Bad debt

FreeCons offer serious plans to put America’s fiscal house in order

Conservatives are obliged to accept reality as it is, not as we might wish it to be. In that spirit, here’s a stark fact: none of the candidates running for president in 2024 is offering a meaningful response to America’s fiscal crisis.

Publicly held federal debt is fast approaching 100% of our gross domestic product. The Congressional Budget Office projects that if present trends continue, the ratio will grow to 166% over the next three decades.

Alas, that’s closer to a rosy scenario than a realistic one. It assumes low interest rates, for example. If they rise, debt-to-GDP could reach a catastrophic 300% by 2054!

Yawning deficits — and the Federal Reserve’s monetary responses to it — are already fueling price inflation and political instability. As the crisis worsens, interest payments will crowd out core federal responsibilities, pressure officials to raise taxes or monetize debt, and weaken America power and security.

Freedom Conservatives refuse to look the other way.

“The skyrocketing federal debt,” we wrote in our Statement of Principles, threatens “the future prosperity, liberty, and happiness of Americans.”

That’s why we’ve committed ourselves to “a constructive reform agenda that can restore America’s fiscal sustainability, ensuring that future generations inherit a more prosperous and secure nation than the one we now inhabit.”

On fiscal responsibility, FreeCon signatories are leading the way. Brian Riedl, a senior fellow at the Manhattan Institute, contributed one of seven budget plans included in the Peter G. Peterson Foundation’s latest Solutions Initiative.

Riedl’s plan would stabilize the national debt at 100% of GDP through 2040, then reduce it to 68% by 2054. “Stabilizing the debt will ensure that the economy maintains the resources necessary to invest, create jobs, and raise incomes,” he wrote.

FreeCons were involved in three other submissions to the Solutions Initiative. Here are their stories.

Difficult choices

James C. Capretta is a senior fellow and holds the Milton Friedman Chair at the American Enterprise Institute. He’s also a FreeCon signatory.

Capretta spent more than 16 years in public service before joining AEI. As an associate director at the White House’s Office of Management and Budget from 2001 to 2004, he was responsible for all health care, Social Security, welfare, and labor and education issues.

Earlier, he served as a senior analyst at the US Senate Budget Committee and the U.S. House Committee on Ways and Means.

Capretta is the author of US Health Policy and Market Reforms: An Introduction (AEI Press, 2022) and several book chapters, including “Fiscal Rules for Social Security and Medicare: Would Accrual Accounting Help?” in Public Debt Sustainability: International Perspectives (Lexington Books, 2022) and “The Road Not Taken” in The Trillion Dollar Revolution (Public Affairs, 2020).

In AEI’s submission to the Solutions Initiative, Capretta and his co-authors Joseph Antos, Andrew Biggs, and Alex Brill proposed:

• Converting Medicare to a premium-support program, converting Medicaid funding into per-capita allotments, and creating a fixed-dollar tax credit to partially replace the federal tax exclusion for health insurance.

• Mean-testing of benefits, automatic enrollment in private retirement plans, and other changes to Social Security programs.

• Reforming the federal tax code to limit exclusions and deductions, reduce marginal rates on personal and corporate income, and raise levies on energy.

“Our proposal narrows the fiscal imbalance, limits the size of government, and adopts a more growth-friendly tax code,” they wrote. “Although these policies require difficult choices, they will ensure a vibrant economy and fiscal stability, now and in the future.”

Right balance

Douglas Holtz-Eakin is president of the American Action Forum and a FreeCon signatory. Before founding AAF in 2009, Holtz-Eakin served in a variety of influential policy positions.

During 2001 and 2002, he was the chief economist of the President’s Council of Economic Advisers, where he had also served during 1989-1990 as a senior staff economist.

From 2003 to 2005 he was director of the nonpartisan Congressional Budget Office. During his tenure, CBO assisted Congress as they addressed numerous policies — notably the 2003 tax cuts, the 2003 Medicare prescription drug bill, and the 2005 push for Social Security reform.

During 2007 and 2008, Holtz-Eakin was director of domestic and economic policy for the John McCain presidential campaign. After that, he was a commissioner on the congressionally chartered Financial Crisis Inquiry Commission.

He began his academic career at Columbia University in 1985 and moved to Syracuse University from 1990 to 2001. At Syracuse, he became Trustee Professor of Economics at the Maxwell School, chairman of the economics department, and associate director of the Center for Policy Research.

In his submission to the Peterson Foundation’s Solutions Initiative, Holtz-Eakin addressed entitlement reform, tax policy, and America’s military preparedness, among other issues, observing that we face “a fundamentally unsustainable long-term budget outlook.”

Bridge the divide

William Hoagland is senior vice president at the Bipartisan Policy Center. A FreeCon signatory, he is one of the authors of BPC’s submission to the Peterson Foundation project.

Hoagland previously served as vice president of public policy for CIGNA Corporation and spent 33 years in federal government service, including 25 years on the U.S. Senate staff.

From 2003 to 2007, he served as the director of budget and appropriations in the office of Senate Majority Leader Bill Frist. From 1982 to 2003, Hoagland served as a staff member and director of the Senate Budget Committee, helping negotiate the 1985 Gramm-Rudman-Hollings Budget Deficit Reduction Act, the 1990 Omnibus Budget Reconciliation Act, and the historic 1997 Balanced Budget Agreement.

Hoagland is an affiliate professor of public policy at George Mason University and a board member of the Committee for a Responsible Federal Budget, the National Academy of Social Insurance, and the National Advisory Committee to the Workplace Flexibility 2010 Commission.

The BPC budget plan contains a mix of expenditure and revenue provisions that would reduce the debt-to-GDP from its fiscal year 2024 level of 99% to 59% by FY 2054.

“Although many of the fiscal policy challenges the nation faces will span decades, Congress does not have the luxury of time,” wrote Hoagland and his colleagues, citing the coming expiration of the 2017 tax cuts and the looming insolvency of Social Security and Medicare.

“BPC’s blueprint is intended to help bridge the political divide and provide a stable path to more sustainable budgetary outcomes.”

In the mix

• At UnderstandingCongress.org, AEI senior fellow Kevin Kosar offered an explanation for the fact that fiscal recklessness seems to hurt political candidates in other countries more than it does American candidates.

The constitution’s separation of legislative and executive elections and powers makes it harder for voters to assign clear blame, he argued. “Divided government means neither party can credibly claim responsibility for the state of the budget. It also incentivizes blame-shifting by politicians.”

• Writing in The Wall Street Journal, FreeCon signatories Donald Boudreaux of the Mercatus Center and Alex Salter of Texas Tech responded to a piece by Glenn Hubbard, former chair of the Council of Economic Advisors.

Hubbard said he agreed “with populist conservatives that markets don’t always work perfectly.” A straw-man argument, Boudreaux replied. “I challenge Prof. Hubbard to identify a single serious conservative or libertarian scholar whose case for free markets rests on the belief that markets ‘always work perfectly,’” he wrote. “Such a creature is imaginary.” The true case for free markets is that they are “less imperfect than governments.”

“Hubbard’s paradigm inadvertently empowers regulators, who can always justify their meddling by claiming they want to make our economy fairer and more competitive,” Salter wrote. Policymakers should “stop comparing real-world markets to textbook imaginings.”

• In Law & Liberty, FreeCon signatory Brent Orrell described the tendency for advocates of federal programs to over-promise and under-deliver. “Unfortunately, federal spending on economic development is an act of political capture all the way down,” wrote Orrell, a senior fellow at AEI. “It is time to get out of the trap.”