With Republicans set to control both houses of Congress, pundits are busy asking what will come next, particularly on questions of taxes and spending. Ordinary Americans, meanwhile, are wondering what will even be possible. According to a Washington Post-ABC poll conducted in September, the number-two issue on voters’ minds during the election was “the way things are working in Washington.” They were onto something: Changing the rules of the policy game, not just the leaders who play it, may be the key to solving the country’s fiscal problems.
The challenge is clear. Absent changes in policy, continual increases in federal spending, particularly in spending on retirees, will bury Washington in dangerous levels of debt. But the changes needed to avert that outcome are significant. According to the economists Alan Auerbach, of the University of California, and William Gale, of the Brookings Institution, just keeping the federal debt-to-GDP ratio at its current levels over the next 75 years would require a combination of tax hikes and spending cuts worth about 3.5 percent of GDP annually, or more than $500 billion at current levels.
The clarity of the problem is matched by its apparent intractability. Debates among policy wonks and elected officials have been a staple of public discussion for some time, and there is little reason to believe that these discussions by themselves can affect the larger picture. Of course, as the late economist Herbert Stein famously observed, “If something cannot go on forever, it will stop.” But if left unchecked, the fiscal imbalance could “stop” in damaging ways, creating punishingly higher tax burdens, disrupting spending on Social Security and Medicare, and eviscerating other government programs.
Avoiding such a fate requires legislators to rethink not just policy but process as well. Radical changes in federal spending have made the budget process dangerously out of date. Historically, government debt tracked war and peace—Washington borrowed heavily during conflict and pared back during peacetime. Other spending was also self-regulating: Congress could quickly raise taxes or lower spending
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