This week on Facing the Future, host Bob Bixby speaks with Eugene Steuerle, an Institute Fellow at the Urban Institute and a leading budget and tax policy analyst, about his book “Abandoned: How Republicans and Democrats Have Deserted the Working Class, the Young, and the American Dream.” Steuerle, a co-founder of the Urban-Brookings Tax Policy Center, delved into the growing economic and political challenges facing working-class Americans and younger generations.
Steuerle frames the conversation around a critical theme: the federal government’s budget increasingly prioritizes “wealth for the wealthy and consumption for the masses,” leaving behind the working class and the young.
“In simple terms,” he explains, “there have been two agendas that have really dominated federal public policy for close to half a century. They’ve increasingly dominated policy and have taken up larger and larger shares of national income and larger shares of the budget. On the right, the main agenda has been to cut taxes on capital income. You could see that in every major tax bill that the Republicans have put forward when they reascended to the presidency after the Democrats had been in control.”
“On the left,” he continues, “the dominant agenda has been ever more spending on Social Security and healthcare, particularly for the elderly, but a little bit for the non-elderly as well, through things like Medicaid and Obamacare. If you look at the numbers, they have increased the share of gross domestic product spent by the government quite substantially over that half century but you also see that everything else has declined as a share of GDP since, basically about the mid-70s.”
Steuerle says that the result is something politicians don’t like to discuss. “If you spend more on one thing, eventually you’ve got less to spend on other things. In the case of the federal government, we’re spending ever less on the working class and on the young. And if you think about how this plays out in terms of politics, it’s not surprising that these are the two groups in the economy that have most rebelled against trust in government in general, and are easily swayed, on both sides, when it comes to trying to do something about it. In some cases, swayed by a populism that I don’t think serves either of them all that well.”
To highlight the extent to which an increasing share of the federal budget is taken up by past policy choices, Steuerle has developed the “Fiscal Democracy Index.” which he describes as “ a measure of how much of revenues are left over after you take into account all of the automatic policies that have been built in from the past Congresses.”
He explains that, “Over time, more and more spending growth in our economy has been preordained. The index says how much revenue is left after we take all that into account. That includes interest on the debt, and mandated programming, which has all this automatic growth built in. If you go back to the early 60s, most of the spending was discretionary. Not only was there not that much in the way of automatic spending, but you didn’t have all those programs automatically growing, Social Security and healthcare programs in particular. And by today, we’ve now got to the point where more than all of the revenue growth we have as an economy has already been committed to the growth of these particular programs.”
Steuerle argues that this situation has profound democratic implications, as it effectively constrains the ability of elected officials to respond to current economic and social challenges. The consequence is a shrinking fiscal space for meaningful policy innovation or support for groups struggling to achieve upward mobility.
When discussing solutions, Steuerle observes that, “Economically, the solution to all this is fairly simple. You simply cut back on automatic spending enough. That doesn’t mean you cut back on anything in real terms, by the way. You can do that, if you think it’s a bad program, but you don’t have to. All you have to do is allow economic growth to be the wherewithal that provides the additional revenues, that can finance a lot of the new things that you want to do. You don’t foreordain what has to be done. So, the economic solution, in some ways, to these problems is somewhat simple. The politics are where it just gets really messy,”
A good example of simple solutions and messy politics is Social Security reform, a topic on which Steuerle has long been an authority. He stresses that reforming Social Security cannot be separated from broader budget reform. “I don’t think you can do budget reform without doing Social Security reform,” he says, “and I don’t think you can do Social Security reform without budget reform.”
He explains that Social Security’s design and financing are intertwined with Medicare and other government programs, necessitating a comprehensive approach that considers the well-being of all age groups and income classes. Steuerle warns against simply stacking provisions to achieve actuarial balance, advocating instead for reforms that address underlying structural challenges and shifting demographics.
Further complicating reform efforts is the inability of the current budget framework to adapt to future challenges such as the potential technological disruptions or labor displacement caused by artificial intelligence. Steuerle emphasizes that, “creating perpetual commitments that not only are perpetual but perpetually growing just blocks out the ability to deal with new things as they come along.” He calls for restoring fiscal democracy by increasing the share of revenues that remain uncommitted and flexible for future policymaking.
Looking ahead, Steuerle paints a sobering picture of the consequences of inaction. He cautions that the deficit will continue to grow, with more government spending absorbed by interest payments and mandatory programs, crowding out other vital functions. “The cost of not dealing with it right now is occurring every day. The losers are being created daily… We’re raising interest costs on people today. We’re cutting back on the benefits for the working class and the young. Those things are occurring right now. They’re not waiting for some catastrophe down the road.”
