This week on Facing the Future, we talked with James Capretta, senior fellow at the American Enterprise Institute (AEI) and author of a recent paper called “Budgeting for Fiscal Sanity.” We asked him how Congress should do that. We also tapped into his experience in both the legislative and executive branches of government to explore some controversies surrounding the Department of Government Efficiency (DOGE). Concord Coalition Chief Economist Steve Robinson joined the conversation.
A major flaw in the current budget process is its focus on the near-term at the expense of the long-term. Capretta noted that, “Congress and the President like to change things next year, and the year after, as part of the political cycle. A lot of them are running for reelection, so they want to be able to say what they did right now to change things for the better.”
“The problem,” he explained “is that in budgeting and fiscal policy, most of the consequential decisions are long term decisions. They affect big benefit programs or levels of taxation and so you have to phase them in. The Government can borrow money in the short term, but when you have deficits that are growing and become more burdensome many years out, and there’s no prospect anywhere politically of doing something to get it under control, at some point the credit markets will say. ‘Golly! I wonder if they really can pay all this back?’ It gets to a point where the credibility of the borrower starts to come into question. That’s happened to many countries. So our real challenge is to get the fiscal house in order.”
Capretta recommended two goals for long-term fiscal policy. The first would be to gradually reduce the debt-to-GDP ratio from its current level (roughly 100 percent of GDP) to 75-80 percent of GDP 20 or 30 years from now. His second goal is to keep Social Security and Medicare trust funds permanently solvent by building in “automatic, bipartisan adjustment provisions.”
“When these programs were built,” he said, “it was said that they would never lead to such a budgetary problem. We need to make good on that by actually writing them in a way that ensures that there’s no problem down the road.”
Capretta is not optimistic about the way this year’s budget process is going. “They shouldn’t be starting with a big extension of the tax provisions, making the fiscal problem even worse, and then trying to figure out a way to make it slightly less worse through big changes just basically in Medicaid. That whole premise is flawed and should be rejected,” he said.
He suggested that, “instead of focusing on Medicaid per se they need to understand that Medicaid and its problems are associated with the larger health system and its problems. Medicaid needs to be reformed. There are savings to be had there that could be applied to the deficit, particularly around States gaming what are called ‘provider taxes’ and basically inflating how much they get from the federal government based on shifting money around from one payment source to another which generates federal matching funds. I would start with clear national rules that prevent that kind of abuse, but I’d apply the savings not toward extension of the tax cuts, which I think ought to be paid for with tax reform. I’d apply any savings from entitlement programs toward deficit reduction.”
Capretta does not expect the Trump Administration to produce a budget before late April or early May, perhaps as late as Memorial Day. The lack of a budget leaves the Administration “room to answer the same question differently depending on who they’re talking to,” he said.
As a former official in the Office of Management and Budget (OMB) under President George W. Bush, Capretta does not agree with the current administration’s decision to impound funds appropriated by Congress. “The question is whether they will follow the law and ask for a rescission, or whether they’re going to test the courts and say, ‘Well, we think we have authority just to hold back the spending.’ This is a very big question for the country. It’s not a close call. The President does not have impoundment authority. There’s no basis in history or law for the claim that there is. In fact, there’s lots of evidence, a gigantic amount of evidence, to the contrary. So it would be better if this got resolved quickly. We’ve got to get back to more regular order. Until then we’ve got a real situation of chaos and confusion,” he warned
Hear more on Facing the Future. Concord Coalition Senior Advisor Bob Bixby hosts the program each week on WKXL in Concord N.H., and it is also available via podcast. Join us as The Concord Coalition team discusses issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.
