U.S. Fiscal Policy Is Broken. Here’s How to Fix It
(Bloomberg Opinion) -- Making fiscal policy in Washington has never been simple or straightforward, but it has rarely been such a wreck as right now. Last week, the Senate passed a $550 billion infrastructure bill (also described as a $1 trillion infrastructure bill) that isn’t confined to infrastructure and that claims to be paid for but isn’t. Then it passed a very preliminary framework for a huge new $3.5 trillion budget that’s set to cost much more than $3.5 trillion and also isn’t paid for. Progressives in the House are threatening to kill the smaller proposal, which has bipartisan support, unless the bigger one, which doesn’t, is adopted as well.
That’s not all. Funding for the government’s “discretionary” spending (not the same as “mandatory” spending, obviously) runs out on Sept. 30. Agreement on all 12 of the full-year appropriations bills is not yet in sight. As a result, temporary spending measures will probably have to be cobbled together, or else the government will be forced to shut down.
Understand, however, that in Washington a shutdown is not the same as a default. Indeed, why have just one? A separate constraint on public spending — a legislated ceiling on government debt — is also about to bind. The Treasury Department is already resorting to the standard accounting irregularities it calls extraordinary measures so as not to breach this limit. That will work for only so long. Once the debt ceiling is reached, the government can’t even honor its existing debts, and financial-market mayhem will likely ensue.
Does Congress ever wonder what taxpayers are to make of this shambles? Elected officials wrangle over vast and complex commitments without seeming to care about the details, or how to pay for their ambitions, or the long-term budget implications. On one level, you might say, it’s just politics as usual. Except that, in 2021, it isn’t mere billions of taxpayer dollars at stake, but trillions. However divided on the issues Congress might be, the country is surely entitled to a more deliberate and intelligible process than this.
What might that look like?
A comprehensive back-to-basics overhaul of Washington’s budget process is undoubtedly called for. The goals would be simple enough: Explain exactly what new spending is meant to achieve; ensure that value for taxpayer dollars will be maximized; be clear about how new commitments will be paid for; judge the long-term implications for public debt and the economy; and do all this transparently. Over the years, reformers have proposed numerous schemes with such basic principles in mind, and none have gained traction. Members of Congress would find such disciplines inconvenient, and they face no great pressure to change. For the moment, they prefer to fight about other things.
More modest reforms might be feasible, though. Washington’s fiscal incompetence is so extreme that smaller tweaks could make a big difference. Last month, for example, a group of representatives from both parties voiced support for an annual Fiscal State of the Nation — a joint hearing of the House and Senate budget committees, at which the head of the Government Accountability Office would give an overview of the country’s finances. Another bipartisan proposal, the Sustainable Budget Act, would create a new National Commission on Fiscal Responsibility and Reform. This too could be valuable: Getting Congress to pay attention to the issue would be progress in itself.
Narrower reforms are also worth undertaking. Put the debt ceiling at the top of this list. Planning spending increases as though the debt ceiling didn’t exist, and then resorting to “special measures” to avoid a foreseeable self-induced crisis, might be the single biggest absurdity in current fiscal practice. The solution certainly isn’t to ignore mounting debt. Quite the opposite. Budget measures should face the implications for debt — raising the ceiling if that can be justified — as and when the borrowing is agreed to, not later. Smarter targets, based on debt as a proportion of national income, as opposed to debt in money terms, would give a better sense of whether additions to borrowing are prudent or excessive.
A grand new deal on fiscal-process reform is hard to imagine in today’s Washington. But smaller steps and the mere recognition that the system needs fixing would be something. If even this is too much to expect of the country’s legislators, abandon all hope of fiscal competence. Settle back for more of the same, plus or minus a few trillion, to be followed in due course by national bankruptcy.
Editorials are written by the Bloomberg Opinion editorial board.
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