Our Bipolar Fiscal Politics

Hoping Against Hope for the Political Compromise We Need

Welcome to the Civic Way journal, our quick take on the relevance of current events to America’s future governance. The author, Bob Melville, is the founder of Civic Way, a nonprofit dedicated to good government, and a management consultant with over 45 years of experience improving public agencies.

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A house divided against itself, cannot stand. – Abraham Lincoln

Introduction

We can no longer ignore the mathematical reality of our federal debt crisis—we cannot balance the federal budget unless we raise revenues and cut costs. Limiting ourselves to one side of the ledger—like raising taxes on those we detest or cutting programs we loathe won’t eliminate the federal debt^[i].

From DC, we hear a lot of bluster, but the debt keeps growing. Politicians of both parties bemoan debt yet refuse to work together to eliminate it. Unwilling to raise taxes, reform entitlements or challenge their pet programs, they distract us with gimmicks and theatrics. Each party demonizes the other for fiscal neglect. Bitter partisanship has turned debt from a problem to be solved into a cudgel to be wielded. This bipolar politics will crush us all, if we allow it.

The Republicans

Let’s start with Republicans, the party of phony deficit hawks and bloated, hypocritical rhetoric. They grandstand—particularly during debt ceiling showdowns—and blame deficits on Democratic spending, while piling on more federal debt than the Democrats. Their contribution to the debt crisis?

• Robotically opposing tax increases since 1990 and passing huge, unfunded tax cuts in 2001, 2003 and 2017^[ii].

• Breezily justifying unfunded tax cuts with evidence-free claims they’ll stimulate enough growth to pay for themselves or glib remarks like "deficits don't matter^[iii].”

• Refusing to reform entitlements or materially cut spending even under GOP trifectas^[iv].

• Attacking social programs for political gain, promising to balance the budget with non-defense discretionary cuts, but failing to offer a long-term solution^[v].

• Pretending that the federal budget has a "waste, fraud, and abuse” budget line-item and promoting budget gimmicks^[vi] instead of real change (e.g., balanced budget amendment veneers and magical economic growth slogans).

• Repeatedly and recklessly holding US government’s full faith and credit hostage—and risking a devastating international financial crisis—all for a few headlines.

• Campaigning on extending the 2017 tax cuts and promising new income tax cuts^[vii].

• Ignoring the adverse impacts of some so-called “efficiency” measures. For example, tariffs could increase inflation and IRS cutbacks could significantly depress revenues^[viii].

President Reagan once thundered that “government is the problem not the solution.” For many Republicans ever since, that slogan has morphed into a savage multi-decade campaign to help government fail. Case in point, when the Freedom Caucus condemns government spending without seeking bipartisan compromise or offering constructive solutions, they are merely hastening the ultimate collapse of the federal government.

The Democrats

The Democrats certainly don’t have clean hands when it comes to the federal debt. They quickly blame deficits on GOP tax cuts (especially for the wealthy) and call for Defense Department cutbacks while doing little to reform entitlements or reduce overall costs. Their contribution?

• Treating entitlements as untouchable. In his 2023 State of the Union address, Biden said, "we will not touch social security. We will not cut Medicare. Those benefits belong to the American people…I'm not gonna allow them to be taken away—not today, not tomorrow, not ever."

• Implying that taxing the rich can eliminate the deficit, but refusing to acknowledge its limits let alone consider raising taxes on households making $200,000 to $400,000 a year^[ix].

• Ignoring the potentially adverse economic impact of excessive tax rates on high earners and large corporations or, like the GOP, trying to justify deficits with dubious economic theories^[x].

• Like Republicans, offering spending cuts that in and of themselves won’t fully solve the debt problem and quickly lambasting the other party every time they float deficit reduction ideas.

• Overrating the potential value of some cuts—like Pentagon cuts^[xi]—and stubbornly opposing cost cuts to other programs (especially progressive darlings).

• Coupling massive spending proposals with ideas like Medicare for All without specific, verifiable deficit control plans^[xii].

In the next two years, under the GOP trifecta, Democrats will no doubt have many tempting occasions to exploit GOP fiscal missteps. And, if Republicans heedlessly follow the volatile—and cruel—impulses of malignant narcissists like Elon Musk, Democrats should not hesitate to hold them accountable. At the same time, Democrats should never stop seeking a momentary ceasefire or “grand bargain” opportunity.

They should never lose hope that the political stars will align for such a moment.

