Brian Riedl and Shai Akabas discuss the U.S. federal budget, budget negotiations, and why Congress hasn’t addressed the rising national debt—even as it gets worse.
The case for a “grand deal” on the budget has never been more evident: within a decade, annual budget deficits are projected to exceed $2 trillion. Entitlement programs are projected to drive trillions in new government debt over the next few decades. Yet increasing partisanship and political polarization—both in Washington and among voters—have significantly diminished the likelihood of bipartisan cooperation to avoid a fiscal calamity.
Riedl is a senior fellow at the Manhattan Institute and the author of a new report, Getting To Yes: A History Of Why Budget Negotiations Succeed, And Why They Fail. The report analyzes the past 40 years of successful and failed budget negotiations in Congress. Akabas is the director of economic policy at the Bipartisan Policy Center.
Audio Transcript
Paul Beston: Welcome back to the 10 Blocks podcast. This is Paul Beston, managing editor of City Journal, sitting in for Brian Anderson. If you’re a layman like me, you might struggle to wrap your mind around the U.S. government’s trillion-dollar budget deficits and why our representatives in Washington can’t come to an agreement to fix the problem. This week on the show, we have Brian Riedl and Shai Akabas to help explain to what goes into budget negotiations and what it will take for the U.S. to get a handle on its debt and deficits. Brian Riedl is a senior fellow at the Manhattan Institute and an expert on the federal budget, deficits, entitlement programs; and the author of a new report called Getting To Yes: A History Of Why Budget Negotiations Succeed, And Why They Fail. You can find a link to it in the show description. Shai Akabas in the director of economic policy at the Bipartisan Policy Center. That’s it for the introduction, the conversation between Brian Riedl and Shai Akabas begins after the music.
Brian Riedl: Hello. This is Brian Riedl of the Manhattan Institute with City Journal’s 10 Blocks podcast. I'm here today with Shai Akabas of the Bipartisan Policy Center, who is going to be discussing budgets, budget negotiations, why we can't fix the budget deficit as it gets worse. Welcome Shai.
Shai Akabas: Thanks for having me, Brian. Excited to be here.
Brian Riedl: Let me give you some background on both of us. I have been at the Manhattan Institute for two and a half years. Before then, I was chief economist and Senator Rob Portman for six years. And for 10 years before that I worked at the Heritage Foundation, running their budget shop. For campaign background. I was the budget policy director for the Romney Campaign in 2012 and the Rubio campaign in 2016. Neither of them lost because of me. No one ever blamed the budget plan for the loss. So, not my fault. Even if I am the kiss of death. Some background on Shai, he is the Bipartisan Policy Center's director of economic policy, handling issues like the budget, retirement security and higher education finance. He's been at BPC since 2010. And he staffed the Domenici-Rivlin Debt Reduction Task Force that year. He's also worked with Federal Reserve Chairman Jerome Powell even before he was federal reserve chairman. He got in on the ground floor working on the debt limit. He has worked, again, with the Commission on Retirement Security and Personal Savings. So he has a very extensive resume, and again, we're happy to be here.
Shai Akabas: Thanks for reading all that. I'm embarrassed of all of that.
Brian Riedl: You've earned it. You have the blood, sweat and tears and the scars. So let's discuss the budget. Before we get into negotiations, let's discuss the overall deficit picture. You have been very busy at the Bipartisan Policy Center, calculating the date at which Washington was going to run out of borrowing authority if the debt limit is not raised. Now that the debt limit is raised, what are your thoughts on raising the debt limit, how long will it last, what do you think of the debt limit in general as a tool to reign in spending and deficits?
Shai Akabas: Sure. So the deal that they just passed recently will extend the debt limit, or suspend I should say, meaning it's not going to be in effect through July of 2021. So about two years. And that means that it's not going to be the leverage point for negotiations at least until that date. I think we've seen over the last decade or so that the debt limit ... and you write about this in your report, has become less and less useful as a point of leverage in the budget discussions because everybody agrees that shooting the hostage, as you say, is not a viable outcome. We can't default on our obligations as a country. What that means is then, every time we get up close to it, we see all of the costs and the risks but without really any of the benefits that we used to see when Congress sort of made deals around the debt limit in advance without any real risk that something was going to go wrong.
Shai Akabas: So we've now seen heightened risks but actually with less outcomes and benefits. So, I actually think ... and we've written about this a little bit at BPC and we can get into it later when we talk about sort of the prospects of how this can improve the budget process overall, but I think it's time for a reform of the debt limit statute to make it more effective and it could actually spur more of the budget negotiations that you're discussing in the report if it was done in a way that's thoughtful and prudent and takes away some of the risk that's inherent in the current statute.
