Headlines showed U.S. debt passing the $40 trillion mark and bond market jitters. But addressing the debt’s quick rise is not a top priority for either party. Were they ever fiscally responsible or were they just paying lip service? And why has it moved even further down the agenda? Derek Epp finds that both parties introduce measures that increase spending and vote to expand the deficit. Republicans do cast more show votes for deficit reduction, but not when they count for policy.
Guests: Derek Epp, University of Texas
Study: The Political Economy of Fiscal Responsibility.
Transcript
Matt Grossmann: Why neither party is fiscally responsible, this week on the Science of Politics. For the Niskanen Center, I’m Matt Grossmann.
Headlines showed US debt passing the $40 trillion mark and bond market jitters. But addressing the quick rise of the debt does not seem to be a top priority of either Democrats or Republicans. Was either party ever fiscally responsible or were they just paying lip service? And why has the debt moved down the agenda in the recent era? And is there anything that could change that trajectory?
This week I talked to Derek Epp of the University of Texas about his co-authored Public Choice article, The Political Economy of Fiscal Responsibility. He finds that both parties introduce measures that increase spending and vote to expand the deficit rather than cut it. Republicans do cast some show votes for deficit reduction, but not when they count for policy. He says public opinion, party coalitions, expert trends, and policymaker incentives all point in the same direction. We want the higher spending, but don’t want to pay for it in the higher taxes. Our conversation is short on solutions, but it will help you understand the longstanding problem.
So tell us about the findings from your recent article on the political economy of fiscal responsibility, what did you find?
Derek Epp: Yeah, sure, Matt, thanks for having me. I’ll tell you a little bit of the background behind how this article came about and then I’ll talk about the findings. But I wrote this with Christian Cox, who’s an economist now at Cornell, and he does formal theory stuff. And then I also worked, we were with Ian Shapiro, who’s this big famous political theorist at Yale, works on theories of democracy and things like that. So these two were coming from pretty much the opposite ends of how social science research can be done. And then I was somewhere in the middle of those two. And so it was fun working with them. And I’d never worked with an economist, a political economist, but never a true economist before. And so this paper has eight tables, and each table has six models and it’s like triple interactions. And I was like, wow, that’s a little different than how I would have done it. But it was a fun paper to work on.
And it’s actually a continuation of a paper, I have two more papers on a very similar subject from much earlier in my career, and all of the papers are asking this really bread and butter political science question, which is how do the parties budget? How do Republicans and Democrats budget at the federal level when they’re in charge?
And I call it a bread and butter question because I think if you asked just the average American like, hey, tell us what you know about the differences between the parties, they would say something about spending. And so Republicans are famously, they want small government, they want fiscal discipline, they want lower taxes and lower spending. Democrats we’re told are more comfortable with big spending programs. And so it’s a real defining element of how we understand the differences between Republicans and Democrats.
And so it’s a pretty basic question, are they actually different when they’re in office? And we find the answer is no, there’s basically no difference. And like I said, we have a million tables, a million different tests. And so however we cut up the data, we basically cannot find any clear, convincing, consistent evidence that Republicans reduce deficits, that they consistently spend less, anything that looks like fiscal responsibility relative to what Democrats are doing.
Matt Grossmann: Okay. So let’s unpack that a little bit because it might be a bigger claim to say that there’s no difference between the parties versus this particular image of fiscal responsibility doesn’t hold up for the Republicans. So is it the case that Republicans want lower taxes but the same amount of spending or just that taxing and spending don’t differ overall across the parties?
Derek Epp: Yeah, and that’s a great point. So the claim of the paper is not that there are no differences between what Democrats and Republicans want or what they do when in office. And even a casual observer, especially these days, knows that there are really big differences between what the parties are trying to accomplish.
But basically, I mean, we’re looking at the data and we’re saying, well, if we just look at deficits, spending, votes on bills, budget projections, are the Republicans spending less, are debts going down, are deficits going down? And the answer is no. And so the question then is why is that the case?
