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This paper is part of an initiative from the Peterson Foundation to help illuminate and understand key fiscal and economic questions facing America. See more papers in the Expert Views: Fiscal Commission series.
Since 2007, the national debt held by the public has leaped from 35% to 100% of GDP. This debt surge — which is unprecedented outside of World War II — is projected to accelerate further as Social Security and Medicare shortfalls, rising interest rates, and continued tax cuts and spending expansions threaten to push the debt to 200% of GDP within the next few decades.1 At that point, interest alone may consume half or more of all tax revenues, elevated interest rates may hit families and businesses, and a debt crisis is possible.
Most past debt surges were driven by temporary factors such as wars and recessions whose costs eventually went away. The structural budget deficits of the early 1980s motivated five major deficit reduction deals to bring budget surpluses by 1998. Yet the current expansion of more persistent, dangerous budget deficits has been shrugged off by most Congress members, presidents, and even voters. Much of the resistance to reform can be explained by the inescapable mathematical reality that most savings will have to come from the traditional third rails of Social Security, Medicare, and middle-class taxes.
This failure to rein in soaring debt has revived the idea of a fiscal commission to bring together Republicans, Democrats, and outside experts to craft a bipartisan solution that can be fast-tracked to enactment. Indeed, a bipartisan deficit-reduction commission can serve several purposes. First, it can break the partisan logjam and focus both parties on finding a solution. For example, after a year of partisan warfare over the soon-to be-insolvent Social Security system, President Reagan in late 1981 created a bipartisan Social Security commission that brought Republicans, Democrats, and outside experts together to define the policy challenge, focus on solutions, and craft reform options. Although the final deal was finalized outside of the official commission negotiations, the creation of a commission made those civil, bipartisan negotiations possible.
Second, a commission can bring bipartisan credibility to a deficit-reduction plan, and thus encourage public support. The 1983 Social Security commission’s recommendations were much more widely accepted than previous Social Security reform proposals. The 2010 Simpson-Bowles commission gave some credibility to deficit reduction efforts, even if the commission itself did not approve the final plan. In the 1980s and 1990s, a defense-base closing commission was able to build support in Congress for closing more than 100 obsolete military bases — a solution that never could have occurred through regular congressional politics. A commission does not guarantee success, but it can break some of the partisan gridlock and get the ball rolling on reform. Furthermore, several “failed” commissions, such as the 1998 Breaux-Thomas Medicare commission, and 2010 Simpson-Bowles commission, had several of their key proposals enacted over the next five years.2
The single most crucial ingredient in a successful commission is complete buy-in from the leadership of both parties. A bipartisan commission can only structure negotiations and provide a legislative procedure towards enactment. It cannot create momentum or force a deal where there is no will. When the 1983 Social Security commission was formed, President Reagan and House Speaker Tip O’Neill privately pledged not to publicly oppose the commission’s recommendation — which Chairperson Alan Greenspan later declared the most important reason that the reforms were enacted.3 By contrast, the 1994 Kerrey-Danforth entitlement and tax reform commission, and 2011 “SuperCommittee,” were check-the-box commissions opposed by party leadership (while Simpson-Bowles was conditionally-supported by party leaders until it was time to make concessions to the other side). A looming deadline — such as Social Security trust fund insolvency in 1983 — also makes reform more likely.
Successful commissions must be created by a motivated White House and Congress and should include the chairpersons and ranking members of the relevant House and Senate committees, such as Budget, Finance, Ways & Means, and Energy & Commerce (otherwise those committees would likely oppose the commission as undermining their jurisdiction). My experience trying to create a commission as a Senate economist taught me that most lawmakers will accept only other lawmakers as voting members of the commission. This is because, as policy options narrow, the negotiations become more politics than policy, and only elected officials with skin in the game will be considered credible across Congress. That said, respected former lawmakers, outside experts, and a strong non-partisan staff of technocrats must have official roles as well. While membership should include a diversity of opinions, it helps to include individuals capable of working across the aisle. Requiring a commission supermajority to approve the plan is wise, because fiscal consolidation recommendations are unlikely to be approved by a partisan and polarized Congress unless they have successfully attracted several diverse factions. Finally, there should be some automatic mechanism to bring the approved commission recommendations to the House and Senate floor for a guaranteed vote, so that the report does not simply collect dust on a shelf. Amendments on the House and Senate floor should be limited to alternatives that produce similar savings.
Commissions have historically been more successful when used for narrow issues, such as Social Security solvency or closing military bases. At the same time, separate commissions for Social Security, Medicare, and other health programs run the risk of producing incompatible solutions, such as relying on duplicative new taxes, overly targeting the same seniors for cuts, or altering the interaction between programs. One possible solution would create separate concurrent commissions that ultimately must align their recommendations before they can be approved and presented to Congress.