Brian Riedl: Yeah. I agree. The debt limit, I think, had its usefulness for awhile. In the 1980s it was one of the things that motivated the Gramm–Rudman–Hollings Act, which was one of the big deficit reduction plans of the 80s that lasted for a few years and then got ignored. Back then, I think lawmakers really took the debt limit seriously and used it as a jumping off point for reforms. Obviously, that peaked in 2011 with the Budget Control Act. I don't think there would have been $2 trillion in, at least at the time, project savings from the Budget Control Act without the debt limit springing everybody into action. But at this point, everyone knows we can't shoot the hostage and the bluff doesn't work anymore. And even if we did shoot the hostage, there's all sorts of economic problems that you're going to face long-term if you default on the debt limit. Obviously, you're going to have interest rates go up.
Brian Riedl: So, well, let's jump into that. In my report, I find three things that you generally need to get a deficit reduction deal. You need a penalty default. Something like social security checks not going out or a government shutdown or the debt limit that brings everybody to the table. You need public support. And you also need healthy negotiations. On the penalty default issue, if the debt limit doesn't work anymore, and government shutdowns are also a very awkward, dangerous tool, that no longer works either, because whatever party is seen as shutting down the government gets the blame and doesn't actually get the reforms they want, and you don't really want to wait for 2034 when social security checks aren't going out anymore. That's what motivated 1983. I guess the economy can be a penalty default, if something is really bad happening with the economy that they need a deal to fix.
Brian Riedl: But you don't want to wait for the economy to be free-falling. Let me ask. I mean, how do you get Congress to focus on this if there is not some sort of, oh my gosh, if we don't do this something worse will happen now? Or do you think the concept of a penalty default is just outdated or how do we fix that?
Shai Akabas: Well, I think that's the critical question because as you've noted, almost all of the ones that we have today or have had in the recent past just are not working anymore or haven't worked. Even, you could add to the list, PAYGO, and that's supposed to be something that forces Congress to pay for the changes in law that it makes to mandatory programs or taxes and it's just now so frequently waived that nobody even pays attention to it anymore. I think the ... you could look at some foreign examples of just certain deficit limits. Sort of fiscal rules that they have put in place. But I'm afraid that the US seems politically to be pretty different. That those just aren't likely to A, get enacted in the first place and then B, be all that likely to work if they were enacted, because they're just so broad and far-reaching. So in terms of what we could look to, and this gets back to the debt limit reform proposal, the two parts that we've thought about is one, taking the risk out of the debt limit which is sort of its own thing. But then if you could marry that with a process that would force Congress to debate deficit reduction policy, and what I mean by force Congress is you could tie a president's request to extend the debt limit, which could be disapproved by Congress with a requirement that the president would have to submit sort of a deficit reduction proposal that would ultimately make its way through committee and be required to get a vote on the floor in Congress. So sort of using the debt limit process not as something that would actually threaten any of the nastiest repercussions of defaulting on our obligations, but as the leverage point to start a process in Congress that is recurring and forces that issue into the spotlight. So that even if it's not necessarily likely that as part of that process, you're going to get a bipartisan deal every year, even much less often than that, but it would require that there are changes proposed to major programs like the entitlement program, social security, Medicare, Medicaid, which are driving the spending side of the equation in taxes. And I'm sure that the media is going to pay attention to it if those items are on the table, even if they're unlikely to pass in one house of Congress or the other and get enacted into law. That doesn't necessarily represent a penalty default, whereas there's no sequester on the back end or tax hike or anything like that because I think Congress just isn't going to agree to that upfront. But if you can at least get them to the debate table and have this issue squarely on the agenda and force a vote on it, it bumps it up the priority list amidst all the other things that Congress has to deal with on a recurring basis.
Brian Riedl: That reminds me a little bit of the Medicare trigger where in the 2003 Medicare drug entitlement, they created a system where if Medicaid ... Sorry, if Medicare looks like it's going to be overwhelmingly funded by general revenues, the president is required to submit a proposal to Congress to fix that and lead to Medicare being less funded by general revenues than under the trigger amount. President Bush followed that law once, in 2008 and put out a proposal that didn't get very far. And then President Obama ignored the trigger and argued that you can't make me do anything, dammit. And so I think the trigger can help if you ... you still have to have that degree of buy in from the president and Congress to still take it seriously, and I think you mentioned how it'll get coverage from the media and there'll be pressure and if there is a thirst for reform, you at least have that avenue even if you can't ultimately bludgeon a Congress or president that doesn't want to do anything.
Shai Akabas: Yeah. And I think the key to this that would be different is that it's still tied to the debt limit. So everybody acknowledges the debt limit needs to get extended. And so this is sort of a way that you can ... it would be an option to grease the skids for that debt limit extension, and with it, the president has to submit this proposal that sort of jump-starts the automatic process in Congress. So it's a little different in that there is that pressure point at the front end, as opposed to just having an open-ended requirement on the president that he or she is unlikely to follow.
