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Build Back Debtor

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Build Back Debtor

10 Blocks podcast October 13, 2021
Politics and law
Economy, finance, and budgets

Brian Riedl joins Brian Anderson to discuss the state of play in Washington, D.C., the tug-of-war between progressive and moderate Democrats, and the long-term consequences of runaway federal spending.

Audio Transcript

Brian Anderson: Welcome back to the 10 Blocks Podcast. This is Brian Anderson, the editor of City Journal. Joining me on today's show is Brian Riedl. He's a senior fellow at the Manhattan Institute. He works on fiscal and economic policy. Brian has previously worked as the chief economist to Senator Rob Portman and as the staff director of the Senate Finance Subcommittee on Fiscal Responsibility and Economic Growth. He writes frequently for many, many publications, National Review and others, and he's, of course, written for City Journal. Brian, thanks very much for joining us.

Brian Riedl: Glad to be here, Brian, thank you.

Brian Anderson: Congress is on recess this week, as most people know who follow these things, but there's a ton of news coming out of Washington. Last week, the Senate struck a temporary deal to raise the debt ceiling through December. The week before, Nancy Pelosi delayed a long-promised vote in the house on the $1 trillion bipartisan infrastructure bill, which already had passed the Senate and has been championed by the Democratic Party's moderates. The party's progressive wing, however, insisted that the infrastructure measure be linked to a separate multi-trillion dollar social policy bill called Build Back Better. The moderates, above all, Senators Joe Manchin and Kyrsten Sinema, they say they won't vote for Build Back Better if its price tag remains in the stratospheric $3.5 trillion range.

That's a lot going on, a lot to take in. Brian, you follow this more closely than almost anybody I know, so perhaps you could help make sense of it all. What has gone on over the last couple of weeks? What's the current state of play in Congress with regard to those two major bills and how likely is it that one or both are going to pass?

Brian Riedl: Well, Brian, I think you summarized well where we're at right now. On the debt limit, we are going to be waiting until December. What Mitch McConnell told the Democrats was, "You're going to pass this yourselves in a reconciliation bill, and if you need to redo the budget resolution to give yourself permission to do it in a reconciliation bill, you now have eight weeks to do it."

On the little dance between the infrastructure bill and the reconciliation bill, what we're seeing right now ultimately is that Joe Manchin and Kyrsten Sinema have not budged on their point that they will not support $3.5 trillion in new gross spending. What ultimately we're learning is that the moderates have more power than the progressives. The Democrats may have a majority in Congress, but it doesn't mean the progressives have a majority in Congress. When you're in a 50/50 Senate, you can only go as far as the most moderate member you have.

It turns out that Manchin and Sinema will not budge on opposing the $3.5 trillion, so right now, what Schumer and a lot of other Democrats are doing is they're starting to pair down that $3.5 trillion cost. Manchin had said $1.5 trillion is his cap, there were some indications he might go to two trillion, but ultimately, the Democrats are starting to realize after months and months and months that they don't have the votes for more than $1.5 trillion in a reconciliation.

Now, the question is where does that leave the infrastructure bill that is currently being held hostage by AOC and the progressives? Well, ultimately, the Democrats have 15 months to straighten this out. There is a majority support with these Democrats in Congress for the infrastructure bill and there is majority support for a reconciliation bill of about $1.5 trillion. I can't imagine either side actually walking away and doing nothing when there is the votes for the half a loaf, a very expensive half a loaf, so I think ultimately we're going to end up with the infrastructure bill passed and we're going to end up with a reconciliation bill with a lower price tag than $3.5 trillion. Of course, it remains to be seen, whether it will really be cheaper than $3.5 trillion or just gimmicked down to a cheaper amount.

Brian Anderson: Well, we might not know exactly what form the reconciliation bill will take, the Build Back Better bill, but we can be assured that it's going to involve a massive amount of social spending, however many trillions. The progressive Democrats wanted to include new programs, but I think it's fair to say that would result in a fundamental transformation of the relationship between American citizens and the government. It's much more along the European model, where you're creating a kind of cradle-to-grave welfare state. You're going to have universal daycare, pre-K, guaranteed child allowance, free college, all of this stuff. Now, progressives place such a high value on these programs, at least rhetorically these days, that it's hard to imagine them parting voluntarily with any of them. They may have to, as you suggest, but what do you think that's in the bill we're going to actually wind up with in terms of some of these really dramatic expansions of the federal government?