And this is why we have so many different tests in this paper is because you could just pull up, anybody could just go to the internet and pull up the debt or the deficit over time. And you would look at it and you could see very clearly that, look, obviously when Republican presidents, it’s not like the debt goes down. In fact, really it just goes up and up, except for the brief period in Clinton when they ran surpluses.
So you would say, okay, well, that seems like it should be a really easy question to answer. But we wanted to cover for all sorts of different contingencies. So it may be that the Republicans actually are passing balanced budgets, but it may be that events in the world are producing deficits and debts. So you could pass a balanced budget and then the economy could run into a recession and then automatic stabilizers and social supports, you’re going to have to spend more on those just through mandatory spending and suddenly you have a deficit. Or it may also be that Republicans are trying really hard to enact these budget cuts, but they have to compromise with Democrats because often a lot of these big bills are done through compromise, bipartisan compromise. And so it may be that it falls apart there.
And so that’s what some of these different tests tried to get at. And basically we find that, no, that’s not the case. And so what is going on, we think it’s a variety of things. Part of it is just cheap talk. It’s nice to talk about cutting taxes. But actually cutting spending programs is much more difficult. And so there’s an element to that.
But it’s also true that just things happen in the world and just basic responsible party government requires that you respond to it. And so the COVID pandemic, that stimulus bill they passed during the first Trump administration, and this is Mitch McConnell is president of the Senate, Trump is president, it’s a trillion dollar stimulus bill for COVID. And it’s one of the biggest government interventions into the economy in history. And you say, well, that doesn’t really match Republican ideology of fiscal responsibility, but it’s COVID, so what are you going to do? So things like that happen a lot and they just make this whole puzzle of balanced budgets really challenging to actually implement.
Matt Grossmann: So you also give us a bit of a historical periodization. Is it the case that Republicans have ever been focused on fiscal responsibility? And has the gap between what the rhetoric is and what the record is changed over time?
Derek Epp: Yeah. So I think, go back to Eisenhower, and a lot of people would probably look at Eisenhower as the real deal in terms of fiscal responsibility in terms of it, and he’s described as this policy wonk president and he seemed to take it very seriously that we should try to keep the budget down. And then we move into the Reagan period. And during Reagan, they had these economic ideas about how you could cut taxes and this would cause subsequently you to have to cut government spending.
And so this is an idea associated with Milton Friedman, starve the beast. And basically Friedman’s argument was that cutting spending is politically difficult to do because a lot of this spending of course is like entitlement programs. And so if you’re going to make dramatic cuts to government spending, you have to cut things like social security, you have to cut Medicare, Medicaid, and that gets unpopular.
So Milton Friedman says, “Well, let’s worry about that later. First, you can cut taxes. And by cutting taxes, you’re going to eventually just run into these debts and deficits. And that will cause this outrage and concern on the part of the public and also on policymakers, necessitating down the road that you cut spending.”
I mean, Milton Friedman, he’s a big time economist, so there were real economic ideas associated with this like, we’ll cut taxes, we’ll starve the beast, we’ll go back and we’ll cut programs. But it just turned out it just was basically wrong. And there’s no public outrage that materializes about the debt and deficit. And the political calculus of cutting those spending programs continues to be very difficult regardless of what the debt and deficit actually are. So it never really worked in that way. And so that was the Reagan period. And we saw at least then there were some, at the time, serious economic ideas justifying some of these fiscal policies.
And then over time, I think those ideas become less credible. And today we don’t really see Republicans talking about starve the beast or trickle down economic, I don’t think you would campaign on those necessarily.
Matt Grossmann: Yeah. So let’s talk about that most recent era. Because I mean, it does seem like, I think most people would argue that things have changed on both sides. As you say, on the Republican side, there’s less of those claims. I mean, they sometimes will say the tax cuts will pay for themselves. But it’s more of an argument about how it will lead to economic growth than that it will change spending trajectories. On the Democratic side, it certainly seems like Biden was less publicly concerned about deficits and less responsive to deficit concerns than was Clinton or Obama. We had big movements in the 1990s and in the Obama administration that at least claimed to be that they were about deficits. So has the rhetoric changed, has the rhetorical side changed in the most recent era? And if so, why?