Reforms to close the long-term fiscal gap will not be easy. However, both Republicans and Democrats may agree that reducing benefits for wealthy retirees is a commonsense place to start. After all, millions of retirees and near-retirees have millions of dollars in liquid wealth, and high incomes even after retirement. The first two of these three policy recommendations fit that theme:
For example, Washington could balance increased state aid during recessions with automatic reductions when the economy is booming and state tax revenues are soaring. Discretionary spending increases can also be strictly capped when the economy is thriving. Even wealthier retirees could see higher Medicare cost-sharing, slower growth of Social Security benefits, and/or other reforms to address these program shortfalls (as a precedent, the bipartisan 1983 Social Security reforms set a 44-year schedule of gradually implemented savings policies). And yes, any bipartisan deal will surely require tax triggers too. This can include capping tax deductions for the wealthy, raising the Social Security tax base, suspending tax bracket indexing, or trimming corporate tax preferences during periods of income growth. Total savings depend on how aggressively Congress designs such triggers. The recessionary spending is likely to continue even without specific trigger legislation, but a wide range of tax-and-spending savings during economic expansions could surely top $1 trillion over the decade. Deficit reduction is never easy, painless, or popular, but tying it to economic expansions can make such policies easier to absorb, and such legislation could give both Republicans and Democrats a win.7
A significant number of potentially bipartisan deficit savings are available. Congress needs only the will to tackle the issue, and the mechanism — such as a fiscal commission — to build a deal.
1 Congressional Budget Office, "The 2023 Long-Term Budget Outlook,” June 28, 2023, at https://www.cbo.gov/publication/59014.
2 For a full history and analysis of 40 years of Congressional deficit negotiations, see Brian Riedl, "Getting to Yes: A History of Why Budget Negotiations Succeed, And Why They Fail," Manhattan Institute, June 18, 2019, at https://manhattan.institute/article/getting-to-yes-a-history-of-why-budget-negotiations-succeed-and-why-they-fail.
3 Rudolph G. Penner, “The Greenspan Commission and the Social Security Reforms of 1983,” The Urban Institute, March 23, 2000, p.7, at https://www.urban.org/sites/default/files/publication/65126/2000323-Myth-and-Reality-of-the-Safety-Net-The-1983-Social-Security-Reforms.pdf.
4 This proposal has been part of occasional congressional Social Security reform proposals. A less aggressive version of this proposal appears as Option 32 at Congressional Budget Office, “Social Security Policy Options, 2015,” December 15, 2015, at https://www.cbo.gov/publication/51011. This policy may be best done on a sliding scale where the COLA shrinks as income rises. This would limit instances in which one retiree’s benefits suddenly surpass another’s as a result of receiving a much larger COLA.
5 This was estimated using the Social Security Administration Office of the Chief Actuary's “Estimates of Individual Changes Modifying Social Security” at https://www.ssa.gov/oact/solvency/provisions/index.html. Specifically, it began with Option A9 (which combines both chained CPI with eliminating annual COLA adjustments for high-earners) and then subtracts out Option A8 (Chained CPI alone) in order to separate out an estimate of the upper-income COLA elimination by itself. The annual percentages of taxable payroll are then converted into percentages of GDP and nominal dollars
6 Savings estimated using The Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, “2023 Annual Report of The Boards Of Trustees of The Federal HI and Federal SMI Trust Funds,” March 31. 2023, Tables V.E2, V.E3, and V.E4, pp. 208-215, at https://www.cms.gov/oact/tr/2023, as well as Congressional Budget Office, “Options for Reducing the Deficit: 2021 to 2030,” December 9, 2020, Option 18, at https://www.cbo.gov/publication/56783.
7 For a deeper analysis, see Brian Riedl, "A Bipartisan Way to Soften Recessions and Address Soaring Debt," National Review Online, June 19, 2020, at https://www.nationalreview.com/2020/06/budget-economy-automatic-triggers-soften-recessions-address-soaring-debt.
Brian Riedl is a senior fellow at the Manhattan Institute, focusing on budget, tax, and economic policy. Previously, he worked for six years as chief economist to Senator Rob Portman (R-OH) and as staff director of the Senate Finance Subcommittee on Fiscal Responsibility and Economic Growth. Before that, Riedl spent a decade as the Heritage Foundation’s lead research fellow on federal budget and spending policy. He also served as a director of budget and spending policy for Marco Rubio’s presidential campaign and was the lead architect of the ten-year deficit-reduction plan for Mitt Romney’s presidential campaign.
Riedl’s writings have appeared in dozens of publications, including the New York Times, Wall Street Journal, Washington Post, Los Angeles Times, and National Review; and he has appeared as a guest on all major news networks. Riedl holds a bachelor's degree in economics and political science from the University of Wisconsin and a master's degree in public affairs from Princeton University.