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

Understanding Congress

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...