Derek Epp: I think the rhetoric still exists, but it’s more of a partisan weapon than a serious concern about changing things at this point. Because one of the things, if you’re going to be really serious about the debt, it probably is going to involve tax increases. It’s sort of hard to see your way out of that puzzle without increasing taxes and maybe increasing taxes pretty substantially. And that is just something that Republicans, especially in this modern era, are just not going to do. It’s pretty hard to imagine that road forward. And so one of the most realistic tools for actually doing something about the debt is off the table, and it just becomes very hard, I think, for the parties to do anything credibly about it. So the Democrats for their part, they go out and you wouldn’t want the politics of increasing taxes simply to pay for interest on the debt is really bad politics. You can’t go out there and say, “Well, we got to do this. We’re going to pay that interest on the debt.” So if Democrats are going to increase taxes, they’re going to do it in the context of like, “Hey, we’re going to expand.”
“We’re going to do healthcare for everybody, and we’re going to pay more in taxes, but we’re going to get this healthcare benefit.” But whether or not that does anything for the debt is sort of a different question. You’re going to have to spend a lot more money for those new social programs. So the politics I think have just become really challenging, but that doesn’t stop the parties from attacking one another over the debt. But it’s something that you worry a lot about when you’re the out party and you’re not in power. And then when you are in power, you say, “Well, we have all these other priorities that we’d like to do. Republicans want to cut taxes, Democrats maybe want to increase spending in certain areas.” And so you don’t want to hear about the debt when you’re in charge.
Matt Grossmann: So as you say, you have more than just what was the debt under each party’s control. So let’s talk through some of the analyses. You have a comparison of the budget office scoring and the outcomes. What do you learn from that kind of analysis?
Derek Epp: Right. And so this is actually how I got involved in the project is because I had done a few years ago with some graduate students here at UT, we coded the congressional budget office scoring. And so there’s this tradition that before a bill gets a vote on the floor in either chamber, they send it to the CBO, which is this team of basically economists who work for the government. And they try to project and estimate how much money that bill is going to cost the government. And as you can imagine, it’s a pretty challenging thing to do in some cases, but that’s what they do. And so every bill that gets a floor vote, most of them, almost all of them, have this scoresheet attached to them, which is the best estimate at the time for how much this bill is going to cost or how much revenue it’s going to bring in.
So it’s not all bills, of course, because most bills don’t make it as far as a floor vote. But if it is getting voted on, then it does have that scoresheet. And so we coded all of them, but the CBO scoresheets in particular are useful because once you have a bill number and you can estimate the cost of that actual individual bill, you can link that bill to an individual member of Congress. And so you get the member’s DW nominate score, are they Republican or Democrat? And you can also link it to the roll call voting data sets so you can figure out how different Republicans or Democrats, individuals voted on that bill. And this is really valuable because if you’re just looking at the macro budget numbers, there’s all sorts of a million different compromises and things that happen to get us to that final budget number.
And so it may be that Republicans are desperately trying to introduce bills that would cut spending and those efforts all go out of the window because they have to compromise with Democrats or whatever, and they just never appear in the final budget numbers. And so when we can take it a step back with the CBO and we say, “Well, what kind of bills are the Republicans themselves actually introducing?” And that’s what the CBO scoresheets get you. And so we do a bunch of macro analyses and we have, so for example, on the macro side, we look at trends and surpluses and debt over time. We look at differences in tax expenditures. We look at the role of automatic stabilizers that trigger when there’s a recession, procyclical versus countercyclical spending and so forth. And then at the micro side or more micro side, we have the CBO data and the roll call votes.