Brian Riedl: Yeah. I mean, I think part of the challenge is ... anything with teeth, Congress and the president aren't going to want. Let's step back more broadly. We once had five big deficit reduction deals within a 15 year period. We had the '83 Social Security deal. The '85 Gramm–Rudman–Hollings Act. The 1990 Andrews Air Force Base, read my lips, no new taxes deal. The '93 Clinton budget deal. And the 1997 Balanced Budget Act. That was five in 15 years and it resulted in a balanced budget by 1998. Yet, in the past 22 years, there has been one deficit reduction deal, and that was a 2011 Budget Control Act. In the meantime, we've had some pretty spectacular failures. Simpson-Bowles put out a good proposal that had a lot of positive aspects of it. Couldn't get approved by its 14 of 18 requirement within the commission. The 2005 Bush Social Security attempt completely crashed and burned. And even the Obama-Boehner negotiations that resulted in the Budget Control Act were supposed to give us something bigger. An entitlement for taxes grand deal that neither side would ultimately give on. So, now, the parties aren't even focused on trillion dollar deficits. They don't even care anymore. What happened? Why can't Republicans and Democrats come together anymore? Is the problem Congress? Is the problem public opinion? Is the problem that just no one cares anymore? Is it too toxic? How do we fix this? How do we get people to take these issues seriously and fix it?
Shai Akabas: It's a great question and I think it is really the fundamental question of how we get to a better place on this fiscal responsibility question. I think it's a little bit of a chicken and egg situation where Congress doesn't care because the public doesn't care and the public doesn't care because nobody in Congress is talking about, or the president. And so, they don't think it's a huge challenge for the country. So how you get out of that, sort of inevitable dilemma is tough. I think in the past what's gotten us out of it is some jarring event like the financial crisis recession that spiked that and then Congress starts talking about and then the public starts caring a little bit more and then you can sort of pick up a little momentum from that. But the polarization that we've seen between the two parties, even if everybody's talking about as a problem, doesn't necessarily lead to joint solutions that people can agree on. So, I don't know. I'm curious for your thoughts about that as well. How we get out of this cycle of ...
Brian Riedl: Yeah. I think part of it is just conservatives and liberals are in completely different universes right now. But conservatives, let's be honest, conservatives have really only cared about the budget deficit when there's a Democratic president. Then when a Republican president, it's let's implement our priorities. Democrats can be pushed into caring about the deficit at times, but often, when there's a ... President Obama at least gave lip service. He wanted to pay for the ACA. The Democrats gave lip service, although these days, the Democrat presidential candidates want huge new spending won't be paid for. When you talk though, to liberals and conservatives, they're in completely different universes. Conservatives will tell you the entire problem is runaway spending, and waste, and anti-poverty spending and unless you're getting rid of all of that, don't talk to me. And a lot of liberals will tell you the entire problem is that the rich don't pay anything and defense is too high and the solution has to completely be that. So how do you ... There's no political incentive for compromise if you're a lawmaker because they both have their echo chambers with their completely wrong diagnosis and solution that ... And if you try to reach across the aisle and compromise with the other side, you'll get killed by your base. and so, in the absence of something cataclysmic bringing everybody to the table, it's just easier to blame the other side.
Shai Akabas: I have this line that I've been using for the last couple years, but I saw it basically paraphrased in a more sort of explanatory way in the report, which I really liked. And the line that I use is that each party cares about fiscal responsibility more than the other party's policy priorities, but less than their own policy priorities. And what that means is that whenever they get into power, whenever either party gets into power, it's on to their own party's policy priorities. So if you have non-divided government, so single-party control, then their agenda is whatever their agenda is. It's not fiscal responsibility. As you point out, I think that means the divided government is probably the only realistic place where you could get a deal because otherwise, it's just not high enough on the agenda, and it's always in the interest of the minority party to be yelling about how debt and deficits are the problem because if the majority party is cutting taxes or putting in place new spending, it's the easiest political cudgel to use against them. But there's no room for negotiation because the majority party is driving forward its agenda.
Brian Riedl: I agree with that completely. When I did my report on budget negotiations, which you could find on the Manhattan Institute website, titled, Getting to Yes: A History of Why Budget Negotiations Succeed, and Why They Fail. I look at 14 negotiation case studies since 1983. 12 of them were with divided government, and only twice was there even an attempt under unified government. The two attempts were the 2005 Bush Social Security Initiative, which completely fizzled in part because we were just got through a bruising election and the Democrats were totally out of power and they believed, why should I help a Republican president get bipartisan cover for a very controversial reform? We're going to ride this back into the majority. Kind of like what Republicans said sometimes under President Obama in the first two years. The other attempt was 1993. That was the one time where a new Democratic president coming into office for the first time and a Congress of his own party decided to kind of go the shared sacrifice route. And Republicans opposed it unanimously. But in that example, Democrats pushed through it anyway through some pretty, vicious memes just within their own party. But they ended up losing Congress the next year. And so I think you're right. When you get into office, the first thing you want to do in unified government is we want to do the popular things that our base wants. Why do we want to do shared sacrifice and work with the other side? So you need that divided government to give each other cover.
