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A Letter from Congressman Golden
In the past, I have sent you short newsletters to keep you up to date on the work I am doing in Congress. While you will still receive newsletters going forward, I would like to begin a new conversation that I hope you will follow along with and even take part in.
Why the change?
After two terms in Congress, I want a better way to share my thoughts about politics and policy with you. This is exceedingly difficult to do using the press and social media. And, while my staff works hard to send timely responses to your letters to me, and I review them, the reality is that I cannot personally respond to each one. This will be my letter to you.
I hope this connects you with my thinking in a more in-depth way. I will choose what to write about, but you are welcome to send me recommendations for future topics along with your feedback. I hope that with each letter, you’ll see a little deeper under the hood and better understand my approach to politics, policy making, and representing you in Congress.
First topic: National Debt and the Debt Ceiling
How much debt does the U.S. have and does it matter?
The Congressional Budget Office (CBO) – whose job it is to provide Congress with estimates for the cost of its policy decisions – predicts this year’s budget deficit will be $1.4 trillion. The budget deficit is essentially the amount that will be borrowed when Congress spends more than it takes in from taxes and other revenues. This is sort of like using credit cards to keep spending at a level that exceeds your income. CBO predicts the budget deficit will more than double to $2.85 trillion by 2033. In short, the nation’s credit card bills are adding up, and the debt is snowballing downhill.
One way to think about the national debt is to compare it to the nation’s gross domestic product (GDP). GDP is the market value of all the final goods and services produced by a nation. Some economists use a debt-to-GDP ratio as an indicator of a nation’s ability to pay back its debt. The more a nation’s debt exceeds its GDP, the more likely it becomes that it will need to borrow money to make payments on its debt, and the less likely they are to pay that debt off.
Currently, America’s debt is almost equal to its GDP, with a debt-to-GDP ratio of about 98 percent. Based on current budget projections, ten years from now, it will be at 118 percent. According to one estimate, a nation’s economic growth slows by roughly .017 percent for every percentage point of debt in excess of 77 percent. Bottom line: America’s debt is increasingly slowing the growth of its economy.
As you know, when you borrow money, you almost always accumulate interest on that debt. Last year, Congress paid more than $475 billion in interest on the public debt. That amounted to more than was spent on education, transportation, or veterans services combined. Assuming no change to projected spending, in ten years, the government will spend $1.4 trillion on interest. To put this in perspective, in the last fiscal year, Congress spent approximately $1.5 trillion on all discretionary domestic and defense accounts.
Whether you care about government investments in things like education or in the military, what is important to understand is that every year interest payments on the debt increasingly crowd out other potential investments in people and our future. If steps are not taken to address this problem, 30 years from now, interest payments on the debt will be the single largest government expense – more than Social Security, Medicare, or defense.
Still not convinced you should care? Ok, well, the debt and the nation’s high debt-to-GDP ratio – plus the increasing cost of paying the interest on the debt – make your life more expensive right now. Excessive deficits have contributed to the high inflation we’ve all experienced. And the high debt-to-GDP is forcing interest rates up, making it more expensive for you to finance a home, a car, a college education, or use a credit card.
Eventually, an outsized debt will erode the standard of living for pretty much all of us. It will also weaken America’s global standing and, ultimately, even become a threat to national security.
The debt ceiling debate in 2023
There is a federal law that sets the total amount of debt that Congress can assume on behalf of the nation, often referred to as the debt ceiling. When the debt ceiling is reached, unless the budget is balanced, Congress needs to raise it to allow for the government to borrow more money and take on debt. Failure to increase the debt limit would result in the government being unable to pay back its current debt obligations, which is called a default. This would damage America’s creditworthiness globally and harm the economy. There would be negative consequences for all of us if that happened, ranging from higher interest rates, to stock market losses, and even lost jobs.
As of January 19, 2023, the debt ceiling has already been reached. The Treasury Department is currently taking steps, known as “extraordinary measures,” to meet the country’s financial obligations. However, the Treasury can only move money around for a short period of time before it is out of options, and the government defaults – predicted to happen sometime this summer, possibly as early as mid-June or as late as September.
The current debate over raising the debt ceiling is all politics. The new GOP majority in the House of Representatives is refusing to support a debt ceiling increase without cuts in government spending. President Biden says that Republicans share responsibility for recent spending and should vote to raise the debt ceiling without conditions.
The President’s strategy is to enter into a standoff believing enough Republicans will cave under pressure. If they don’t blink and the nation defaults, Democrats’ condemnations of the GOP are unlikely to resonate with a public that is suffering the consequences of default. This would be an abject failure, and neither Congress nor the White House would escape blame. Even a near default can hurt the economy, as the country learned in 2011 when Congress almost failed to raise the debt ceiling and America’s credit rating was downgraded.
The President ran in 2020 on a promise to be a bipartisan dealmaker, and he should follow through on that promise. He should drop his “no negotiations” position and lead talks to deliver a responsible budget that invests in the country and reduces the deficit, without destabilizing an already shaky economy with unnecessary political brinkmanship.
Speaker Kevin McCarthy also isn’t showing any leadership for the country. By holding the debt ceiling hostage he is really holding the economy hostage. The extreme focus on cuts to government spending reveals a lack of seriousness about America’s fiscal stability. Congress cannot cut its way out of the nation's fiscal woes, just as it cannot tax its way out of them.
This back-and-forth debate is a waste of precious time. The country cannot afford to default on the debt, and eventually, Congress needs to pass a budget. The country would be better served if Congress skipped the standoff, cut to the chase, and negotiated in good faith. Quite frankly, it’s well past time for all of us – both the Legislative branch and the Executive – to stop the petty politics and do the job required of us.
What would a responsible budget deal look like?