And across all of this, we basically are not finding consistent evidence that the Republicans, even at that individual bill level, are doing things that would signal fiscal responsibility. And the bill data set, the CBO data set is really interesting. Most of the bills, perhaps not surprisingly, cost basically nothing. Maybe they’re naming a post office or they’re rearranging something and CBO is like, “Oh, this is going to cost $1 million.” But then somebody will introduce a bill and it’ll be like, “Oh, this bill is going to cost $700 billion. It changes the formulas for Medicare and it’s just this incredibly expensive bill.” And so it’s hard to work with the data actually because you just get this huge spike of zeros and then this really extreme tails to that distribution. And it was also unclear. And one of the things I’ve wondered is I don’t know the degree to which members of Congress have any idea what that number is going to come back with because the CBO, like I said, it’s a bunch of social scientists trying to do this very rigorous analysis.
But if you’re just writing a bill to try to change Medicare or expand prescription drugs, you really don’t know how much that is going to cost perhaps as an individual member. And so that’s one of the reasons we think we don’t really find anything is because members don’t really know how much these bills are going to cost. But what it does signal is that there’s not some, like say what you will about the ideology of the parties. It’s not such a strong prerogative that it’s ideology above anything else. And that doesn’t seem to be the case.
Matt Grossmann: And you also compare bills that actually result in new laws to messaging bills or I guess bills that fail, including messaging bills and just failed efforts. But that is a potential way of checking if this is sort of just for show and it ends up different than it started. What do you find?
Derek Epp: Yeah, great. And so that’s exactly right. So because we can link these CBO scoresheets to the individual bills, we know did the bills pass and fail? We’ve linked it to the roll call votes. And so we see that Republicans are less likely to vote for spending increases, but only on the bills that fail. And so the interpretation, of course we don’t know exactly what’s going on, but I think a real plausible interpretation for that is that if you know a bill is going nowhere, like you said, it’s a messaging bill or it’s a signaling bill, then you sort of float out those ideological bills there. But if it’s a bill that is really going to go somewhere and maybe pass and become law, then it’s much harder to vote perhaps for those spending cuts. I mean, it is hard to vote for spending cuts.
And we saw even with MTG before she retired, she was trying to collaborate with some Democrats across the aisle on protecting those ACA subsidies because the reality of major spending cuts, it may not be good news for your constituents. So those cuts are difficult. And so once you start getting to, well, this bill is actually going to go into effect, do you want to pass those cuts? And we also saw this, it was kind of interesting with Paul Ryan would take this stuff really seriously. And so they would pass the spending cuts and Republicans would say, “Yeah, we’re cutting taxes. You have our votes. Here are the spending cuts.” And then he would try to circle back and say, “Okay, well now it’s time. We did the spending cuts and now we really have to do that entitlement reform.” And it was so much harder for him because the entitlement reform is so much less politically desirable.
Matt Grossmann: So you do step back and try to figure out what this means for theories of deficit politics. And you mentioned in addition to this being about parties or about electoral competition, people have also said it’s about lobbying or it’s about the specific politics of entitlements as you’ve mentioned, or it’s about active public demands. So are you able to distinguish between those or is it the case that everybody wants more services but fewer taxes and so that’s what we get?
Derek Epp: That’s probably the answer to it. I mean, we do try, we have this section in the paper where we look at certain mechanisms, but we don’t gain very much traction with that. And we look at, for example, is this behavior on the part of Republicans driven by lobbying expenditures or we look at safe seats, maybe the lack of electoral competition makes it easier to compromise on ideological priorities, but we don’t find much there. And I think it just comes back to the idea that the politics of this are really tough because it’s mostly just, I think what you said is that you tell people like, “Hey, this is the debt.” And they say, “Oh, that’s terrible. That number seems so high.”
And just intuitively, if we as individuals have really high debt, we know that’s bad. So of course it’s bad for the government to have that as well. But then you can ask, well, what should we do about it and say, should we cut social security and Medicare? And it’s like, that’s not popular. Should we increase taxes? That’s typically not popular. So the politics of it I think can be really challenging.
