Why Can’t Congress Budget Responsibly? (with Rep. David Schweikert)

By Kevin R. Kosar March 4, 2024
Description

The topic of this episode is “Why is Congress struggling to manage the nation’s finances?”

My guest is Representative David Schweikert of Arizona. He was first elected to Congress in 2011. Prior to that, he was a businessman, served in Arizona’s state legislature, and as Maricopa County Treasurer.

He is a Republican and holds a seat on the Ways and Means Committee, which writes tax policy. David also is the Vice Chairman of the bicameral Joint Economic Committee (JEC) and co-chairs both the Blockchain and Telehealth caucuses. He is passionate about economics and finance, which makes him an excellent person to ask, “Why is Congress struggling to manage the nation’s finances?”

Kevin Kosar:

Welcome to Understanding Congress, a podcast about the first branch of government. Congress is a notoriously complex institution, and few Americans think well of it. But Congress is essential to our republic. It’s a place where our pluralistic society is supposed to work out its differences and come to agreement about what our laws should be.

And that is why we are here: to discuss our national legislature and to think about ways to upgrade it so it can better serve our nation. I’m your host, Kevin Kosar, and I’m a resident scholar at the American Enterprise Institute, a think tank in Washington DC.

Dave, welcome to the podcast.

David Schweikert:

Kevin, thank you for having me.

Kevin Kosar:

What is the state of the federal budget? Do we even have one in 2024?

David Schweikert:

That is sort of the magic question. You have one, but it is not the one you want. In many ways, we are operating on the spending authorization from previous years, which has been renewed over and over. In other words, we are funding things that were supposed to have expired and not funding things that we are supposed to be getting ready to do.

It is the absurdity of a dysfunctional Congress. Priorities that go back to when Nancy Pelosi was speaker are still being funded today.

Kevin Kosar:

Why is that?

David Schweikert:

I actually have an overarching theory, and then we can get into the nitty-gritty of some of the chaos. There is a general lack of understanding of the level of financial stress that the US Congress and the entire country are under.

We play this bookkeeping game in the United States of, here is publicly borrowed money, and here is the money we are borrowing internally. On Friday (February 23, 2024), I believe we hit an all-time record of borrowing about $92,000 a second. Now you hit this sort of constant stress where every dime a member of Congress votes on now is on borrowed money: all defense and all non-defense discretionary.

If my math is correct, we are going to borrow almost a trillion dollars of Medicare into mandatory this year. So now, you come back and you get a member who is all excited, saying he is going to cut spending on HHS (Department of Health and Human Services), some other agency, or some part of discretionary, and he is going to save $500 million.

That is a lot of money. But when you are borrowing about $7.5 billion a day, many of the fights we are having are over a few hours’—if not just a couple days’—worth of borrowing. It is a way we can look like we are doing something because we are terrified of getting in front of a camera and telling the American public that 100% of borrowing for the next 30 years will be interest, healthcare costs, almost all Medicare, and backfilling the Social Security Trust Fund—if we decide to backfill it.

Kevin Kosar:

Those are astounding numbers. I think it was on Friday you tweeted out some numbers on the national debt, including a figure of how much we are racking up per second. If memory serves, our national debt is north of $30 trillion. Is that right?

David Schweikert:

We are currently at around $34.3 trillion right now. You are going to hear apologists go out and say, “We’re only $27 trillion publicly borrowed.” The absurdity of that is you still have to pay back the several trillion dollars you have borrowed from Social Security, the Medicare trust funds, the Highway Trust Fund, railroad retirement trust, etc. And you will have to pay back with interest. And because you do not actually have enough tax receipts, you are going to borrow the money to pay back the very money you have borrowed.

Kevin Kosar:

That’s not good. I would be quite concerned if I had an uncle or somebody who was borrowing money to pay money that he had borrowed.

David Schweikert:

And I only bring it up because this is my moment to tell those out there in the intelligentsia in Washington, DC who were mocking me and my JEC economists about four or five months ago when we were saying interest will be a $1 trillion—over $1 trillion gross—in the 2024 fiscal year. Well, a couple of weeks ago, Treasury confirmed that.

That makes interest the second biggest expenditure after Social Security in your federal government—more than Medicare, more than defense.

Kevin Kosar:

I recall a book from some years ago by Eugene Steuerle, who has written on and thought about budget matters for a very long time. He spoke of the deficits and debt and the crowding effect it can have, and he called it “a loss of fiscal democracy”, because you just do not have as many choices now because you are locked in so many things.