Shai Akabas: And you point out that in terms of the substance, getting a deal now has gotten so much harder because we've taken a lot of low-hanging fruit off of the table. So, now it really comes down to the big entitlement programs that everybody knows are the big core of the spending side of the budget of social security, Medicare, Medicaid. And the tax side, which I think has actually ... it's really difficult for Republicans. Obviously, there's a lot of pledges and no new taxes at all and any ... as you point out historically, the deals have no had as much in the way of tax increases. But now that we've had this large tax cut, our baseline is so much lower than it was even before that we're going to need a pretty ... even under a scenario where we get a fairly large amount of savings out of the entitlement programs, to get to a place of fiscal responsibility, we're going to need a pretty hefty dose of tax increases. Whether that's in the form of tax reform that grows revenues and brings in more to the economy. Some, maybe some increased rates. Cutting down a lot of the tax expenditures, which is all budget wonks know, or a trillion dollars. And those are a lot of the popular programs that are in place today. So, some combination of those is going to have to be a big portion of the deal and that's going to hurt on the Republican side, just like the entitlement changes are going to hurt on the Democratic side. And so, there's really no appetite to come to the table right now.
Brian Riedl: Yeah. I'll agree with that. I did a 30 year budget a year and a half ago. I did a report on a 30 year budget, and I didn't even balance the budget. It was just to stabilize the debt at 95% of GDP because I couldn't even get to balance. And I did as much as I could trying to be bipartisan and plausible, but tilted a bit to the right. Right end of the bipartisan plausible universe, because that's kind of where I am. You can't get there without tax hikes. I did everything I could. Mathematically, you cannot get the deficit under control with revenues-
Shai Akabas: It's really hard.
Brian Riedl: ... at 17 or 18% of GDP. You just can't.
Shai Akabas: If you look back historically at sort of some of the deals that you talk about in your report, most ... when you got to the balanced budget, for example, revenues were in sort of the 19 to 20% range. And Simpson-Bowles got them all the way up to 21 over a period of time. So, regardless of where exactly in there you think it needs to be, 17 and a half or whatever we're projected just doesn't cut it. Yeah.
Brian Riedl: 20 to 21 is probably the long-term minimum you have to have revenues at. Not to balance the budget. Just to stabilize the debt.
Shai Akabas: Sustainable. Right. Right.
Brian Riedl: You could still run a 3% of GDP deficit. You still probably need revenues at 20 to 21. Spending long-term, closer to 23, 24. Let's ... let me ask you this. You played a key role in the 2010 Domenici-Rivlin Debt Reduction Tax Force. Which laid out a plan to save $6 trillion over nine years. This was from a commission of experts that included both a former AARP CEO and a former Republican governor. How did you bring conservatives and liberals together? What were the keys to getting bipartisan buy in, trust, shared goals, willingness to compromise? Was it just a matter of these people aren't up for reelection so it's easier now and that's the issue? Or were there really ideological differences? Was it a matter of trying to get people more on a personal level to understand each side? Or was there buy in right away because you picked out the right people? How were you able to bring everyone together?
Shai Akabas: Sure. Well thanks for asking me about that, Brian. And I think, just for a little context what the Bipartisan Policy Center does or spends a lot of its time doing is bringing groups together like this. Not just on fiscal policy which is one that I had the opportunity to work on when I first started at BPC and we've continued work on that issue, but on all sorts of issues. Whether it's energy, higher education, retirement security as you mentioned. So we do have some practice at getting these groups together and seeing what works and doesn't, and that's part of the reason why I really enjoyed your report so much. I thought, when I first heard the topic that looking at the budget and how the process works with negotiations is just going to be sort of an eyes glazed over type of situation. But, in total contrast to that, I was really ... and it might just be me, but I was really thrilled by sort of the content and that fact that you've laid out so many of the contours of what needs to be considered when Congress gets into, really, any negotiation. I mean, you focus on budget because that's our area of expertise, but whenever Congress is working on these types of things, I think the principles that you lay out are critical for policy makers and their staffs to think about before they embark on one of these so that it can not end in a crash of flames before any deal is reached. What we've sort of found at BPC is that yes, I think getting people who are not on the line with election certificates is a difference. When you don't have that political element staring at you in the face, it helps. But I do think that when you can get it into a structure that works and has a lot of the elements that you talk about in your report of being critical to reaching a deal, we've seen that that can result in better outcomes. So things like picking the right people for the commission that you get a diversity of opinions like you talk about with people from AARP or labor or other places, but that you ultimately believe are there for the right reasons, to use sort of a colloquial phrase, and are interested in getting to yes, even if they're not starting at that position. And then you get people who are willing to put everything on the table, not make any decisions until everything is decided. Nothing's decided until everything is decided. And go through a process where you can agree on shared goals and a shared view of the problem so that you can build trust over time and get to a place where a result is possible. So I think all of those elements are, what we have seen, work at BPC. It doesn't always work, but I think when you have those elements there, you have a much higher chance of success. I had the opportunity to not only staff that Domenici-Rivlin Task Force at BPC but simultaneously, the great Alice Rivlin just recently passed, unfortunately, was also appointed to the Simpson-Bowles Commission. And so I had the opportunity to staff her on that commission as well at the same time, so I got to see a little bit of what might have worked in sort of our more controlled private sector setting than what maybe didn't work as well in the somewhat less controlled, more media frenzy situation that the Bowles Simpson Commission represented.
