Men Ruling” is not the place you would expect to find an optimistic message about our nation’s future. That is the case, however, with a new book from budget expert Eugene Steuerle of the Urban Institute. The critical connection he draws between renewed fiscal freedom and generational fairness casts the budget debate in a far more important context than deficit reduction for its own sake. This larger theme is one that The Concord Coalition has long embraced.

Despite the dismal fiscal outlook, which portends rising deficits and debt in perpetuity, Steuerle argues that “we no more live in an age of austerity than did Americans at the turn of the twentieth century.... Conditions are ripe to advance opportunity in ways never before possible, including doing for the young in this century what the twentieth did for senior citizens, yet without abandoning those earlier gains.”

The key to realizing these opportunities, he says, is “breaking the political logjam that…was created largely by now dead (and retired) men.”

As Steuerle puts it, “both parties have conspired to create and expand a series of public programs that automatically grow so fast that they claim every dollar of additional tax revenue that the government generates each year. They have also conspired to lock in tax cuts that leave the government unable to pay its bills.”

The result is not just deficits and debt. It is also a loss of “fiscal freedom” that “deprives current and future generations of the leeway to choose their own priorities, allocate their own resources, and reach for their own stars. Those generations are left largely to maintain yesterday’s priorities.”

To demonstrate the problem, Steuerle has come up with a “fiscal democracy index” that measures how much of the government’s past and projected revenue is already claimed by  permanent programs and interest on the debt.

In 2009, for the first time, the index showed a negative balance, meaning that all revenues were committed to permanent programs and interest payments. As the nation has emerged from the Great Recession, the fiscal democracy index recovered somewhat. The trend from this point on, however, is steadily downward.

“That means,” says Steuerle, “that future generations will have no additional revenues to finance their own priorities, and they will have to raise taxes or cut other spending just to finance the expected growth in existing programs.”

As for today’s torpid fiscal debate, “Nothing either party is considering these days will prevent the situation from simply getting worse.”

Suppose, however, that we began looking at budgets in a different light.

Steuerle envisions “a world in which our leaders recognize the problem and address it, moving beyond mere deficit cutting to reversing the loss of fiscal freedom – to restoring the power of today’s and future generations to set their own course, shape their own destiny and respond to the challenges before them in their own way.”

The barrier is not limited resources. As the economy grows, tax revenues grow even without a legislated tax increase. Between now and 2024, annual revenues are projected to grow by $1.9 trillion. Yet the only thing we can now do with that increase is to partially pay for automatic spending increases for federal government benefit programs – primarily health care and Social Security – and interest on the debt, which are projected to grow by $2.2 trillion.

“If existing commitments no longer automatically claim those revenues and taxes start paying our bills,” Steuerle writes, “policymakers will have the fiscal freedom to assess the nation’s current problems and address them more appropriately.”

In that regard, consider what is projected to happen with defense and domestic discretionary spending, which do not have “permanent” status and must compete for funding through the annual appropriations process. Under the budgets proposed by the Obama administration and House Republicans, such spending is gradually and permanently squeezed to levels roughly half its average over the past 40 years.

This, says Steuerle, is a budget for a declining nation that is unable or unwilling to invest in its future.

To be sure, restoring fiscal freedom will take time and will not be easy. Lifetime plans have been formed around the promises legislated by “dead men.” And it is certain that “many of today’s voters who benefit from the current fiscal regime will not take kindly to suggestions that they cede power to tomorrow’s voters.”

Yet if one looks out beyond the near-term and acknowledges an unsustainable fiscal path, the need to change is more properly viewed as a matter of national renewal. It is not necessary to slash  government spending or reject the goals of twentieth century social insurance programs. No program, however, should be granted a permanent exemption from scrutiny. Retirement and health care programs can grow, but policymakers should "make that decision affirmatively, rather than letting those programs grow automatically and usurp other choices."

What’s needed, Steuerle suggests, is a new approach that focuses more on long-term trends by limiting automatic spending growth, raising enough revenue to pay the bills and making policymakers “accountable for how they weigh old commitments against new priorities.”

New budget rules with enforcement mechanisms such as triggers would help, but as Steuerle notes, “They cannot substitute for more comprehensive and detailed spending and tax reforms that, over time, will bring budgets close to balance and restore fiscal freedom.”

In his view, “a government that reorients itself toward investment, children, opportunity, and leanness will reflect the best balance of our ideals and traditions, while providing a much greater chance than current policies for growth and inclusion of all citizens. That, and not deficit reduction for its own sake, provides a vision around which the public can rally.”

If we are ever going to break free from the structural deficits weighing down the future, we will need the kind of positive vision Steuerle provides. However, "Dead Men Ruling" is also valuable for its bluntly accurate diagnosis of the fiscal challenge. Readers will come to appreciate that it is not a matter of policymakers choosing each year to spend too much or tax too little; it is that they have switched these decisions to autopilot, knowing full well that the course is unsustainable.

Politicians and indeed the American people must get back to the business of weighing priorities and making decisions.  If that happens, as Steuerle reminds us, "the possibilities before us seem extraordinary."