In the current political and economic environment, the overarching goal of any deal should be to reduce the budget deficit. In the short term, reducing the deficit will help fight inflation and, with an eye toward the future, move Congress in the direction of a balanced budget.
President Biden and Speaker McCarthy should sit down and agree on a topline discretionary spending number for Fiscal Year 2024 (FY24) that reduces the deficit. In return, Speaker McCarthy should agree to a suspension of the debt ceiling that provides time for Congress to pass a budget. This should happen well in advance of the deadline to raise the debt ceiling to avoid a harmful disruption to the economy.
House Republicans have called for returning to the Fiscal Year 2022 (FY22) budget top line for discretionary spending, which was $1.522 trillion, a reduction of $129 billion in one year. The President has released a budget proposal that would spend $1.727 trillion, an increase of $76 billion. I think the FY22 budget topline adjusted for last year’s inflation would be a good compromise. In other words, allow spending to go up with price increases, but reverse the additional spending increases Congress passed on top of that. In terms of nominal dollars, that would be approximately $1.634 trillion in budget authority for FY24, a reduction of $17 billion.
Building on that, I believe a two-year agreement would provide predictability and send a signal that Congress is serious about the nation’s fiscal stability. That’s why I think the FY24 discretionary spending levels should be frozen in the Fiscal Year 2025 (FY25). If these top lines are adhered to, the debt ceiling should raise automatically in tandem with the FY24 and FY25 appropriations bills.
Would that be enough to balance the budget?
Not even close. Returning discretionary levels to last year’s levels adjusted for inflation, and then freezing them for a year would save about $150 billion over two years. That would still result in trillions more in deficit spending. Balancing the budget isn’t a realistic short-term goal because it would require drastic measures that, if carried out quickly, would tank the economy. Congress needs a long-term goal that it can actually meet.
Budgeting for the future is complex. There is no telling what will happen in the world in the coming months, much less five years from now. A fiscal policy that makes sense in today’s context may not make sense a year from now. Good fiscal policy should be a moving target free from political dogma.
An example of a long-term fiscal goal for Congress would be to stabilize the debt-to-GDP ratio. Since we are on a path for it to reach 118 percent within ten years, a good goal could be to reduce that to 100 percent. According to the nonpartisan Committee for a Responsible Federal Budget (CRFB), to be on track to meet this goal, the current Congress would need to reduce the deficit by roughly $500 billion over the next two years. In a divided Congress, a balanced combination of policies of reduced spending, finding savings in government programs, and increasing revenues would be a reasonable approach.
To start a conversation and show you what it would take to reach the 100 percent goal, I’ll throw out some policy changes that could be enacted. This array of policies would produce the $500 billion needed to put Congress on a sound fiscal pathway to stabilize the national debt, reached by implementing $150 billion in spending cuts and caps, $100 billion in government savings, and $250 billion in new revenue. The savings would come mostly from reversing some of the excessive borrowing enacted by both parties in recent years.
All savings below are rough estimates of the two-year budget impact (through FY25), generated with the help of CRFB and The Tax Foundation:
Revert discretionary spending back to FY22 levels, adjusted for inflation in FY24, and freeze that level for FY25. ($150 billion)
Rescind, discontinue, and recover unspent and fraudulent COVID-19 funds. ($50 billion)
Reverse President Biden’s $400 billion student debt cancellation plan, which CRFB estimates would reduce federal debt by roughly $50 billion through FY25. ($50 billion)
Set the top corporate tax rate at 25% for businesses profiting in excess of $10 million. ($100 billion)
Restore the top marginal income tax rate on individuals and households making more than $400k. ($85 billion)
Expand the surtax on corporate stock buybacks and close various loopholes. ($65 billion)
Most politicians would not talk about a proposal like this. They fear the wrath of a thousand interest groups and accusations of being a socialist or a hateful conservative who wants to harm children and seniors. I don’t blame them. The national political dialogue has become divisive and dishonest, with hundreds of billions spent each election to spread lies and misinformation. But, with the costs of inaction worsening each year, we need an honest debate about the nation’s financial future. We cannot afford to kick the can down the road forever.
The policies above would reduce the deficit by $500 billion. There are many different combinations of policies that would achieve the same goal. None of them would be possible nor sustainable if they do not result from a bipartisan process rooted in a shared goal of putting our fiscal house in order.
Reducing the deficit by $500 billion in two years would put Congress on track to meet the ten-year goal I laid out. It would also get us about halfway to meeting that goal over ten years, according to CRFB. To stay on track, Congress would need to reduce the deficit by $2.1 trillion in five years and $7.2 trillion in ten years. These numbers could be lower if Congress enacted smart policies to help the economy grow faster than expected and keep interest rates from rising too high.
Even if the economy grows faster than it has in recent decades, stabilizing the debt will require policy decisions that affect not only discretionary spending, but also mandatory spending programs like Medicare and Social Security. Even the slightest suggestion of reforms for these programs sets off a firestorm of finger-pointing and recriminations. It is, however, important to know that the Medicare and Social Security trust funds are both headed for insolvency within the next decade.
I don’t want to lend credence to those who say that insolvency for these trusts would mean the outright collapse of these programs overnight. That’s not what will happen. But they would lead to large across-the-board cuts without preventative actions. Those cuts will hurt the people who rely on Medicare and Social Security most, and the consequences could be reasonably assumed to worsen over time. It would be better to act sooner rather than later to make sure these programs are adequately funded and avoid getting even close to insolvency.
It is important to understand that Congress can fix the fiscal troubles Medicare and Social Security face without cutting benefits that are owed to the American people. If Congress sets aside its political differences it can ensure both programs remain the bedrock of financial security and well-being in retirement for today’s seniors and for future generations. That may well be a good focus for a future letter.
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