How Magical Thinking Led America To $30 Trillion In Debt
February 17, 2022
Washington, DC must be a magical place.
Because the people in charge of it keep conjuring fantasies that defy belief.
In the Wizarding World of Washington, you can now say a multitrillion dollar federal spending bill “costs zero dollars.” You can claim tax cuts “pay for themselves.” You can even say the government doesn’t need tax dollars to fund anything at all because it can just “create money.”
Unfortunately, Americans are now paying a heavy price for this magical thinking. Inflation—spurred at least in part by record government spending and inaction on other issues—is running at its highest rate since 1982. The prices for meat and eggs are up 12.2% since last year. Furniture and bedding is up 17% and used cars and trucks are up 40.5%.
Meanwhile, the Treasury Department recently reported America’s total national debt is now over $30 trillion—the highest ever. To put this in context: If you stacked $30 trillion of $100 bills you could almost reach the weather satellites orbiting the earth at over 20,000 miles above us.
It’s no secret of course that Washington spends recklessly. What’s less known is just how much an obscure fifty year-old law enables this behavior. Fixing this law might hold the key to America finally beginning to dig out of this fiscal mess we’re in.
When President Nixon and Congress passed the Congressional Budget and Impoundment Control Act of 1974, they established several new procedures and processes to force more transparency and discipline into the federal budget process. Among them was the creation of the Congressional Budget Office (CBO), which was charged with evaluating the budgetary and economic impact of legislation before Congress and providing a consensus cost estimate that could be trusted by both parties.
Ever since, when major legislation is proposed in Congress, the CBO has to “score” it before it can advance towards passage. The stakes are high. If the CBO score shows a bill would significantly add to the federal deficit, that often kills the bill because: 1) It makes it harder to sell to the public or 2) Its passage would automatically force spending cuts elsewhere in the government to comply with other existing budget rules.
In short, the CBO is supposed to encourage fiscal discipline, but somehow the accumulated national debt, which was $533 billion in CBO’s first year of operation, has multiplied by a factor of 60 in the five decades since. How, you might wonder, is this possible?
You can thank the Wizards of Washington, whose capacity for magical thinking is exceeded only by their mastery of magical accounting.
By law, the CBO judges a bill according to how it will impact the federal budget over a 10-year window. For an ongoing entity like the U.S. government that’s a very short window, and you wouldn’t believe the tricks special interest groups and elected officials have figured out to squeeze things they want into or out of this window.
According to the Committee for a Responsible Federal Budget, the most favored techniques include phasing in some programs or tax provisions slowly while sunsetting others. Or bill writers will push costs outside the 10-year window and push savings inside it, or use temporary savings to offset permanent costs. The workarounds are endless, but University of Montana Professor Robert Saldin has written they all have the same effect of forcing the CBO to “take seriously the fantasy that popular tax credits and spending programs that were slated to expire would in fact be terminated, even though they are virtually certain to be extended.”
This budgetary sleight of hand is how presidents and Congress have repeatedly passed laws that turned out to be much more expensive than advertised. President George W. Bush gamed the CBO scoring process to pass his 2001 tax bill and create Medicare Advantage in 2003. President Obama did it to pass his Affordable Care Act in 2010. President Trump did it to pass his 2017 tax bill.
But in a world of $30 trillion deficits, some leaders are finally saying enough. One of the main reasons Senator Joe Manchin cited for rejecting President Biden’s Build Back Better (BBB) bill was its reliance on “shell games and budget gimmicks” that he said were making it appear half as expensive as it really was. The American public sensed something was amiss with the bill too: In a CBS poll from late last year, a majority admitted to either not knowing the specifics of BBB or anything about it at all. Our congressional leaders apparently expect us to just have blind faith that they know what’s in a bill and what’s good for us, much like the gambler Big Jule from Guys and Dolls, who memorably rolled blank dice and demanded others trust him to know where the dots were.
The first step to Washington getting a handle on America’s fiscal problem is for leaders on both sides to demand more honesty and transparency in accounting for how and what Washington spends.
Maya MacGuineas, who leads the Committee for a Responsible Federal Budget, told me there are several commonsense reforms that could push Congress in this direction. Those could include requiring the CBO to assume policies in a bill are permanent unless explicitly told they are meant as temporary, to incorporate the impact of future interest costs into their scores and to add more long-term budget impacts into their projections.
Will the fiscal Wizards of Washington resist these reforms? Probably, because honest and transparent accounting makes it harder for elected officials to cast the magical economic thinking spells they apparently teach at Hogwarts.
None of this will be easy, so I can understand why you might think there’s a better chance of our politicians pulling a blue donkey or a red elephant out of a hat than getting our fiscal house in order.
But the time has come for Washington to abandon the illusions and deal with the reality of a debt problem that threatens the security and the livelihoods of every American for generations to come.
Our children shouldn’t have to watch wizardly fantasies become magical nightmares.