Brian Riedl: Well, Brian, you make a good point about trying to build in some more European social democracy. There was an analysis done by the Hoover Institute at Stanford, I believe it was by John Cogan and Danny Heil, that said that if this bill passes for the first time, we are going to have a majority of American citizens receiving a federal program, basically on the federal dole, which we haven't had before. It's really a broad expansion. You have the child tax credits being expanded, there's very aggressive childcare subsidies, pre-K funding, paid leave. On the healthcare side, expanding Obamacare, creating a new dental benefit for Medicare. Then you have all sorts of housing, some infrastructure, some cheaper community college. On top of that, a little bit of Green New Deal with a lot of tax credits for climate innovation, some of which is funded by new taxes, not all of it.

As for how they're going to cut this down, the little hint we've gotten from Nancy Pelosi today, which we've heard from others, is they're going to cut it down with gimmicks. What they're going to do is they're going to take the $3.5 trillion, and instead of actually removing a lot of provisions, they're leaning toward just putting fake expiration dates on it. One way to cut down on $3.5 trillion—in half, for instance, would be to have the whole thing expire in five years instead of 10 years. That way, one point, you have the same per-year cost for the same programs, you just have the whole thing expire in five years. This is a gimmick to the extent that nobody believes Congress will actually let these programs expire. Of course, they're going to be renewed, and in fact, the way you do this is you make the most popular programs expire and dare the other side to let it expire.

We've already seen this in the bill. The Democrats expanded the child credit earlier this year to $3,000 or $3,600 for a child under the age of six. This bill would extend that through 2025 and then cut it off on New Year's Day 2026, not because Democrats actually want it to expire, but because they know that after five years, there is no way Republicans or Democrats would allow it to expire. Of course, it's going to get renewed, but by putting in a fake expiration date, you only score the first five years, which means $750 billion in costs for the second five years don't get scored. The word today is that they're going to do that with more and more provisions. They're going to take popular provisions and have them expire, knowing full well the costs will come later.

Brian Anderson: The Republicans, they were quite happy to ignore explosions in federal spending, really, not just during the Trump years, but going all the way to back to Bush. That makes it harder for them to sound the alarm now about this spending tsunami. Meanwhile, you've got nineteen Republican senators who voted 'yes' on the infrastructure bill, and that's a move whose wisdom has been debated by many, or at least the amount of spending contained in that bill, so I'm wondering what your view is of the GOP in this debate. Do they have an opportunity to be more constructive in the process, or are they basically just standing by and watching while this plays out, really, between the progressive Democrats and a couple of moderate Democrats?

Brian Riedl: I agree with you that the Republican track record on spending and deficits is pretty weak. As a matter of fact, I say this as someone—I wrote so aggressively criticizing President Bush's spending spree in the early 2000s that I got banned from the Bush White House when I was in a previous think tank job. They actually banned me for being too critical. Republicans don't have a lot of credibility on spending, but in this instance, I think Republicans are roughly spectators because I don't see how any responsible Republican can climb on board, even with the slimmed-down trillion dollars or $1.5 trillion. I mean, we have such huge deficits coming ahead. If the president's plans all get enacted, we are going to go from $17 trillion in publicly-held debt before the pandemic to over $40 trillion in publicly-held debt 10 years from now. That's the sum of $6 trillion in deficits over the last two years from the pandemic, plus $12 trillion in baseline deficits from our other government programs, plus as much as $6 trillion in new deficits from all these different Democratic bills.

If Republicans are negotiating this and trying to get the cost down, say, from $2 trillion to $1 trillion, they're still negotiating and being part of a train that's going in the wrong direction. I think the best that Republicans can do is draw a line in the sand and say, "We will not be a party to trillions of dollars in new spending," and to the extent that they really have any pull, it might be through the debt limit to the extent that Democrats might run into problems in December raising the debt limit again. They might need Republican votes. But if Republicans are agreeing to be part of this process, it's probably because they've agreed to a couple trillion dollars in new spending, which personally, I believe we already have a big-government party. We don't need another.

Brian Anderson: As a Senator, Joe Biden at least gestured in the direction of fiscal responsibility once in a while. In 2006, he criticized the indifference Congress was showing "to the price our children and grandchildren will pay to redeem our debt when it comes due." Now, though, as you're noting, he may preside over a truly massive increase in that debt, so what's going on? Have the Democrats just embraced modern monetary theory completely? I wonder what your view is of the long-term consequences of this for the country's fiscal health and economy.

Brian Riedl: The Democrats have galloped really far leftward from when Joe Biden made those comments fifteen years ago. If you take a look at previous Democratic presidential nominees, John Kerry, Barack Obama, and Hillary Clinton, they all promised $1 to $2 trillion over the following decade in new spending, mostly paid for with taxes. They didn't always hold to that, but they at least gave lip service. Joe Biden got elected promising $11 trillion in new spending over the decade and yet he was the centrist because you had Elizabeth Warren wanting $40 trillion and Bernie wanting $97 trillion over ten years.

