Rep. Lloyd Smucker (R., Pa.) represents what he calls the “snack capital of the world” — but Smucker, the Vice Chairman of the Budget Committee, turned his attention squarely to the national debt in the latest episode of the Republican Study Committee’s (RSC) Right to the Point podcast, which was obtained exclusively by the Washington Reporter.
In the latest episode, Americans for Prosperity’s (AFP) Kurt Couchman joined Smucker, and the two discussed how to repair what Smucker called America’s “broken” budget process.
Couchman, a longtime Hill staffer earlier in his career, told Smucker that his goal now with AFP “is not only to get the federal budget to be sustainable, but also to restore the democracy within the institution that we don’t have enough of, but the American people deserve. And it’d be a whole lot more fun for members of Congress to live in that world.”
Smucker for his part agreed with Couchman that the move is important. “It’s been a long time since we’ve even followed what we call regular order to pass our annual budget,” he said. “Let’s talk just a little bit about the debt that we have today, $40 trillion now in debt. Of course, it’s taken a while to get to that point…we’re seeing bond yields rise over the past few weeks. I think the bond market is flashing some warning signs. That is driving up interest rates, which is going to impact people today, and certainly the debt will impact future generations. I worry that we’re saddling them with a situation that will potentially affect their ability to live the American Dream to do better than their parents before them.”
Couchman for his part said the reason America has a debt problem is because of the “broken budget process.” But, he added, “there are a couple of episodes and other factors, long running things that contribute to it. The debt-to-GDP ratio, which is what most economists use to benchmark where the debt is in terms of sustainability, was only about 37 percent before the great financial crisis in 2008. The Speaker of the House was Nancy Pelosi, from 2007 to early 2011. And the response to the global financial crisis didn’t have to be so robustly deficit finance. There could have been some regulatory relief. There could have been a lot of other ways that the then powers that be went about it.”
Couchman lamented that in response to the financial crisis, “there were actually a lot of bailouts for specific interest groups that Nancy Pelosi thought were part of her coalition; that really ran up the tab. At the same time, there was a regulatory onslaught between the Affordable Care Act and the Dodd-Frank Wall Street something or other Consumer Protection Act, and that slowed economic growth. When you pile up the deficits, the new borrowing on top of the existing debt, while you are restraining economic growth, then you’re going to have an increase in the debt burden; it rocketed it up by about 30 percentage points of GDP over that period of time. And then when Republicans had the House majority, it continued to grow, but much more slowly, and we really got it back under control. There were a lot of attempts to to to do more, but it just couldn’t get there.” At that point, the global coronavirus pandemic set everything backward, he explained.
“You probably remember the term ‘blue state bailout,’” Couchman said. “That was something that happened in spades at that time. That was the emergency response. But there’s been the long-simmering challenge as well, which is that the baby boomers have moved into the retirement years. People are living longer. That’s wonderful. But we have these programs that were set up in the 1930s, in the case of Social Security, and in the 1960s in the case of Medicare and Medicaid, that were designed in a different time and should be updated for the modern times that we live in. And that hasn’t happened; the expenses have continued to grow far faster than overall revenue or even dedicated revenue. That creates a gap. And that is adding to the deficits each year and the debt. More recently, the interest costs have been growing like gangbusters. There’s a couple of factors driving that. One is that there was a global financial or a global savings glut where there was a lot more savings and fewer investment opportunities. That has flipped now. Another part is inflation that has to get added to the real interest rate for the bond rates. And then also there’s uncertainty and fear within the bond markets about what comes next. So there’s an uncertainty premium that gets tacked onto that as well. So all three of those things are moving in the wrong direction.”
Both Couchman and Smucker see problems caused by America’s ballooning national debt as potentially calamitous. “It could be a security crisis,” Couchman said. “If we suddenly pull back U.S. forces from the rest of the world in order to save a buck, it could be a small-d democratic crisis if people are feeling desperate and they vote for someone who makes big promises that they can’t keep.”
Smucker added that “it could be something similar in terms of financial impact to what we saw in the Great Depression. We are talking about if a sovereign debt crisis will occur when individuals and investors are no longer willing to buy treasuries, and then you’re in a heap of trouble. Then you’ll see ripples of that throughout the entire economy. This would be affecting everyone’s standard of living. It would take a long time to recover.”
While the problem is immense, both speakers believe that it can be solved, and noted that America itself has shown how to do that in the past.
“The 1974 Budget Act was a massive improvement over what came before,” Couchman said. “It’s time to upgrade that. But we do have time. And it’s not that the bond markets are totally freaking out right now, but they are a little antsy and they are looking at the deficits, the debt, and also governance. If we can start getting the deficits down, even though the debt burden still remains too high, and especially if we can fix the governance so that there’s confidence that Congress and the administration will be able to get this under control, then that will buy us an awful lot of time and enough time to really bend the debt burden down.”
Smucker pointed to a more recent success; the GOP’s Working Families Tax Cuts, which added a series of counter-fraud measures to a lot of America’s entitlement programs. Couchman went even more recent, pointing to President Donald Trump’s anti-fraud task force as another important tool. “That presidential leadership is really important,” he said. “In addition to that, we’ve got to get Congress to be managing all the programs.”
But, moving forward, Couchman believes it is time for Congress to make “the next big upgrade.”
“The 1974 Budget Act was a big leap forward,” he said. “They created the Congressional Budget Office and independent fiscal offices are really important to strengthen legislatures in terms of having the facts before them, creating the budget committees to coordinate and manage and maybe even enforce the other committees. That was really important as well.” But, he cautioned, “it hasn’t necessarily worked as well as it should. And that comes down to one of the the primary defects in the Congressional Budget Act; the legislation actually has pretty good bones, but the the idea that you’re going to have 12 separate appropriations bills, which today count for about a quarter of spending, none of the revenue, none of the tax expenditures, and you’re going to divide them into 12 that today differ from about $7 billion for legislative branch appropriations to about $700 billion for defense appropriations, it’s not really a coherent system. Let’s have a coherent system where all of the communities get to do what the appropriators try to do each year.”
“It’s been 51 years since a major update,” Couchman said. “We’re due for it. It’s been a long time since we’ve had a constitutional amendment that has succeeded, so maybe it’s time for that too.”
Smucker noted that it hasn’t all been bad news since 1974, and that current Republican leadership is far more in line with what he’d like to see that previous Congresses were.
Under the leadership of Speaker Mike Johnson (R., La.), Smucker noted that Republicans “passed all of the 12 appropriations bills out of the Appropriations Committee. We passed some of those on the floor. This is a very different process from just passing a continuing resolution or during doing an omnibus.”
