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The Big Beautiful Bill Is Fiscal Child Abuse, Plain and Simple
Is the budget bill being passed by Congress “big and beautiful,” as President Trump would have it, or a “disgusting abomination,” as Elon Musk proclaims?
It’s both. It’s the former for older generations and the latter for younger ones. Older generations will continue to pay far too little leaving young and future generations to pay far too much.
Indeed, we’re on track to impose net taxes on our progeny that exceed every penny they earn.
This conclusion follows not from deficit accounting but from generational accounting. The former is an exercise in linguistics. The latter gets at the key fiscal-sustainability question.
How large is the fiscal burden being foisted on our children?
The deficit measures the annual increase in official liabilities, aka federal debt. But politicians have complete leeway to decide which obligations to call official, i.e., which to put on the books, and which to call unofficial, i.e., keep off the books.
Take Social Security’s $99.7 trillion off-the-books benefit obligations to the system’s current participants. That swamps the $36 trillion in official U.S. debt. Congress could, at a moment’s notice, declare promised Social Security benefits “official obligations” transforming our nation’s debt-to-GDP ratio from 1.29 to 4.85. Several state-pension privatizations, starting with Chile’s in 1980, included such recharacterizations. So did Chile’s most recent reform of its pension reform.
So, is U.S. debt 1.29 or 4.85 times GDP? Take your pick. Or choose any other ratio, positive or negative. Congress has no monopoly on language. We’re each free to label the government’s commitments, both to make outlays and collect receipts, as we wish. Economics science, which comprises a body of mathematical models, doesn’t care about word choice. Our equations don’t tell us what language to use to discuss them, let alone whether government outlays and receipts should be called “official”.
I pointed this out in a 1988 Science article entitled, “The Deficit is Not a Well-Defined Measure of Fiscal Policy.” Science’s editors saw the analogy with physics whose equations don’t define absolute time or distance. Fortunately, one doesn’t need to be Einstein to see “official” for what it is – an eight-letter word whose use is no guarantee of payment.
Unlike deficit accounting, generational accounting is well defined. The lifetime net taxes (taxes less benefits) facing our children, assuming we adults pay nothing more in taxes and accept nothing less in benefits, has the same value no matter our fiscal nomenclature.
Using Congressional Budget Office projections, which assume adoption of the budget bill, America’s future generations will need to fork over every penny they earn and then some to ensure Uncle Sam can, over time, pay for what he spends.
This is the hard lesson emerging from a U.S.-Italian fiscal sustainability comparison study I’m conducting with a team of economists, including one from the Bank of Italy and one from MEFOP —a company set up by the Italian Ministry of Economy and Finance to support the private pension industry. Based on preliminary results, the U.S. is in worse fiscal shape than Italy.
Imposing confiscatory taxes on our children spells, of course, game over for our economy. Consequently, current adults must participate in eliminating our massive fiscal gap – the present value difference between all projected government outlays and receipts. Whether via tax increases or spending cuts, the requisite adjustment is 7.6 percent of U.S. GDP through perpetuity. To put this figure in perspective, total federal discretionary spending equals 6.6 percent of GDP. The DOGE spending cuts comprised roughly 0.5 percent of GDP.
Delivering fiscal balance via spending cuts requires eliminating 23.4 percent of all outlays apart from interest on the debt, immediately and permanently. If we wait till 2040 to cut spending, the requisite permanent spending cut starting then is 44.5 percent! The tax-hike alternative is raising all federal taxes by 22.2 percent starting immediately or by 50.9 percent starting in 2040!
Fortunately, radical reforms of our healthcare, Social Security, tax, and welfare systems can come to the rescue — by doing far more with far less.
Take U.S. healthcare. It absorbs 17 percent of GDP – the highest share of any developed nation -- while delivering literally the worst healthcare outcomes of our peer economies. Austria spends just 10 percent of GDP. Yet, it ranks #1 in outcomes. Sweden spends 11 percent of GDP and is ranked #4 in outcomes.
Adopting The Better Care Plan — essentially Medicare Advantage for All with far stricter regulation — would go miles toward closing our fiscal gap. (Medicare Advantage is, by the way, the Republic version of Medicare.) The Better Care Plan, formulated by a Who’s Who of health economists, George Halvorson, former CEO of Kaiser Permanente, and yours truly, closely emulates the competitive-delivery systems of Austria and other developed countries who achieve far better healthcare outcome for a fraction of the GDP we’re wasting. This is real economic efficiency, not truly moronic buzzsaw reform.
Social Security’s solution is also clear -- retire our ancient, take-go system, pay, over time, accrued benefits, and establish a fully funded system with collective investment in a global index subject to a minimum guaranteed return. This system, which would entail no participation by Wall Street, would also dramatically reduce our nation’s fiscal gap.
As for the 500 tax and benefit programs comprising our federal and state tax and benefit systems, they could largely be replaced by progressive, negative-income taxes whose basic benefit depends on household demographics. Unlike the current system, which places a third of low-wage households in 60 percent or higher marginal tax brackets, the new system would provide far better work and saving incentives across the board. It would, in short, end what primarily Democrats have done in adding one means-tested welfare program after another to “help the poor.” Their mindless approach has done the opposite. It’s locked generation after generation of the poor into poverty by confronting them with high and, in far too many cases, astronomical work and saving disincentives.
Radical U.S. healthcare, Social Security, tax, welfare, and other reforms is what economics prescribes and what economists widely endorse. It’s time to go for broke because that’s exactly what we are. Yet the big, beautiful bill reforms absolutely nothing.
Instead, we had what Elon Musk calls a porky pig party. The porky pigs are on both sides of the aisle. Both parties have spent the postwar letting us expropriate our children while assuaging our consciences by effectively telling us that our children will be able to expropriate their children and on and on. This is Ponzi-scheme fiscal finance. Public Ponzi schemes are no more sustainable than private Ponzi schemes.
Seventy-five years of pass-the-generational buck/kick-the-can has not, it seems, been enough to grow a backbone in members of Congress. They continue to care far more about the next election than the next generation.
And not a single of the 535 members is asking the only question that matters:
Can our children pay for ou massive on-the-books and far larger off-the-books debts that we are blithely dumping into our children’s laps?
They can not. Getting blood from a stone would be easier.
Make no mistake. We are accelerating a process of fiscal child abuse that is producing game over for our country, our economy, and our progeny. Twenty years ago, acclaimed economics journalist, Scott Burns, and I wrote The Coming Generational Storm. Let me quote from the jacket blurb.
In 2030, as 77 million baby boomers hobble into old age, walkers will outnumber strollers; there will be twice as many retirees as there are today but only 18 percent more workers. How will America handle this demographic overload? How will Social Security and Medicare function with fewer working taxpayers to support these programs? According to Laurence Kotlikoff and Scott Burns, if our government continues on the course it has set, we'll see skyrocketing tax rates, drastically lower retirement and health benefits, high inflation, a rapidly depreciating dollar, unemployment, and political instability. The government has lost its compass, say Kotlikoff and Burns, and the current administration is heading straight into the coming generational storm.
Related: Yes, Social Security’s Outlook Is Grim. No, That Doesn’t Mean You Should Cash Out Early