How We Got Here

There are innumerable reasons for our nation’s 24 x 7 partisan warfare. Polarized, partisan media outlets. Eroded journalistic standards. Gerrymandered legislative districts. The decline of bipartisan congressional committees. Rabidly ideological voters (especially in partisan primaries). Our insatiable appetite for controversy. Our impatience. Our boredom with moderate, long-term solutions.

However, there are two major causes for the coming fiscal calamity. One involves governance, more specifically, our flawed federal budgeting process. As Fitch reported, “There has been a steady deterioration in standards of governance over the last 20 years. Repeated debt-limit political standoffs and last-minute resolutions … have eroded confidence in fiscal management.” Without an enforceable long-term fiscal plan, the annual budgets and debt ceiling standoffs have become sideshows.

The other major cause—arguably the chief cause—is our bitter, hyper partisan politics. Together, Democrats and Republicans keep bringing us to the brink of fiscal shame during debt-ceiling showdowns without forging a viable long-term plan for solving the issue. Voters keep electing politicians from both parties who weaponize the debt issue against their opponents without sitting down to find a solution^[xiii].

Fighting for Hope

The federal debt crisis may very well be the most glaring—and worrisome—symbol of our country’s political dysfunction. It demands a solution that, these days, seems well beyond the possibilities of our frayed political system. Perhaps the silver lining is that this crisis cannot be solved without compromise. And, it has been such moments when our nation has most often been at its best.

Given the looming reality of federal budgetary math, the causes of hyper partisanship don’t really matter anymore. Republicans must accept that there can be no solution without higher revenues. Democrats must accept that there can be no solution without lower costs. Both parties must accept that all federal programs, including entitlements, require reform. Both parties must work together to solve the problem.

The ultimate reality is that, if we don’t solve the debt issue, we won’t have the resources to solve other major problems. If we don’t overcome our political differences, the American experiment—the possibility of an enlightened, ever-evolving democracy—could perish.

With the stakes so high, can we afford to give up hope? Like fiscal responsibility, hope is a discipline that we all must learn to practice. Let’s renew our commitment to finding common ground.

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^[i] According to one scenario, balancing the budget without revenue increases would require the elimination of earned income and child tax credits, unemployment, disability and veterans' benefits, and numerous programs upon which millions rely, such as school lunch, food stamp, border security, correctional and infrastructure programs.

^[ii] According to the conservative Manhattan Institute, George W. Bush added $6.9 trillion in debt and Trump added $7.8 trillion.

^[iii] Vice President Cheney cynically made this statement in defending the Bush tax cuts.

^[iv] The 2017-18 GOP trifecta enacted a $1.5 trillion tax cut, rejected entitlement reforms and increased discretionary spending by 13 percent.

^[v] In FY 2023, non-defense discretionary spending comprised 15 percent of the federal budget, down from its 1978 peak of 25 percent.

^[vi] Iowa Senator Ernst, leading the Senate DOGE caucus, recently issued a report promising $2 trillion in potential savings—without support or a timeline—resulting from gimmicks like selling empty buildings, firing IRS agents, and ending EV incentives and frivolous research.

^[vii] Trump’s campaign proposals to extend the 2017 tax cuts, cut the corporate tax rate and eliminate taxes on tips would, according to the University of Pennsylvania, inflate the deficit by $5.8 trillion over the next decade. GOP lawmakers suggest they can offset these losses by increasing tariffs, repealing clean energy programs, cutting “unauthorized” programs, eliminating the Education Department, cutting food stamp benefits, expanding Medicaid work requirements and slashing IRS funds.]

^[viii] The Congressional Budget Office has estimated that proposed IRS cuts could increase the national debt by $65.8 billion.

^[ix] President Biden called for extending the 2017 tax cuts for families earning less than $400,000 a year and increasing spending by nearly $1 trillion over the next decade.

^[x] The progressive Modern Monetary Theory (MMT), for instance, suggested in part that deficit spending could be financed by radically expanding the money supply.

^[xi] Defense Department spending, for example, is no silver bullet for eliminating the deficit. Since the 1980s, Pentagon spending has fallen from 6 to 3 percent of GDP.

^[xii] Senator Sanders, in his presidential campaigns, proposed up to $97 trillion in new investments over a decade and Medicare for All.

^[xiii] During the 2024 presidential campaign, neither Trump nor Harris campaigned on reducing the federal budget deficit and, during their only debate, neither highlighted the federal debt.