Matt Grossmann: So let’s talk about the public side a little bit. So the public, as you mentioned and say in the paper, they think it’s a very big problem when you raise it with them, but it’s very unlikely to be cited without mentioning it if the public, when asked what the most important problem facing the country is. So one interpretation is that this is like a lot of other problems. It’s just one on the list and it’s nobody’s priority. Another is that this is about real misunderstanding. People think either there’s a lot of waste, fraud and abuse on the spending side or this all could be taken care of by taxing a few people at the very top on the taxing side. And so this is really sort of a lack of understanding. What is the state of the research on that? Is this people asking for something for nothing and knowing it, people not understanding or people just putting it on a list that’s just not a high priority?
Derek Epp: Probably all of the three. I mean, you’re right. If you look at the MIP, the number of respondents listing debt as the most important problem is zero. Nobody goes first and foremost to the debt. So I think it’s a little bit of all three.
I mean, my feeling is that people are very responsive to things that touch their everyday life. So if you’re going to change the entitlement programs or the economy, this is why so much of that public responsiveness literature focuses on economic variables. So when those things change, people really notice, but the debt is this super abstract number. And we sort of intuitively, again, think it’s bad to have a bad debt, a big debt. But it’s 40 trillion, how does that change your everyday life? And I think people just don’t… It’s unclear. I mean, it probably does in terms of interest rates and things like that, but it’s just much harder for people to make that connection. So it’s this very abstract problem.
In the same way that it’s very similar, of course, the questions when we ask how much should the government spend? And people say, “Oh, it’s way too big. We should cut government spending.” But then when you get into it, it’s like what are you going to cut?
Some of it may be misperceptions as well, like not understanding… The idea that we could cut some programs that nobody cares about and make a big difference to the debt or we could just get rid of waste and fraud. And of course that’s not true, but I don’t know how common those perceptions are in the public.
Matt Grossmann: So we recently had headlines about reaching a $40 trillion debt mark. I know that there’s a controversy about which measure to use, but that is a very high and seemingly a number that should be able to break through. It’s also a doubling since 2016, so presents a nice potential media narrative that we-
Derek Epp: No.
Matt Grossmann: … usually think might change things, but it doesn’t seem to have made a huge debt so far. And especially even in comparison to recent history, like the Tea Party voicing concern about deficits or the 1990s, Ross Perot’s movement putting the deficit front and center. We’re just not really seeing anything. So what do you make of the current state of the capacity for any of this to break through and the most recent number?
Derek Epp: Yeah, I don’t know. It doesn’t seem… There’s never going to, or I’d be very skeptical that there would ever be a grassroots movement around concern about the debt. I mean, I think the Tea Party, and maybe that was about the debt, but also probably that was about Obama spending programs. So are people genuinely worried about the debt? I think that has to be an elite driven argument. So the question then, what does it take for the elites to take it seriously?
And you could imagine we could get to that point if that gets high enough. I mean, certainly I think the interest, just payment on the interest, it’s like 15% of the total budget today, projected to get up to 25% of all government spending is just interest on the debt by the 2030s, mid-2030s, I think. So those are numbers that if you’re a policymaker in Washington, you have to be really uncomfortable with. You could imagine policymakers at a certain point taking that seriously, because if it’s a question of, well, we got to start taking this seriously or we really are going to have to slash back on some other spending programs or whatever, then those become unpopular political decisions, and so then maybe you have to tackle the problem. But it does probably have to be on a bipartisan basis. I mean, tax increases probably have to be a piece of that puzzle, and so how are you going to do that, still becomes complicated.
Right now, I just think the party elites, they just feel like they have other problems or other things they’re dealing with. I think it’s just very hard for them to talk about the debt in a like this is something, this needs to be a priority because they look at those MIP, it’s nowhere on the MIP, you’re not going to go out there and Talarico in Texas is not talking about the national debt. You got a million other things to talk about. So if it’s going to happen, I think it could happen, but I think it has to be sort of an elite technocratic side of things rather than the public. And that’s where the Milton Friedman arguments were wrong is that the public is just… It’s just hard to imagine them really ever caring about the debt. What do you think?