I think what's happened with the Democratic Party is a couple of things. First off, the progressive movement just shifted. We have this young group of progressive that are aging and becoming a bigger part of the electorate and they're just further to the left and they have shifted the Overton window so far to the left of what's acceptable that suddenly $11 trillion looks moderate.

But another thing that happened that I think emboldened the left was the 2017 tax cuts. When Republicans cut taxes by $1.5 trillion in 2017, there was a big shift on the left that said, "Well, if the Republicans are going to be hypocrites on deficits, then why are we holding ourselves back?" There was some truth to that. Republicans have been hypocrites on deficits.

The problem is, instead of the Democrats saying, "Well, if they're going to cut taxes by $1.5 trillion, we want our own $1.5 trillion," they went off the reservation and said, "If they're going to do $1.5 trillion in tax cuts, we're going to do 10 trillion in new spending." Like I said, in the examples of Warren and Bernie, $40 or $97 trillion in new spending, so they didn't double down on what Republicans were doing, they decupled down and more. But I think that that was the moment when Democrats took the wheels off and said . . . I don't even know if it's modern monetary theory, I think that's just a later justification they came up with. I think they came to a view of, "If Republicans are going to be irresponsible, we're going to embrace our id."

The problem is, the long-term numbers are so scary that really, we should be going the other direction, trying to reign in the budget. For instance, according to the Congressional Budget Office, over the next 30 years, we face a baseline deficit of $112 trillion. That's just the baseline. That assumes the expiration of all the stimulus spending, the expiration of the 2017 tax cuts, no more wars, no more major recessions, no terrorist attacks, no natural disasters, no new spending programs, and low-interest rates, 112 trillion in deficits over the next 30 years, most of which—nearly all of which is driven by Social Security and Medicare shortfalls that are getting bigger and bigger.

At the end of this 30-year period, the debt is going to top 200 percent of the economy, the deficit will be 13 percent of the economy per year, and at that point, interest will consume half of all tax dollars. This is the low-interest rate scenario. If interest rates rise by one point over what CBO assumes, you add $30 trillion to the 30-year costs, so I look at this and say, "My goodness. We should be reforming these programs and reigning in the baseline growth, not adding more fuel to the fire with trillions in more growth." Because ultimately, if we're going to spend like Europe, we're going to need to tax like Europe, and that means not just taxing the rich, that means going the true European route of huge value-added taxes, which are essentially national sales taxes, huge payroll taxes, and higher income taxes all on the middle class. If the American people want all this spending, they need to get ready for European taxes. That's my worry.

Brian Anderson: Yeah. Wow. You've been doing some work on means-testing of benefits, which certainly would play into this argument as a way maybe to suggest some reforms that might constrain the spending. Could you talk a little bit about that research that you've been doing?

Brian Riedl: Yeah. I did a report a couple of months ago on how to save a trillion dollars in spending over 10 years, not by raising taxes on the rich, but by cutting spending on the rich. The three areas I looked at were Social Security, Medicare, and farm subsidies. The issue with Social Security and Medicare is not the low income or even the middle class. We're talking about people who are going to retire with millions of dollars in liquid assets, not just their home, but millions of dollars in liquid assets who are still going to be collecting huge subsidies well beyond anything they paid into the system. I don't begrudge people saying, "I should get back what I paid into the system," but when very wealthy individuals are getting back twice what they paid into the system, for instance, on Medicare, you wonder what the policy purpose is there, so what I said is, there are ways we can at least start to pair back the benefit growth for multimillionaire retirees.

Then on farm subsidies, I looked at the same thing, and it turns out the majority of farm subsidies go to farmers with annual incomes well over $200,000 a year. That's net income after they already paid all their bills and that's averaged over the long-term, not just during a good year, and so I said, "Well, let's focus farm subsidies on actual struggling family farms, rather than large agribusinesses." If we do this, we can save a trillion dollars over 10 years without raising taxes by a penny and without hurting the middle class or low-income individuals. This should be the low-hanging fruit. This should be the easy stuff. It's not enough to solve the problem by itself, but we should start by cutting spending for the rich, which will at least lessen the amount of damage we need to do elsewhere on other policies.

Brian Anderson: Well, thank you very much, Brian. That was very illuminating, a little—actually, more than a little troubling. Don't forget to check out Brian Reidl's work. We've got some of it on the City Journal website. We'll link to his author page in the description. You can also find City Journal on Twitter at @cityjournal and on Instagram at @cityjournal_mi. If you like what you've heard on today's podcast, please give us a ratings on iTunes. Brian Riedl, thank you very much.

Brian Riedl: Thank you.

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