David Schweikert:

And in a weird way, it goes back to your previous question. Why don’t you have a rational budget? Why don’t you have rational appropriations? Why can’t you do rational policy? How do you do those things when you now have to go home and explain to your voters that waste and fraud is huge, but still small compared to what we are borrowing? All foreign aid might be five, seven days of borrowing. Or on the left, taxing rich people more.

There is a great paper out of the Manhattan Institute from about three, four months ago that talks about if you did tax maximization on everyone earning at least $400,000—maximized every tax: estate tax, income tax, etc. to the point where you got peak tax receipts before you started to lose receipts—and adjusted it for its economic effects, you might get 1.5 or 2% of the entire economy. And for many of us on the right who want to cut things, we can only come up with 1 to 2% of cuts in government GDP. That is a lot of money, but—and I am doing this math off the top of my head—I think we have borrowed about 9.6% of the entire economy so far this fiscal year, in a year when the economy is actually pretty good.

So the left’s idea only gets you 1.5 to 2% of GDP, and the right’s idea gets you another 1 to 2%, but in a time of good economy, you are borrowing 9.6% of GDP. Do you see a math problem?

Kevin Kosar:

Yeah, I recall that paper you referenced by Brian Riedl at Manhattan Institute. He is a fearless truth teller, knows his stuff, and unlike you or other legislators, he does not have to face voters so he can give the unpleasant facts of the matter. 

Some time back, I spoke with a budget expert who reminded me that it was the habit of the US government since the Founding to try to have a roughly balanced budget over the long run. You hit rough times, a war, or other problems that cause you to run deficits, but then you turn around and make some adjustments and get yourself back to where you are supposed to be. That was Paul Winfree, who used to be at Heritage and now has his own organization.

That seems to have been lost. Everybody seems to want to talk about running structural deficits as a problem—unless you are a modern monetary theorist—but there does not seem to be much willingness to act.

David Schweikert:

Not to be disharmonious, but I think it has actually gotten in some ways simpler than that problem. The old history is when you need a stimulus, borrow some. When times are good, pay off your sins.

Again, 100% of the debt from today for the next 30 years is interest—another way to say it is demographics. We hate to talk about this because it gets you unelected, but it is truthful—we got old. There was an update in fertility numbers on Friday, which were terrifying. I think we were down to 1.63 in last year’s fertility rates. So now we have fertility that is equal to Western Europe and lower than France and a number of other countries. My math is that in about 15 or 16 years, the United States will have more deaths than births.

We have to deal with the reality that we have a population that has earned benefits—our baby boomers have earned their Medicare and Social Security—but we do not have the population growth or the economic vitality to have the tax receipts to take care of that.

So you will have to be willing to do some things that change health care costs. Most of the political class wants to play these games of “Medicare for All” or this or that, but none of those actually reduce costs. What they do is they shift who pays—it is subsidized here and paid over here instead of adoption of technology, adoption of aggressive math.

For example, if diabetes—particularly Type II—accounts for 33% of all healthcare spending, 31% of all Medicare, wouldn’t it make more sense to have a brutally honest conversation to prevent diabetes, maybe by tackling obesity in America? And it turns out mathematically, that is one of the first things in the stack you could do that is moral. It’s great for society. It’s great for family formation. It’s great for being able to come back into the workforce.

It’s also moral. We actually have some math that shows that one of the most powerful things you could do to close income inequality for urban poor, rural poor, my tribal poor here in Arizona, would be to take on things that are preventable in health. Five percent of the population accounts for over 50% of healthcare expenditures. Help your brothers and sisters with those chronic diseases, and the most common is obesity. And it is fascinating the attacks I will now receive for what I just told you, even though every bit of that is ethically and mathematically absolutely truthful.

Kevin Kosar:

Yeah, I recall seeing some of the things you put out about Ozempic, and the idea that we could have these medications that could just do miraculous things to improve health in that area.

David Schweikert:

And I want to be careful about that. It is obviously bigger—should you actually have a brutally honest look at agriculture policy? Should you have a brutally honest conversation on what to do with nutrition support in the United States? When you look at mortality statistics and the health outcomes of the population—particularly the poor—and then you actually take a look at what causes those health outcomes, it is frustrating because the political class often wants to say, “We’ll just cut spending here.” But when you lay out in front of them what your options are to cut, they like the rhetoric but they do not actually like the facts of what would have to happen.

Kevin Kosar:

And as you alluded to earlier, the magnitude of what they are pointing at is not going to make much of a difference because those are not where the real drivers of the deficit and debt are—they are in these other categories. What are we up to on the entitlements plus debt payments? Is that 65-plus percent—

David Schweikert:

Oh, no, much higher. If you are borrowing close to 30% of your government, and—it is actually probably even more this year. It should not be because you have a year where tax collections have grown four-plus percent. Yet, we actually have had months where our spending is triple that.