Matt Grossmann: Well, so let’s talk a little bit about the partisan perception because the democratic view of this, perhaps cynical, but informed by some prior rounds of this, is that we’re just not talking about it because it’s a Republican president right now and deficit politics will return with Democratic presidents. Carvel’s famous comment that he wanted to be reincarnated as the bond market in the 1990s. Several rounds of crises where the US credit rating was threatened to change or did change, and a whole bunch of politics surrounding the raising of the debt ceiling under Democratic president. So is there a potential partisan difference here? And is that really the likely return? Is this when Democrats propose new government programs that we [inaudible 00:27:49]?
Derek Epp: That’s a good point. And we have seen, I guess it started with, because the debt ceiling has been around for a long time, but it started to be weaponized as part of the political toolkit or a point of leverage I guess by Newt Gingrich. But we’ve seen, in general, Republicans much more willing to engage in that kind of brinksmanship. So that could bring it back. And what was it? 2011 under Obama where they tried to scale back government spending in some of these ways.
So yeah, so maybe it’s just there is the partisan asymmetry there. Democrats are less likely to use or less willing perhaps to use some of these political tools to force it onto the table. Yeah, so-
Matt Grossmann: Or maybe that’s what you need for deficit politics is you need a Democratic president and a Republican Congress [inaudible 00:28:37].
Derek Epp: Republican, right. That’s the compromised sweet spot. Or yeah, it could be. It could be.
Matt Grossmann: So, as you mentioned, people who actually think that this might come to a head politically are relying on some kind of economic scenario potentially around interest costs and spiraling and raising interest rates. So in other countries, what stops this pattern is that there is an inability to borrow or borrow at rates that are reasonable. But your political logic here makes it clear that it would need to be something that really seemed like a crisis of the moment. I’m not sure what might bring that about, but you could certainly imagine scenarios in which interest rates are threatening to go up a whole lot or the government is really having trouble borrowing as a result of this. How would that impact this model?
Derek Epp: Well, then it does become more of a crisis. So once it gains that, I mean that’s the kind of thing that pushes it from something that you’re uncomfortable with, but you can ignore, to something that sort of has to be on the agenda and you have to solve it.
And for example, our credit rating did get downgraded and there are threats of future downgrades. So that kind of stuff is a disaster, I mean if you continue to slide down that because your interest payments just become more and more expensive. So those are the kind of inflection points where you could imagine something causing some sort of perhaps bipartisan compromise. But it’s hard to see it in the current political moment, but we’ll see. Yeah.
Matt Grossmann: So I guess to give the deficit concerned Republicans their due for a moment, when they use something like the debt ceiling, for example, as leverage, what they say is that they agree with you. This isn’t going to be addressed under normal politics. We’re voting for all these messaging bills, but they’re not the ones that are actually going to get enacted, and so we need some type of a forcing mechanism to ever force compromise on this. Is there a logic to that? Even though it obviously is a broader threat to default on the US debt is not very related to the actual decisions that have to be made.
Derek Epp: Having an accountability mechanism, which I guess is the idea behind the debt ceiling, I think there is a logic to that, but it assumes that it’s not a partisan weapon. It assumes a degree of bipartisanship that we haven’t seen recently. And if you look at what are some of the major drivers of the debt recently, it’s like big tax cuts pushed by Republican administrations, but then also wars and oversea conflicts. So you fire 1,000 missiles at Iran and each of those costs so much money and suddenly, I mean, the reason the debt has increased so dramatically is things like that. So that’s where it feels more like hypocrisy than a real genuine engagement with the budget numbers.
