Building back better requires a firmer fiscal foundation

You cannot build back better on a crumbling foundation. Yet the budget reconciliation process is trying to do just that. The nation’s fiscal health was deteriorating even before COVID-19 struck. The deficit was projected to grow from $984 billion in fiscal year 2019 to more than $1.7 trillion by fiscal year 2030, while the debt was projected to nearly eclipse total GDP in the same period. And that was before the government spent $5.3 trillion to fight COVID-19 and its catastrophic economic and public health effects.

Now, the president and Congress are working to enact both a $1.2 trillion bipartisan infrastructure bill and a second package aimed at transforming the economy, with a price tag that has become the most expensive moving target in history. They’re still haggling over the final figure (proposals range from $1.5 trillion to $3.5 trillion), but whatever it is, it will almost certainly understate the actual price. The House version of the bill, for example, includes classic Washington smoke-and-mirrors tricks to hide the cost, including the old standby of unrealistic economic growth assumptions. 

The bill would pass under “budget reconciliation” rules, which permit legislation to avoid the Senate filibuster. Ironically, reconciliation originated as a tool for passing deficit-reduction legislation, but it has been increasingly and expensively misused. It is like using a diet calculator to pick the worst foods you can eat. 

Many of the initiatives in the reconciliation bill are undoubtedly laudable — some have enjoyed substantial bipartisan support in the past. But the legislation suffers from a lack of foresight. A reconciliation bill that pushes tax yields to the limit now while worsening the deficit problem will ensure a future budget crisis. Rising interest rates and inflation would quickly crowd out both public and private investment, and growth — wiping away the original bill’s economic benefits. And we would have used up all the tools (the budget savings) that could solve the problem.

None of this means that the president and Congress should focus on eliminating the deficit to the exclusion of solving other problems. Americans can and should expect leaders who can address both. The following steps would permit them to do that:

1. Make fiscal responsibility a priority. It needn’t be the only consideration, but it should get its due along with the others addressed in the reconciliation bill. Deficits and debt matter, and if uncontrolled they will eclipse the bill’s other benefits. The net savings necessary to make our debt grow more slowly than our economy (instead of vice-versa) ought to be tallied alongside the cost of new spending in the final bill.

2. No gimmicks. Be realistic and honest about costs instead of, for example, minimizing them by building in unrealistic end-dates for programs. Similarly, identify real budget savings, not just unspecified future spending cuts. You might be able to fudge the budget estimates, but the looming budget crisis won’t be fooled.

3. Prioritize. Like any household or business, the nation must address its needs and wants in the context of a sustainable budget. Not everything will fit, so leaders will have to transparently prioritize. 

4. Don’t just raise taxes, reform them. Simply raising tax rates only increases the burden on those who already pay. Instead, use the opportunity to simplify and clean up the tax code. Focus on those who don’t pay their fair share.

5. Deal with the pandemic debt. Handling the COVID-19 pandemic has cost the nation roughly $6.5 trillion in relief spending plus the recession’s impact on the budget. Instead of simply tossing that debt into the existing ocean of red ink, we could create a separate federal financing authority and dedicated revenue source to service and retire it.

6. Reform reconciliation. Return the tool to its original purpose by amending the Congressional Budget and Impoundment Control Act of 1974 to specify that it can be used only for deficit reduction. Self-indulgence doesn’t need a parliamentary head start.

7. Empanel a new fiscal responsibility and reform commission. Sometimes Congress needs a helping hand in the form of experts beyond the reach of politics who can point them in the right policy direction.

We do have an opportunity to build back better — starting with our fiscal foundation. It will require tough choices and discipline, but that is the essence of leadership. If our elected officials rise to the moment, they can set the country on a path to a holistic recovery.

Joseph E. Kasputys is chairman and CEO of Economic Ventures. He is a Trustee of the Committee for Economic Development of the Conference Board (CED) and co-chair of CED’s Committee on Fiscal Health. Joseph J. Minarik is senior vice president and director of research with CED.