Brian Riedl: Can you discuss the Simpson-Bowles? What you learned about that from Dr. Rivilin?
Shai Akabas: Yeah. So I mean, working on it with her, I think gave it a little bit of a maybe different lens because she of course was not a current policy maker. She was one of the few non-members of Congress that was appointed to that commission. So she came at it, I think, much more from a wanted to get to a deal. Was willing to put all the cards on the table and see where things fell as opposed to some of the members of Congress who just had to ... needed to stay in a place where they felt comfortable and could explain themselves to their own parties. But she was just such a force of nature in terms of her understanding of the budget and her understanding of how to get a deal because she had worked on so many of them in the 1990s, in the Clinton administration, that it was just a wonder to be able to go through that with her and watch her work with both Democrats and Republicans and the co-chairs. She was sort of an agent of the co-chairs, I felt like, in trying to get her colleagues to yes. Ultimately, as you know, they got a majority but not a super majority. And it did make significant inroads on the debate, but wasn't really able to get across that hump in terms of getting a grand bargain for Congress.
Brian Riedl: The challenge I think we face in putting together these commissions, you mentioned getting people who are willing to get to yes. I think the challenge when building a commission like this is on the one hand, you want to have a broad coalition of individuals on the commission. Ultimately, you're going to need to win over the left and the right and the center. You're going to need to win over the AARP types. You're going to need to win over the Republican governor of flyover country types like Governor Keating. So on the one hand, you want diversity of opinion to get credibility with every wing of every party. On the other hand, though, you have to find someone who's willing to play ball from all those different groups. And there's a bit of a tension between those two. You want the broad diverse opinions for the credibility, but you also got to find people who aren't just going to plant the flag at their ideological spot and say, "No way." And this happened ... I staffed the Super Committee in 2011 that was created out of the Budget Control Act to try to find additional reforms and the Super Committee completely failed. In part because the membership on the committee included a lot of people who had no interest on day one of there being a deal. They felt their role there was to stand firm for their ideological comrades on the right or the left, and fight everything. And so, again, you want a broad group, but you also need people who are going to play ball.
Shai Akabas: Yeah. And you need people who are willing to look at sort of a common set of facts, I think. And as you mentioned also, to take it from one source. So I think when you get everybody pulling their own sources of information and arguing, this is right, no that's right, it just sort of falls apart from there because you can't even get agreement on what the baseline that you're starting with is, or what a common source of information is.
Brian Riedl: That was a big part of the 1983 social security deal, the Greenspan Commission. They had a very strong technical staff that went in with a bunch of options and got everyone to agree at the beginning on a general set of principles. We're going to go for a 75-year solvency. They ended up getting most of the way there, but that was the original goal, and short-term over the next seven years, make sure checks continue to go out. They actually got a 15-0 vote from the commission defining the problem and the overall approach to a deal before they dove into the specifics. They had the same set of options, scores they were working from.
Shai Akabas: Wow, I didn't realize that.
Brian Riedl: They all ... it was all ... Alan Greenspan headed that commission and it was pretty remarkable, given how controversial social security reform is. That they made it work by getting everyone on the same page, at least in terms of defining the problem, and how we're going to score the solution so people can't just come and pull out their own numbers and say, "I have my own magic solution and you all need to bend my way." When you finished with the Domenici-Rivlin Task Force, and again, you had bipartisan buy in from the task force. There was some controversial policies. There was a lot of taxes. There was a lot of Medicare reform. It touched social security. What was the reception on the Hill? Did lawmakers respect the bipartisan process? Or did they find it useful? Or did they say, "Well, if no current lawmakers are on this, we don't care"? How was it responded to up on the Hill?