And of course, people said that even going back to Reagan, because Reagan dramatically increases defense spending as well. So you don’t really care about the debts, you care about political cover for cutting programs that you don’t like. But subtracting all of that, insofar as could we have… You could imagine a world where that kind of accountability mechanism is a good thing and forcing the two parties to come together and make difficult decisions.
Matt Grossmann: So your broader research looks at problems that are sort of slow building and routine, and this seems like a pretty perfect example of that. Everybody kind of agrees it’s a problem, but we don’t know exactly when we’re going to hit a stopping point. Are there any lessons from that broader research that apply here? And when do we actually have some kind of offramp from those slowly developing problems?
Derek Epp: Yeah. Yeah, so this is a paper that I did with Herschel Thomas, who’s a professor here at our policy school at UT, and we theorize about how the longitudinal trajectory of problems, how they develop over time, how that conditions the way people and policymakers respond to them. So, we’re basically making the boiling frog argument that if you have this sort of gradual buildup, you can underattend to a problem. And we test that in the context of COVID, but we think it’s a general… We would think it applies to a bunch of different problems. And so, the debt could be one of those, in that it’s background noise, and it’s 40 trillion, it’s this huge number. But every day is a new high for the debt, so you’re like, oh yeah, it’s just… And it’s not like you go from zero to 40 trillion overnight, so it’s sort of this incremental thing. What was interesting about the COVID paper and possibly about the debt is that these problems that have these exponential, that worsen exponentially, they have this really slow on ramp, which looks like a slow moving problem until you hit that hockey stick inflection point.
And that is ideally in a responsive world, we might try to solve these problems before we get to that inflection point. But perhaps realistically, we have to wait for it to be a crisis before the government can really mobilize the political capital needed to solve it. And we saw some of that with COVID, but you also, people make the same argument about climate change, is that we’re still sort of in this slow building, but then there’s these tipping points, and it may be the same with something like the debt where both parties can get away with ignoring it until interest rates explode, until credit ratings go down.
It gets so big, it becomes unmanageable. And then you can solve it. I mean, I’m sort of an optimist about these things, it’s not like this is some crazy thing that is impossible to solve. You could solve it, you could write a budget that would be good for the debt. And so, I think if need be, I think we could get there.
Matt Grossmann: So, one reason to start earlier is obviously that the kinds of changes that are needed might be more feasible earlier. In particular, the usual ways that we’ve successfully done them when we have are first of all about slowing the rate of growth in spending rather than actually cutting, and then similarly on the tax side, doing things like having changes in who falls into what categories, change with economic growth so that… In other words, it might just be easier to not cut additional taxes and to find some slowing mechanisms for growth, and then grow our way out of that. Is that true in the history that you looked at? Are there examples in the few cases that did actually pass bills that led to lower deficits? Are there lessons there?
Derek Epp: Yeah, great question. I think that’s accurate, I mean, that’s how you would try to do it. And we look at, for example, the Affordable Care Act actually tried to save money. I mean, you could go into the entitlement programs and not cut benefits, but change some of the formulas, or you could, for example, allow more negotiation with drug companies over the cost of prescriptions and so forth and things like that. And we’ve seen more of that, and so I think that those are ways where you could potentially see some stabilization in terms of the increase in costs, and then it probably also has to come with tax increases.
And it’s been some combination of things like that, they did it a few times in the ’90s, I think, again, 2011 they did it, and it tends to be that kind of just tinkering maybe with some of the formulas for the entitlement to try to slow down the growth of those paired with tax increases. Again, typically not flashy campaign stuff, but maybe the kind of stuff you do once you’re in office.
Matt Grossmann: So, another story that maybe your evidence is a little bit less consistent with, but is that this is about the inability for these equilibria to hold. So, you said they don’t know what the CBO scores might be, but some of these big packages, they go out of their way to make the CBO scores fall within the range they say that they want, and it’s just that the kinds of things they did to do that don’t hold. So, two obvious examples, one, Obamacare was made to be deficit neutral, but has needed increased subsidies over time in the exchanges, and often it’s hard to deal with those demands without continually disrupting the original deal. Similarly, the tax cuts often come with expirations, which are supposedly going to allow the policymakers to revisit those.
