Debt ceiling concerns ‘at odds’ with Medicare, Social Security insolvency fears: CRFB president
Committee for a Responsible Federal Budget President Maya MacGuineas joins Yahoo Finance Live to talk about the debt ceiling, entitlement spending, and the federal budget.
JODEY ARRINGTON: The fiscal state of our nation is certainly unsustainable, but not unfixable. That window, I believe, is closing. The president had the opportunity to set a new course and provide real leadership earlier this month with his budget proposal. Instead, his vision calls for the highest levels of sustained taxes, spending, and borrowing in the history of our country. Even by Washington's standard, it is a budget binge of catastrophic proportions.
- That was Chairman of the House Budget Committee Jodey Arrington addressing President Biden's recent $6.9 trillion budget proposal. Now, this would add $1.8 trillion to the deficits as Democrats and Republicans struggle to come up to an agreement on the debt ceiling, all this against the backdrop of the Fed's fight with inflation and turmoil in the banking sector. Here to break it all down, Committee for a Responsible Federal Budget President Maya MacGuineas. Maya, it's great to see you. First, just your reaction to what you heard from the hearing today and the impact that this is ultimately going to have on the federal debt.
MAYA MACGUINEAS: Yeah. I think it was an important hearing today. So Chairman Arrington was trying to bring attention to the fact that the overall state of the nation, the fiscal state of the nation, is poor. And there's no disagreement on that when one looks at the numbers. President Biden put out a budget that would save $3 trillion. And I think that's an excellent start. Nowhere near close enough to actually tackle the big problems we have.
We'd still be borrowing almost $20 trillion over the next 10 years. But at least there's savings instead of additional new borrowing. But we have so much more to do in terms of dealing with our trust funds, dealing with our growing interest payments, dealing with the fact that we'll be spending more on interest than defense or Medicaid. Clearly, the situation that we face is grave. And we have to get serious about addressing it.
- Should entitlements be on the table?
MAYA MACGUINEAS: Absolutely. Unfortunately, I think what we saw at the State of the Union where the president has talked about not touching benefits for Social Security and Medicare, and Republicans have gone along, and President Trump used to say the same thing, all are at odds with the reality that Social Security and Medicare face insolvency in their trust funds in roughly a decade. Changes have to be made. Now, there are many options for how we make those changes. But I think that the use of the bully pulpit to promise what you will not do or take things off the table and, frankly, pander in a way that gets people stirred up isn't helpful at all. What you really need is for the president and members of Congress to level with the country and say, we are promising more from these programs than we're taking in in revenues.
There are a number of ways that we can fix them. But fix them we must. And every year that we delay, it's going to add to the cost. And we've already delayed for so long it's going to make it harder than it had to be. So, yes, the pandering we've seen on Social Security and Medicare probably plays really well at the voting booth. But it's not smart, it's not right, and it's not productive when it comes to policy.
- Well, we found out Republicans don't want to go anywhere near it as well given how that exchange went at the State of the Union address. And given the four years of out of control spending of President Trump, isn't spending a bipartisan addiction at that point? Can one party really claim fiscal discipline?
MAYA MACGUINEAS: Oh, it is absolutely a bipartisan addiction. Spending has gone up under both administrations and administrations in the past. And, actually, tax cuts, while Republicans tend to like them more, Democrats have had a lot of unpaid for tax cuts as well. And so, I mean, when one testifies for Congress, the first thing that the two parties start doing is pointing fingers at each other. And first off, that is not a way to work. That is not a professional way to behave. It really does feel like children at a time when things are so important.
But second off, there is so much blame here to go around. We are now in the habit of not paying for new policies. We have not made the changes to the structural imbalances that are there. And while it's so important that we do borrow during times like COVID or a big financial crisis, we then have to get in the habit of running much smaller deficits, if not budget surpluses, once the economy recovers.
And, again, you are right. Neither party has taken the lead on that. Neither party has been responsible enough. And we have a mountain of debt to show for it. And in a very polarized situation, it's hard to imagine how they're going to turn this fiscal ship around and start working together. But that's the only way we'll get this done. It will have to be bipartisan. And all policy options will have to be on the table.
- Maya, how realistic do you think a default is? Because when you take a look at the market's reaction, they're showing little concern. And much of the commentary here from a number of well-known economists, they don't seem too concerned, at least now.
MAYA MACGUINEAS: Well, first, I would say that markets have been pretty poor at predicting crises before they happen. But I am not as pessimistic as that sounds. I don't think we're going to default. I think we're going to figure out a way to both come up with some savings, which we definitely need, but not do it, hopefully, not on the debt ceiling, around the debt ceiling, certainly with no drama to the debt ceiling.
So I think we can get this package done. But I have never thought there was an actual chance of default before. And this time, I do think there is a chance. And it really puts a pit in my stomach to say that, that I do worry whether it's because there are some people who are just unwilling to do what we need to do to get the debt ceiling increased, particularly if savings are going to be a part of it, or inadvertently that they will stumble into a default. And that would be catastrophic for the country and put our sort of good standing in the global economy in jeopardy for absolutely no reason. So what we should do is come up with a way to generate new savings.
And what we should do is increase the debt ceiling, which is merely paying the bills for laws we've already passed with absolutely, no drama and no threat of default. And we should start running the fiscal situation in the country under sort of better governance where we really understand you can't have a situation where your debt is growing faster than your economy non-stop, your interest payments are hitting records, national records, and just go along the same way we have for the years in the past. That's what got us into the problem. And we do have to make changes.
- No question about that. I appreciate you noting that the debt ceiling is about dues bills passed, not about future spending. Maya MacGuineas made some excellent points. Appreciate that.