Shai Akabas: So I think it was really well received. I mean, I guess that's easy for me to say. I'm a little bit biased. But in my conversations, I think it was really well-received and I think one really cool opportunity that we had as part of that process is we were working ... we actually started the work before Simpson-Bowles was formed, and were able to contribute to that process through Alice and through relationships with the staff. And so a lot of the proposals that ended up in Simpson-Bowles, I think were ones that were developed or sort of co-developed with the Domenici-Rivlin Task Force. So it was able to see the product of its work live on through that official commission, and in addition to having its own work product. But I do think that people sort of saw the report how they wanted to see the report. So, if you were one that was saying, "No new taxes", or, "We can't do any of these entitlement reforms", you didn't really see much value in the fact that these formers, former liberals or former conservatives had sanctioned these decisions as being okay. Whereas, if you one who really was bought into a bipartisan solution that needed to be addressed in the coming years because of the fiscal challenges we face, you were much more receptive to that proposal. So, that, I think it got a similar reception to what Simpson-Bowles did. Maybe somewhat less controversial. I remember the Simpson-Bowles Commission was once referred to, I think it was mostly by members of the left, as the cat food commission because there was ... Alan Simpson was the co-chair of the commission, had made some remarks about changing social security benefits and the left started saying that people were going to have to live on cat food if those changes were made. But this is just this type of sort of vitriol that's thrown into these processes when they're so deeply in the partisan spotlight and it's difficult to get past those because those attacks are really what the average person in the public hears, not the constructive negotiations and solutions that are necessary to reach a solution.
Brian Riedl: And the good thing is, even if the proposals aren't immediately enacted, they can live on long-term. I mean, I'll say both Simpson-Bowles and the Domenici-Rivlin had discretionary spending reforms that actually ended up becoming a big part of the spending caps that were enacted.
Shai Akabas: And counterproductively I'll add, the one other thing that got enacted directly from Domenici-Rivlin was a payroll tax cut. So they recommended a payroll tax holiday to spur the economy coming out of the Great Recession. The president and Congress adopted a small part of that and said, I think it was a 2% payroll tax cut for a couple of years that they had enacted as sort of a stimulus or to boost the economy. Obviously, that worked against the deficit reduction efforts and we tried to emphasize that it was a package. But that goes to show that as much as you try to get Congress to do anything as a package, they're going to take what they want from it and obviously the tax cuts were the most attractive.
Brian Riedl: The same thing happened with the Breaux-Thomas Medicare commission, where they said, "We're going to create ... we'll create a new Medicare drug benefit in the context of all of these savings reforms", and Congress ditched the savings reforms and did the drug benefit four years later. Not only did ... some of the stuff was implemented for good or for bad on its own, but these issues aren't going away. I mean, your task force was known for really diving deeply into healthcare, which is the main driver of long-term deficits and it came up with a lot of very interesting innovative ideas to save money on healthcare without necessarily reducing quality. The healthcare problem ain't going away. So even if some of the Domenici-Rivlin reforms were not immediately enacted when they were produced, this is the stuff that's going to be pulled off the shelf. Until these programs are reformed, these are the ideas that are going to be continually pulled off the shelf. And the fact that they have the credibility of Senator Domenici and Dr. Rivlin who were both highly respected on both sides of the aisle-
Shai Akabas: Absolutely.
Brian Riedl: ... should give a degree of bipartisan credibility to these reforms even going forward.
Shai Akabas: One other thing, Brian, that I wanted to throw in that you mentioned also in your report is about when you're in the budget negotiations, broadening them out to think about other topics that might be able to help you get to a bipartisan compromise and sort of grease the skids for whatever narrower issue you're looking at, whether it's budget or otherwise. I had that experience very much when we were on the Commission for Retirement Security at BPC. They looked at both at social security, but then also at the broader retirement security picture. And I've always thought ... since we finished that work in 2016, it was led by Kent Conrad. He's a former senator from North Dakota, a Democrat. And Jim Lockhart who was a Bush administration official, actually was very involved in the 2005 social security package that President Bush proposed. So the two of them at a commission worked to come up with these bipartisan consensus recommendations for social security and retirement security. And a big selling point that I think ultimately may be the way that social security gets resolved up on Capitol Hill is to combine the fixes for social security with improvements to the retirement security system. We've seen bills come through that improve the retirement security system on the private sector side, but I think even more holistically than that, something that goes a little bit further than maybe some have conceived so far but something like requiring all employers to offer some retirement security benefit to their employees. Because I think what we get into a problem with just the social security side is that as much as Republicans want to fix it through benefit adjustments or benefit cuts, however you want to frame them, and Democrats want to fix it through raising taxes on various constituencies, nobody really wants to go home to their constituents and say, "Yay, we got our tax increases!" Or, "Yay, we got our benefit cuts!" I mean, it's just not a popular message at home regardless of which party you're in. But if you can say, "Look, we made the system sustainable and we also made you better off holistically because we made these improvements to the private sector side of the equation", I think that's a message that could sell much more than, "Look, Democrats and Republicans came to an agreement on how much we're going to cut your benefits and increase your taxes to fix the system."
