J. Scott Applewhite/AP Photo
President Joe Biden delivers his State of the Union speech to a joint session of Congress, at the Capitol in Washington, February 7, 2023.
It wasn’t so long ago that deficit hawkery was a dominant political identity in both parties. A significant chunk of austerian demigod Pete Peterson’s fortune was spent, and thousands of op-eds and thinly veiled news stories deployed, to convince the public that fiscal deficits are a moral crime against future generations, that government budgets must operate like family budgets, and that caring about the long-run budget picture in 2096 was more responsible than worrying about whether existing seniors have dignity in retirement and the ability to afford medications.
The key to the success of this unpopular agenda was buy-in across the political spectrum. Politicians recognize that cutting Social Security, Medicare, and Medicaid would be hazardous to their career health. But if both sides agreed with the proposition, they could diffuse responsibility by holding hands and plunging the austerity blade in together. The middle class would get screwed but not know who to blame.
President Biden’s jujitsu this week at the State of the Union address, effectively taking cuts to Social Security and Medicare off the table in future negotiations around the debt limit, reveals how this dynamic has been ended. The deficit hawks have lost nearly all their friends in the Democratic Party, a significant sea change that makes a grand bargain to damage retirement security far less likely.
If you know where to look, you can see the angst this is causing. The Committee for a Responsible Federal Budget—a remnant of the deficit hawkery architecture first assembled in the 1990s—put out a statement this week accusing the White House of “demagoguing” the idea of a fast-track deficit commission that would propose budgetary changes, including cuts to Social Security and Medicare, and get an up-or-down vote without amendments or the potential for a filibuster. White House spokesperson Andrew Bates called the deficit commission idea a “death panel for Medicare and Social Security,” which CRFB president Maya MacGuineas said “demonstrates a lack of seriousness on this important issue.”
But who isn’t serious, given the current dynamics? Virtually the entire Democratic Party and (at least rhetorically) the leadership of the Republican Party is on one side of the issue; CRFB is left with a handful of MAGA cranks on the other. The waning influence of the deficit hawks is one of the more dramatic changes in D.C. politics in the last decade.
“The austerians in Washington have always trafficked in cruelty and racism, but they used to launder it through organizations with the veneer of fiscal responsibility,” said Lindsay Owens, executive director of the Groundwork Collaborative. “This Congress, the facade has evaporated and folks like Maya MacGuineas are fully aligned with the policy demands of toxic elements like Matt Gaetz.”
THE REALITY OF THE SOCIAL SECURITY and Medicare trust funds rarely comes up in these conversations. Social Security’s issues can be permanently solved with a relatively small amount of money—about 1.5 percent of GDP. Due to inequality, nearly 1 in 5 dollars of salary is exempt from Social Security payroll taxes, which are capped at $160,200 of income per year. That’s the highest share of earnings exempt from payroll taxation in 50 years. Scrapping the cap brings back almost half the money needed to cover the shortfall, and applying it to capital income above a certain threshold would largely solve the problem.
Democratic rejection of deficit politics leaves Republicans politically exposed.
The shortfall in Medicare is even smaller: 0.41 percent of GDP by 2050, according to the latest actuarial projections, which recognize that health care spending has actually been falling relative to GDP. Further reforms on prescription drug prices will continue to whittle it down.
The actual numbers in question have traditionally played less of a role in the political game, however, as the taunts from what Paul Krugman dubbed the Very Serious People used to work. “Going back to the ’80s and ’90s, there’s always been this idea that the in-the-know people knew that we had to cut social programs,” said economist Dean Baker, who has long swum against that tide. “That’s what responsible people did.”
Since the Carter administration nearly a half-century ago, Democratic presidents have been comfortable with various iterations of this line of thinking. “The era of big government is over,” President Bill Clinton once said at the 1996 State of the Union address. Barack Obama boasted of reducing spending to the lowest level since Eisenhower. “Clinton and Obama and people in their administrations, they considered themselves responsible people. They always got applauded and were proud of it,” said Baker.
The decades-old Peterson family of organizations and programs have been the primary voices doing the cheerleading. Peterson, an investment bank and private equity executive and former commerce secretary under Richard Nixon, co-founded the Concord Coalition just as Clinton took the White House, and Clinton named him to an entitlement and tax reform commission in 1994. Over the next 20 years, he spent half a billion dollars through the Peterson Foundation to put together think tanks, research shops, ostensible news organizations and programs aimed at millennials (one was called The Can Kicks Back), and other groups to encourage a deficit reduction agenda.
A look at the board of directors of CRFB, one of the few entities in the Peterson orbit left (he died in 2018), reads like a roster of political royalty that is actually tilted toward Democrats. It includes two former Clinton chiefs of staff (Erskine Bowles and former Obama Defense Secretary Leon Panetta); 11 former Democratic members of Congress (Reps. Panetta, Tim Penny, Jane Harman, Marjorie Margolies, David Minge, John Spratt, John Tanner, Dave McCurdy, and former Lyndon Johnson Chief of Staff James Jones, plus Sens. Kent Conrad and Chuck Robb), former Philadelphia Mayor Michael Nutter, and Carter’s Office of Management and Budget Director James McIntyre. To be sure, there are former Republican officeholders on the board too, along with corporate executives and lobbyists, with plenty of revolving-door overlap between all of those positions.
