SYLVIE DOUGLIS, BYLINE: NPR.
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ADRIAN MA, HOST:
It's been about a week since the federal government hit the debt ceiling, meaning it has reached the limit of its authorization to pay the government's bills. And now begins a monthslong debate about whether to raise the debt ceiling. To start off the bidding, some Republican lawmakers say they are not going to support a debt ceiling raise unless it comes with spending cuts.
DARIAN WOODS, HOST:
And some go even further. They say for them to be on board, they want Congress to agree to a balanced budget.
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WOODS: This is THE INDICATOR FROM PLANET MONEY. I'm Darian Woods.
MA: And I'm Adrian Ma. A balanced federal budget, that is where the government's annual revenue is equal to its expenses. But is that really possible? And if so, what would it actually take to make that happen? Today on the show, we speak with someone who has run the numbers. And let's just say the phrase an arm and a leg comes to mind.
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MA: So you ever go to a party and you meet a person and immediately you're like, this person is so interesting, I have so many questions, I want to know everything about what they do? Maya MacGuineas is not that person, and that is because she has spent the better part of two decades obsessed with federal budget policy.
MAYA MACGUINEAS: It is a lonely place at a dinner party table where everybody is jockeying to find someone else to sit next to. It is not - once you introduce yourself, it is not a good conversation starter. But if people give it a chance, it really is interesting. The more you dig into it, the more you realize it affects all parts of economics, it affects all parts of public policy, and that the budget touches everything.
WOODS: Maya heads up a policy nonprofit called the Committee for a Responsible Federal Budget. Its whole goal is to convince policymakers that the government shouldn't rely as much as it does on debt and deficit spending. Now, some people would describe the organization's philosophy as fiscally conservative. But Maya would like to make one thing clear.
MACGUINEAS: First off, politically, I'm a die-hard independent. I really am one of those people who looks at both parties, sees a lot of good in both sides, how they see things. Fiscal responsibility, for me, doesn't actually mean big or small government. A lot of people equate it to spending cuts and smaller government. I think it can be absolutely fiscally responsible while wanting big government as long as you pay for it. But the problem is we borrow almost all the time in this country for policies even when the economy is strong. And the reason we borrow is because our politicians don't like raising taxes or cutting other spending. They don't like paying for things.
MA: What is your reaction to seeing this argument being put forth by people saying, like, we can't raise the debt ceiling without spending cuts because we want to promote fiscal responsibility?
MACGUINEAS: So the conversation that we need to make changes to our budget, to our fiscal situation, it needs to take place. Right now, our debt is growing faster than our economy. So any conversation is absolutely welcome. But I would put a number of caveats on to the way that this is unfolding that make me very concerned.
WOODS: One of these concerns is the idea that raising the debt ceiling should be contingent on balancing the budget within 10 years. And you might think that Maya would think that this is a good idea - but not really.
MACGUINEAS: Our fiscal situation is so bad right now, there's really not a single chance that we're going to be able to balance our budget in 10 years.
MA: So Maya's organization estimates that without raising taxes, getting to a balanced budget in that time would require roughly a 25% cut in spending across the board, across the whole federal budget. And she says that's just unrealistic especially when you think about what the government actually spends money on. About two-thirds of the government spending each year is considered mandatory, which means it's required by law.
MACGUINEAS: If somebody qualifies for them, they get them - Social Security, Medicare, veterans benefits, government pensions, farm subsidies. The list is long.
WOODS: Now, even though all the spending is the vast majority of the government's budget, it's unlikely that any cuts will come from here.
MA: Take Social Security, for instance. The government has promised to pay Social Security to people who have paid into the system. And, yeah, Congress could change the law by maybe making the benefits less generous. But for a lot of people who have paid in, that would feel like a total betrayal from the system, like a breach of contract. And so, like, politically, that would be, like, poison for politicians.
WOODS: So if cuts to mandatory spending are a political no-go, what about the rest of the budget? Well, about 8% of the budget goes to paying interest on outstanding government debt. But the government has to keep paying that, otherwise it would be defaulting on its loans. And that's what lawmakers want to avoid 'cause they want to avoid economic turmoil. The remaining third is what's called discretionary spending. About half of that goes to the military. And cuts to that are a nonstarter for many Republicans.
MA: And, you know, it's worth mentioning here that so far, we've only talked about government spending. There is another way for government to balance the budget, and that would be for Congress to raise taxes.
WOODS: OK. Well, good luck running for Congress on that, Sen. Ma.
MA: New taxes for all. No? You don't think that's the...
WOODS: May not be the winningest slogan in this current political environment. But you never know.
MA: In short, if you don't have big changes to the bulk of government spending and if you're not going to raise taxes, just focusing on a tiny slice of government spending is not going to balance the budget, right? That is like trying to become a bodybuilder by just flexing your left calf muscle a bunch.
I guess if I had to try and encapsulate what you're saying, you're saying that, like, really structural changes need to be made. And this idea of, like, let's nip and tuck this, that is not going to work.
MACGUINEAS: Yeah. What I want to do is create a realistic sense of what is going to be involved. And it depends how much we're going to try to fix our federal budget. So we don't have to get to, like, balancing our budget. But we do have to get to a point where our debt isn't growing so high as our overall economy.
WOODS: Now, not everybody agrees that this debt is a huge problem. The U.S. debt to GDP ratio is around 120%, and that's not dramatically different compared with other advanced economies. But Maya is worried. She thinks that rather than have this recurring game of debt ceiling chicken all the time, there's a better way.
MACGUINEAS: Something, I think, that could be successful as part of the debt ceiling increase is we could attach a fiscal commission. The Simpson-Bowles Commission, which happened about a decade ago, was something that actually came out of a debt ceiling negotiation. And it put in place a bipartisan, bicameral group that was supposed to work and come up with a plan to generate savings. They came up with what was actually a terrific blueprint.
MA: A blueprint, by the way, that included changes to Social Security and Medicare and tax raises. It did not pass Congress at the time. But does Maya think that the current Congress could, you know, maybe take another crack at it?
MACGUINEAS: I'm worried. I mean, to be honest, I'm worried about getting any of this done because we're so polarized and there's so much political infighting. But I think it would be worth trying to put in place a broad-based commission with everything on the table as part of a debt ceiling increase - no drama.
MA: It almost sounds like you're saying, like, if you formed a commission, a body of lawmakers to actually dig into this, maybe we wouldn't have to make the debt ceiling raise such a high-drama event every time it comes around.
MACGUINEAS: Exactly. So right now, the debt ceiling is a really stupid policy that does something really important. And that means it is the only moment that we are really forced to stop and think about the fiscal situation. What would be really smart is to build in something that didn't risk the full faith and credit of the U.S. country, you know, as part of that process of looking at our fiscal situation.
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MA: Well, I got a feeling for - you know, despite what you said at the beginning, that for the next several months, you will - everybody's going to be wanting to talk to you at the party.
MACGUINEAS: You think someone will sit next to me (laughter)?
WOODS: I would love to talk to you about accrual accounting and public finance.
MA: Hey, the two of you would be the life of the party, I'm sure.
WOODS: Watch out, D.C. dinner circuit.
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MA: This episode was produced by Noah Glick with engineering by Katherine Silva. Sierra Juarez checked the facts. Viet Le is our senior producer. Kate Concannon edits the show. And THE INDICATOR's a production of NPR.
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