America faces an ever-rising tide of red ink. We prioritize consumption over investment—the past over the future—and lock these commitments in with automatic spending increases that consume an ever-greater share of our federal budget. Nearly every new dollar of tax revenue is immediately claimed by a series of programs set to grow in perpetuity. Congress doesn’t have to create a single new line item for us to still find ourselves in over our heads.
In Eugene Steuerle’s new book, “Dead Men Ruling,” we see an America that’s deeply out of whack. Dead and retired politicians have conspired to lock in guarantees of future certainty, and thus hurt the fiscal freedom that’s essential to a healthy democracy. Current and future generations are robbed of their ability to make decisions with their dollars, whether it to be to tackle new initiatives or address new problems.
“Dead Men Ruling” aims to shift our focus beyond the deficit to the structural challenges America faces. It helps us to understand how we got to this point—and how we can get out of it. Steuerle reminds us that we live in a time of great opportunity, with sizeable wealth and an absence of crisis, and that we should use that chance to pry the hands of the living dead off our budget.
To help his readers focus on the challenge, Steuerle created what he calls a Fiscal Democracy Index, along with his colleague Tim Roeper. As Steuerle describes it, the Index “measures the extent to which past and future projected revenues are already claimed by the permanent programs,” which includes interest payments on the debt. “The lower the index,” as Steuerle goes on to note, “the less freedom that current voters and elected officials can exercise their democratic rights to vote on the future direction of government.”
The past few decades have seen America relentlessly shed its fiscal freedom. In the mid-1960s, nearly 70 percent of federal revenue remained untouched after being allocated to mandatory spending or interest payments. By 2009, America was committing every dollar it brought in before Congress could have a say, prompting the Index to slide into negative territory for the first time.
How did we get to such a state? Steuerle divides American history into five “fiscal turning points.” The first two—the Revolutionary Era and the Progressive Era—were nascent stages of growth in an otherwise young country. By 1945, America had matured into a superpower and ushered in the Era of Easy Finance. It made use of the post-WWII peace dividend and the swelling numbers caught in higher tax brackets to open the flood gates to “giveaways,” meaning that nearly every legislative action consisted of a tax cut (from the right) or spending increase (from the left).
This period was followed by the Era of Fiscal Straightjackets starting in 1982, wherein every legislative action consisted of a “takeaway,” meaning a tax increase or spending cut. That, by the way, is the period in which Steuerle worked as the organizer and coordinator of the Tax Reform Act of 1986, which he sees as the most fundamental revision of the income tax system since its founding. What followed in 1997 though became the Era of Two Santas, a time when both parties pursued outright profligacy and rid the country of its temporary surplus.
As a result, “generations are left largely to maintain yesterday’s priorities.” Worse yet, they’re locked in a zero-sum conflict between wealthy claimants with political advantage and poorer younger non-claimants who don’t vote. There is no win-win here. Politicians see this situation and despair—for them, to lead is to lose. America’s fiscal environment is nothing less than a classic prisoner’s dilemma.
Nevertheless, Steuerle does not despair. Instead, he boldly calls for today’s leaders to take the wheel and steer the ship of state toward our children’s future. He foresees this result coming from a grand policy compromise where every side gives a little on three policy goals: restoring fiscal freedom, creating an agenda of investment, and fostering a lean government.
[pq]America’s fiscal environment is nothing less than a classic prisoner’s dilemma.[/pq]
In Steuerle’s solution, Democrats will need to sacrifice a bit and Republicans will have to budge an inch too. One side will need to stop the automatic growth in spending programs. The other side will need to place a limit on tax subsidies. More spending on children, yes, but less ability to spend in general. Remove the constraints on meddling in one set of programs, while adding constraints on the entire system of spending. A little bit of this, and a little bit of that.
Actually, I take that back. Steuerle intends for both sides to completely surrender their policies and political bases. Pigs, flying, snowball, hell—all words that apply here. Recall that the reason we created automatic spending mechanisms in the first place was to avoid the messy political back-and-forth that resulted from attempts at grand compromise. And we can rest assured that any fight over basic spending priorities related to crucial constituencies will not be clean or quick. Steuerle provides no political agenda for avoiding the same fights that have brought low previous attempts at reform.
Those on the political left will argue that healthcare spending is the primary culprit of our growing mess. They’ll say that so long as we’re tackling that line item through, say, the Affordable Care Act, entitlements pose less of a barrier to fiscal or democratic health. And besides, if the real problem is a lack of investment in our children’s future, why don’t we just add more automatic spending for that line item too?
The right will echo the Congressional Budget Office by saying that America’s fiscal problem is half healthcare and half demographics, and that it’s the latter side that’s sowing the seeds of crisis. It will also give cause for including Social Security in the battle, which is always a sensitive issue for both sides of the aisle. And the right will argue that tax subsidies are an effective way to, say, take care of families and incentivize work.
Let’s step back from the political angle then. In fact, let’s even look beyond America’s fiscal state. Every rich country today is enjoying a time of relative peace and prosperity. Even with one of the worst recessions in living memory, we’re still better off than most people alive or dead. This focuses our cares on today and eases us from worry about tomorrow. Steuerle’s American story is repeated in country after country—only the finer details have been changed. Rich countries everywhere are consuming now rather than investing for later.
At an even more basic level, we desire giveaways and freebies. That remains true—in fact, it may be truer—when times are good. Even if Steuerle’s dream of compromise came about, it wouldn’t alter our fundamental inability today to deal with tough choices about our future. We’re like the kids who demand one marshmallow now rather than waiting for two marshmallows later. We want what’s bad for us, and we want it now.
How then can we craft budget mechanisms and institutions that turn our happily self-dealing ways into our ultimate good? It’s a similar challenge posed by James Madison in The Federalist Papers in the face of what he saw as a universal challenge: Since people are no angels and will desire to accumulate more power, let’s construct institutions and mechanisms that ensure ambition counteracts ambition. That’s why solutions are often found by supplying, in the words of Madison, “inventions of prudence” in the form of “opposite and rival interests” that are allowed to fight for turf at the federal level while being divided in authority with state and local powers.
As it stands, entitlement programs today are massively concentrated in a few corners of the federal government. Ensuring these program’s administrators have the proper scope to adjust their spending and that other spheres of government can compete according to their competence and frugality may go a long way toward restoring America’s fiscal freedom.
In the meantime, we should be asking who among us still bear the dead hand of past policy. Who are today’s walking dead, shuffling zombie-like through the halls of power? These are the leaders we are asking to restore America’s future, after all. Let’s ensure they’re not just more dead men ruling.