Just a week before the State of the Union, CRFB released a document called “Principles for Social Security Reform,” pressing for “benefit and/or revenue adjustments as quickly as possible” and admonishing policymakers to “reject partisan and special interest demagoguing” (CRFB, in this construction, does not represent a special interest). At the same time, they offered a handful of options to improve solvency in various trust funds, including raising the retirement age for Social Security to 70. This is a curious proposal (there’s already no set retirement age; individuals can take Social Security at any point between 62 and 70, with varying benefit levels for each) that serves mainly to mask what is a straight benefit cut. Economics professor Teresa Ghilarducci calculates the cut at 13 to 15 percent of benefits; Matt Bruenig of the People’s Policy Project puts it at more like 23 percent.
The public, it should be said, is resoundingly opposed to such ideas; even a majority of Republican voters don’t want this outcome. But the public is not seen as the constituency for Peterson-world’s demands; political elites are. If the elites can be swayed that cuts are the only responsible path, without any alternatives, they will play their part in the game.
In a statement to the Prospect, CRFB said: “The national debt is set to surpass its record as a share of the economy in just a few years due to rising spending, primarily from Social Security, Medicare, and interest payments on the debt, as well as insufficient revenue to pay for this spending. Everything should be on the table when it comes to preventing the debt from growing indefinitely.”
UNFORTUNATELY FOR CRFB, their roster of Democratic budget-cutters decidedly represents the politics of the past in Democratic circles. The desire to put aside politics and meet generational challenges is mostly confined to throwbacks like Sen. Joe Manchin (D-WV).
This White House has not shown the least bit of interest and has been openly hostile to Manchin’s core idea, a fast-track deficit commission. To the extent Biden addressed deficits this week, he offered a throwaway line about the end of pandemic-era programs, and called for a billionaire minimum tax. “I like to think of it as Democrats returning to their roots,” said Nancy Altman, founder of Social Security Works.
You can still find plenty of Republicans who have expressed an interest in cutting Social Security. Just yesterday, Sen. Ron Johnson (R-WI) called Social Security a “legal Ponzi scheme.” Trump’s vice president Mike Pence proposed partial privatization last week. And the Republican Study Committee, as well as House Budget Committee chair Jodey Arrington (R-TX), has bolstered the notion of a fast-track deficit commission.
The problem for Republicans is that they have always wanted Democrats as willing partners, in no small part because then they could try to pin the blame on Democrats. In terms of actual principles, of course, the GOP doesn’t care about deficits; under every Republican president for the last 40 years, it has happily supported giant deficit-busting tax cuts.
Democratic rejection of deficit politics leaves Republicans politically exposed. And so their leadership is compelled to take it off the table and publicly announce that Social Security and Medicare won’t be touched. Donald Trump wanting to use Social Security and Medicare as a wedge issue against Ron DeSantis, who was a Paul Ryan dittohead in Congress, is another factor. But even if that didn’t exist, Republicans don’t have the cover they need to slash social insurance.
That puts CRFB in a lonelier place. “The world [Peterson] created, the bubble he created, they all are still living in it,” said Altman. The problem for them is that world has shrunk. They are outside the legislative boundaries set up by Biden and House Speaker Kevin McCarthy, lingering on the same side as conservative bomb-throwing think tanks like the Heritage Foundation, Americans for Prosperity, and the American Enterprise Institute. A group with prior bipartisan credentials is now on the edge of MAGA-world.
This hasn’t stopped CRFB from churning out time-warp policy ideas. Media house organs for deficit hawkery also remain stuck in that loop. The Washington Post editorial board continues to advocate for entitlement “reform.” But there’s no true audience for this advocacy in the Democratic Party, which turns these previously effective pitches into nothing of consequence. While budget concerns, simply by virtue of the rise in chatter about them, have risen in prominence among the public, they still pale in comparison to the economy or health care costs. And the mechanism to turn deficit hawkery into reality is missing.
Republicans, as a result, have no real objective for debt limit hostage-taking other than taking the hostage. “It makes their effort transparently political,” Baker said. “There’s no coherent story that we have to do it.”
When Altman started her organization, Social Security Works, in 2010, she told me it was seen as part of the political fringe. She remains concerned that this dynamic could change on a dime, though she thinks that the Biden administration calling a deficit commission a death panel makes that shift hard to accomplish. She’s asking for Social Security expansion to drive the narrative even further away from hawkery.
In the past, “politicians were trying to do something the American people absolutely do not want,” Altman said. “The argument in 2010 was ‘How big should the cuts be?’ I’m hoping in the future, the conversation will be ‘How big should the expansion be?’”