There are always complications. We had certain deferred healthcare treatments, we had this huge spike in Medicare, and we are trying to figure out what normalization is. But if we come in this year—when tax receipts are up fairly healthily—borrowing $2.5, maybe $3 trillion, imagine what would happen if we went into an economic slowdown. Imagine if we get into a hot war. Imagine if there is another pandemic. We have made ourselves very economically fragile from the federal borrowing debt standpoint. Congress is no longer in charge. The Administration no longer is in charge. We have made the decision to put the bond market in charge of your government.

Kevin Kosar:

It is clear that it is probably tougher than maybe ever for a legislator to tell voters the truth about how the federal finances work and the real work that goes into cutting deficits. It’s not going to be pretty. It’s going to be hard—

David Schweikert:

It will be hard. There is hope, but that window is closing on us very fast. We have done some experiments on things you could do in health, the adoption of AI, adoption of technology, shutting down programs that do not really do anything anymore, etc. And for them to have the real fiscal effects before you have hit such a level of borrowing that the financing cost just sort of takes over everything, you may only have four or five years to make some of these decisions. Maybe even less. On some of the health stuff, you need to do them in the next 36 months.

Kevin Kosar:

Is there anything that can be done in terms of the 1974 budget acts that would make it better, easier, or less agonizing and difficult for Congress to collectively kind of make these decisions? Or is it just we just need better people who can step up, tell the truth, and make hard votes?

David Schweikert:

I actually believe in the 1974 Budget Reconciliation Act. There are a number of tools there that could be used, but you also need a structural change in the committee structure. This one is uncomfortable to talk about, but you have a lot of committees that deal with the same policy area. For example, health is in like four committees. And that makes it very complicated and difficult to try to fix things, such as providing certain incentives in Medicare to keep people healthy, add competition, legalize the use of technology, etc. We have to redesign the areas of authority of the individual committees and do a better job of tying the policy side to the appropriation side, because we have this disconnect now where we appropriate, but it is almost impossible to move policies that are disruptive.

For example, we took great joy and pride in the price transparency bill. But our own scorers and outside academics say that it may possibly bend healthcare costs by 0.5% over a decade. Yet you have in many markets a double-digit price growth on healthcare. So we pat ourselves on the back for accomplishing these tiny rounding errors because they sound great in speeches and mail pieces. But the scale of movement against us financially is overwhelming and we are terrified to tell the truth about it. So your only choice may be to put together a debt deficit commission, give it remarkable authority, give it an up or down vote in a lame-duck session, and just accept that the people who lead it are destroying their potential political careers to save the country.

Kevin Kosar:

It sounds like their membership should be recruited from people who have already announced their retirement.

David Schweikert:

And I speak a bit boldly, but I am incredibly blessed. I would argue I probably have one of the best, if not the best educated districts represented by a Republican in America. And when you have a very well-educated population that is fairly prosperous, you can talk to them like adults. You do not have to engage in the level of pandering that goes on in so much of today’s right and left politics. The other day I held a women’s forum just for local business leaders, and I think half the room had PhDs. It was a little intimidating, but there is something joyful I get because I can have these adult, very complex conversations with my constituents. I do have to accept most of the members of Congress do not have constituencies like I do.

Kevin Kosar:

And is it possible that increased party competition for control of Congress (i.e., control of the chamber between the parties has gone back and forth over the last 30 years at a rate we have not seen since the late 19th century) is also playing into this inability for many legislators to just be blunt and to take hard votes?

David Schweikert:

Yes.

And some of it is also when you design districts of complete commonality, it makes it efficient to represent and get elected. But then you find yourself only pandering to a homogenous group, be it an all-agriculture constituency or all-coastal. Some of my friends out there who are fighting for SALT (state and local tax deduction) understand—if you can get them in a closed door and make sure there are no microphones—that it is really bad tax policy to raise the SALT caps. It skews and has all sorts of distorted effects, but that is what they run on because they have a concentration of that type of population.

One of the mistakes many of us make is we think it is Republican versus Democrat, and these days it is sort of Democrat vs. populist vs. conservatives vs. this. But woven inside there is suburban vs. urban, rural vs. suburban, coastal vs. etc. So there are lots of competitions. And very few people in Congress have committee assignments where their job is to specialize in the math and to truly bathe in the numbers. I am one of a handful of members who gets to think a lot about how to make the finances of the country work. That is also a problem.

Kevin Kosar:

And I suppose when the economy is doing pretty well, delivering bad news about federal finances is a less appealing proposition. But of course, if the bond market is to suddenly get very grumpy towards the federal government—the way it happened in the 1990s when President Clinton was scared by the bond market—that sort of exogenous shock creates the window potentially for a little more truth-telling.