So, one interpretation is that this is, I guess, was in there all along, they were just fiddling with the numbers and they didn’t want to do that, another is that policymakers regularly give themselves these kinds of tools and windows, but because your fundamental story is that it’s not politically sustainable because nobody actually is incentivized to go along with the compromise.
Derek Epp: Yeah. The history of the CBO is kind of fascinating because it exists in large part to… And we talked about the potential for debt ceilings to act as an accountability mechanism. And the CBO, the entire thing is an accountability mechanism. The idea is that members of Congress should know the fiscal consequences of the bills they’re voting on. And without an agency like the CBO providing honest numbers, they might not. But as you mentioned, there’s all sorts of ways that you can try to game the CBO, because they do have power in those. If they come out and they release all this bill, this is so much more expensive, that is a political liability for whatever party is pushing that bill forward. And so, they have all sorts of mechanisms to try to game the system, and it’s like the tax cut expiration date is a famous one, so it looks… Well, it looks bad upfront, but then they’re going to expire. And so, maybe the 10-year projection isn’t all that bad because they’ve already expired, but then we just get rid of the expiration date or whatever we do.
And so, that can be a tool. Those I think are the higher profile bills, so those are the bills that are really moving and probably maybe going to become law. And that’s when they tinker with them. I think the members who are just like, I’m going to introduce a bill, but maybe it doesn’t really go anywhere, it’s not a bipartisan bill or whatever, those are when I feel like the members don’t maybe even bother, they just write the bill. I mean, the most expensive bill in our data set is $2 trillion, and it just totally overhauls the Medicare system. And I think it privatizes Medicare, but CBO is like, the way you’re doing this is incredibly expensive. And so, this is a bill that it was introduced by a Republican, and you could sort of see where ideologically, okay, you’re trying to privatize Medicare, but you’re certainly not saving the government money with the way that you’ve written this bill. And of course that doesn’t pass. So, the data set is full of bills like that.
Matt Grossmann: So, it doesn’t sound like there’s much hope that the outcome of the midterms might change these politics. As you mentioned, there’s a potential argument that’s really not being made. Trump’s doubled the debt, and the Iran war is unpopular, is also leading to the debt, so there are things that people could be running on that they’re not necessarily. Is there any possibility that a potential Democratic Congress would be different on deficit politics or anything coming up that interest rates are also a concern now, so there’s some possibly elite pressure on this, anything in the near future that would potentially disrupt this?
Derek Epp: Yeah, I think so. I mean, when you see these kinds of efforts to tackle the debt, it tends to be bipartisan. And so, you could imagine if Democrats control one of the chambers of Congress, certainly they’re going to not be enthusiastic about further tax cuts and things like that, and so in that sense, there may be some. Now, whether there’s a commission that’s dedicated to bringing down the debt, who knows? I mean, I’d be skeptical that that would happen. But I think the counterfactual, where Republicans retain control of Congress, we’ll probably see another tax cut. I mean, there’s going to be another budget bill, so it probably includes some tax cuts, maybe some spending cuts as well. So, if the Democrats are in there, that probably doesn’t happen, the Iran war is probably harder to fund if the Democrats are there. So, these are some things that could bring it down. But I don’t know that we’d see a huge full scale effort to rethink it.
Matt Grossmann: There’s a lot more to learn. The Science of Politics is available biweekly from the Niskanen Center, and I’m your host, Matt Grossmann. If you like this discussion, here are the episodes you should check out next, all linked on our website. How debt finance leads to war and defense spending. Who now directs spending, Congress or the president? Do Democrats and Republicans get different results? Does the tax law signal change in how parties use tax credits and deductions? And how party leaders change Congress. Thanks to Derek Epp for joining me. Please check out The Political Economy of Fiscal Responsibility and then listen in next time.