Brian Riedl: Yeah. That makes perfect sense. You don't want to be just taking things away. And furthermore, social security is not ... it can't just be a budget exercise. It has to be about improving retirement security. It can't just be pulling the rug out from individuals. And in the past we've even seen big budget deals that included little benefits upfront to kind of grease the skids a little bit. Give people a little something up front. Often, there's been a ... a lot of budget deals I keep finding have EITC expansions buried in each of them.
Shai Akabas: Everybody likes the…
Brian Riedl: Everybody loves the ... you always see little EITC expansion. But I mean, because again, social security, it can't just be a budget exercise and senior citizens be damned. I mean, you still need to have a strong sustainable retirement system for everybody, and that's the time to do it. So I think expanding the field ... expanding the terrain makes ... it can make the negotiations more complicated because the more you throw at them, the more moving pieces there are. But at times when you've reached an impasse, and you can't really cut the baby in half anymore on one issue. You bring in something else and I think everyone's happy.
Shai Akabas: I had a question for you Brian about sort of taking a step back to where we started on the broader budget issue and the fact that it's really the fiscal challenge that we have, the debt challenge, that it's really difficult to get the public to understand how serious a problem this could be if it's left unaddressed for several more years or a decade or two. You made the parallel to climate change in that there has been a growing over the last, say, five or 10 years. Recognition of how serious a problem this is. And younger generations have really gotten mobilized around that even though the biggest effects of it aren't really tangible yet. I guess you could say that some of the effects are starting to be more tangible and you can see them in the various news stories of weather events even if they're not directly correlated. You can't make the direct correlation. But I'm curious to your thoughts about how there might be a parallel there in terms of the solution in getting people mobilized and energized to fix the budget problem that we all know is occurring. Obviously it's more difficult to get people on the weeds on these wonky numbers that only you and I enjoy talking about than it is about a general climate challenge affecting the entire globe. But just curious for any thoughts you have about how we might be able to make progress on that front.
Brian Riedl: When you take enough political science courses in college, you're taught that people don't care about something until it affects you directly and you need a crisis to get people's attention and this is kind of beaten into your head in public choice theory in political science. But, again, you don't really see that with climate change. People are advocating imposing slight pain now to avoid a lot of future pain even on something where you're not necessarily feeling the pain. So I try to ... as much as we talk about well, the Earth is warming and we're all in trouble in 30 years or 12 years if it's not fixed. Social security, Medicare, the budge, we're in the same boat. And I think part of the challenge is right now is people think science is science. That's going to happen. But budget projections are just theoretical nonsense. It's just like inflation. Inflation in 20 years is anybody's guess. What you have to convince people is a lot of this is demographics. This is not just a maybe, maybe not. The fact that 74 million baby boomers are retiring into social security is not a theoretical projection. They walk among us. The formulas are set. This is going to happen. But people just ... There is people don't trust economic projections and budget projections. What you need, I think, is more unity among economists. Just like we have unity among a lot of climate scientists. I think you need more unity among economists defining the problem. You need more unity among lawmakers defining the problem. Forget the diverse solutions. I mean, your solution could be I'm going to triple taxes on everybody. Or your solution could be seniors are going to eat cat food. But let's at least agree on the problem and the need to fix it. And I'd love to find ways to channel into that. The problem right now is, again, people think of ... that is like inflation projections are anybody's guess. No. The retirement of 74 million baby boomers is not theory. It's demographics. It's going to happen.
Shai Akabas: Yeah, no, I think that's a great point. The other thing I found really interesting when you're talking about sort of the ingredients for getting to a solution or making progress on this was, and I'll read it. I had a quick quote that I really liked from the report which is talking about the personal relationships, trust and integrative negotiations. Meaning, sort of starting from a place where you can build the package and get to yes. So you write, "Hardened partisans regularly dismiss the importance of building bipartisan trust and relationships as kumbaya nonsense. Yet, the history of bipartisan negotiation shoes that it is extraordinarily important. Indeed, the collapse of trust in relationships is perhaps the most important factor in the lack of successful bipartisan deals over the past 20 years." And I really thought that I've seen that firsthand that getting the members that you're working with on a commission or on a negotiating group to a place where they really do respect one another and recognize where the others are coming from is so critical to having that trust in place to get to a solution where they don't feel like the other side is going to undermine the other one.