David Schweikert:

At that point, you may be telling the truth, but the policy options require a window of time.

And there is your problem. We can run around and give great speeches on having a sudden shock of interest rates, a failed bond auction, etc. My argument is that at that point, you are just doing triage. One of the most powerful things you could do to make sure the bond market continues to like US sovereign debt is to demonstrate to the bond market that you are taking the accumulation of debt seriously. If we end this fiscal year with a $2.8 trillion type of borrow, I think the entire world is going to look at us and sort of decide what sort of premium they want interest rate-wise when they buy longer-term US debt.

There are other things going on. We do not want to geek out because you will have only three listeners who actually care about the repo markets, what is happening there in the short term, and some of the premiums being paid on the short end of the curve. But the fact of the matter is it is getting expensive out there to finance this debt.

Kevin Kosar:

Last question. We are once again flirting with a partial or full-on government shutdown. I am old enough to remember when they were fairly unusual. First, what is driving this frequency? Second, is there any change in the budget process that you would favor that would decrease this? Or is this just simply human beings not being able to come to agreement?

David Schweikert:

Let’s go back to a premise we sort of started with. Yes, I could give you a half a dozen policy changes that are just rules and mechanics that would really help avoid this sort of stupidity.

But I truly believe the primary driver of the chaos is the thing we do not talk about. And that is there is no money. We functionally got rid of a speaker. We fought like crazy and at one point, we were fighting over 16 billion dollars. That is real money. I think on Friday we borrowed about $3.5 billion that day. So think about that.

In many ways, you keep yourself from doing any real work on budgets and those things for several months for what equals two days of borrowing. There is a distorting lack of understanding of, “This is honorable and worth fighting for. But if you don’t close the deal there, you don’t get to work on the real drivers, the big stuff.” The little stuff is easy to sell to your political supporters. It gets you on cable television tonight.

But trying to talk about the demographic movement and fertility rates and what those are ultimately doing to the structural growth of US debt is hard to explain, and you will not be on television doing it. So the incentive structure of executing a deal, putting the package together, and getting to the real work just is not there.

Kevin Kosar:

And I would imagine complicated explanations are probably not the sort of thing that you want to spend a lot of time with when you are going back and running in a partisan primary.

David Schweikert:

And there is your problem. My father used to have this saying, “For every complex problem, there’s a simple solution.” That is absolutely wrong.

We have a remarkably complex problem, and it is going to require a complex solution. There is a way to do it, but you have to be willing to think about the debt as a unified theory. You are going to have an immigration conversation, conversations about the adoption of technology, and the adoption of cures and actual incentives to be healthy.

We actually have worked out a couple dozen things. And policy-wise, you have to do them all at the same time, because they all interact with each other. And that is why I have grown to believe that our only path will be doing a very bold debt and deficit commission. And the trolls will campaign against it and say crazy things. But can I give you the simplest moral argument?

Eight to nine years from now, the Social Security Trust Fund is emptied. You still have the payroll tax coming in, but it means the average couple in America will take a $17,400 cut in 2033 or 2034, which is only eight, or nine years away. When we cut Social Security benefits by 25 percent, we will double senior poverty. We already have a problem with Baby Boomers becoming homeless because of housing costs. We see it coming, but we are not willing to deal with it because, for the Democrats, they see it as a chance to wait and do higher taxes. But we have demonstrated that all the tax proposals of the Democrats do not even come close to covering that 25% shortfall.

Is it immoral to double senior poverty in eight, or nine years from now? Of course it is. And yet the fact that I just said this on your podcast, there will be a troll out there who will now be running an attack ad because Schweikert talked about Social Security, but I am passionate about saving it. You would think that would become communal. That would become bipartisan. But it requires math, and Congress is now a math-free zone.

Kevin Kosar:

Here’s to hoping that more people who understand the math are willing to come forward and serve in the chamber and also to speak up and speak honestly. We have to wrap it up here. Representative David Schweikert, thank you so much for giving us an honest, unvarnished, good look at the state of our budget, the state of our debt, and the possibility that with a little bit of courage and some smart thinking, we can actually fix things or make them a lot better.

David Schweikert:

Kevin, thank you for having me.

Kevin Kosar:

Thank you for listening to Understanding Congress, a podcast of the American Enterprise Institute. This program was produced by Jaehun Lee and hosted by Kevin Kosar. You can subscribe to Understanding Congress via Stitcher, iTunes, Google Podcasts, and TuneIn. We hope you will share this podcast with others and tell us what you think about it by posting your thoughts and questions on Twitter and tagging @AEI. Once again, thank you for listening, and have a great day.

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