Brian Riedl: Yeah. I worked on the Hill for six years and whenever I would talk about building relationships with the party on the other side everyone would roll their eyes. Oh, I guess we need more social dinners. And people go, "Give me a break. Social dinners aren't going to solve the problem." Trading pictures of our kids isn't going to solve the problem. This is politics. This is war. These are negotiations. You sit down and you fight. And no. I mean, in my report, I was reading back on the relationship issues in the 80s and 90s and there was partisan back then. I mean, Reagan and Tip O'Neill said really nasty things about each other but they also were able to sit down and work things out in good faith, even despite the fighting. And I think that's the difference between now and then. But there is ... things can get better. I think my favorite example in my report is, in 1995 we had two government shutdowns that went for about a month and a half ... well, about a month combined. It was brutal. Gingrich and Clinton despised each other. At one point, they came out of a negotiation room during a shutdown and the TV was on and it was TV ads that the two sides were running against each other were on the TV during the negotiations. You know how hard it is to have a good faith negotiation when there's a TV on-
Shai Akabas: And blasting.
Brian Riedl: ... blasting each other? It was ... No wonder they despised each other. But then we got through the '96 election and by 1997, it was completely different. The Clinton administration said, "We're going to try this again." They reached out quietly to Gingrich and John Kasich, who was the chairman of the House Budget Committee and said, "Forget everything that happened two years ago. Let's sit down and negotiate a balance budget deal quietly. No public. No argument. No fighting. We're going to respect each other. We're going to get to yes. There's going to be no leaks. We're going to do this completely in good faith." Newt Gingrich called it the human touch. As part of this deal, Clinton actually gave extra concessions to the Republicans on taxes just to be a good team player. And we ended up with a balanced budget deal and a balanced budget a year or two later. Now, the savings all didn't materialize long-term. But the point is, what changed between '95 and '97?
Shai Akabas: It's amazing.
Brian Riedl: The public didn't change that much. It was the two sides decided to actually sit down and trust each other and negotiate in good faith and we went from World War III to the Rose Garden. This can be done.
Shai Akabas: Yeah. The concept of holding hands and jumping together, I think is absolutely critical to this. Because if you're just going to get a situation at the end ... obviously, there can be sniping as it goes along and both sides are going to play to their bases a little, but at the end, you need a commitment from both sides to be all in or else it fizzles.
Brian Riedl: This is why Twitter is killing us. Lawmakers just sit on Twitter and scream-
Shai Akabas: We say as two people who are regularly on Twitter.
Brian Riedl: On Twitter. Lawmakers sit on Twitter and savage each other all day long. A lot of people have a lot discussed the issues of lawmakers who fly in on Monday night, right before the first vote, and fly out Thursday after the last vote. They never see each other. They never talk to each other. They never get to know each other. That wasn't the case back in the 80s. You would actually kind of get to know each other. You also had members who would be on the same committees with each other for 20 years. Now, you could say some of them got stale and outdated and shouldn't have been there, but they actually did build relationships over time. And a lot of political science research shows that those on those committees, they were actually able to build relationships and deals.
Shai Akabas: Absolutely.
Brian Riedl: Henry Waxman, former ... seemingly very partisan Democrat lawmakers from California, wrote a book on how he was able to negotiate bipartisan deals with very conservative Republicans because he built relationships. It's doable.
Shai Akabas: Really underappreciated.
Brian Riedl: And that hasn't happened in 20 years because they all hate each other. I think we need to wrap up. Appreciate you listeners hanging on for a long debate of budget negotiation minutiae. But this matters to you, dear listener, because we're going bankrupt. And the deficit is a trillion dollars in the next year. It's heading to two trillion within a decade under the current policy baseline and that's the rosy scenario. That assumes peace, prosperity, low interest rates and all of that. So, these are the issues that will determine are we going to fix the budget or are we going to have a debt crisis at some point. We don't know when, but we know at some point. An unsustainable trend by definition cannot continue. So, this is a very important, albeit, wonky issue. And this is, again, Brian Riedl from the Manhattan Institute.
Brian Riedl: I have been honored to have Shai Akabas from the Bipartisan Policy Center, who has his own scars from being in the weeds of budget wars for more than a decade himself. Is there anything you want to say as we wrap up?
Shai Akabas: No. Just I really appreciated you having me. Enjoy the conversation and I really do think that the research you've done on this topic is unique and a really good edition to the background that people can look to when they're trying to hopefully at some point in the near future restart these types of negotiations and discussions to get to a point where we've getting a better handle on these challenges.
Brian Riedl: Hopefully they'll push for the budget negotiation research off the shelf in 20 years when the country's lying in its budgetary and economic ruins and we're trying to dig ourselves out.
Shai Akabas: The nice thing is that this report is long lasting. I mean, these lessons are unlikely to change, certainly-
Brian Riedl: Exactly.
Shai Akabas: ... in the next couple decades.
Brian Riedl: Exactly.
Shai Akabas: So people can look back at this.
Brian Riedl: Exactly. It's timeless and depressing. Thanks to the Kirby Center at Hillsdale for hosting us. And have a good day everyone!
Photo: vichie81/iStock