[Admittedly, fiscal policy transparency doesn’t offer the most scintillating Friday afternoon reading, but stick with me! This will be good for your mind grapes.]
Last week, Ron Fournier wrote that Millennials may be civically minded, but they don’t see politics as the best outlet for their engagement. As one grad student put it: “Politics just doesn’t seem relative to a lot of us and our world. Since the Great Society, tell me one big thing that has come out of Washington. Results are important to us, and sadly, politics isn’t a place for results.”
Nick Troiano doesn’t see it that way. He’s the 24-year-old co-founder of The Can Kicks Back, a group that’s doing the thankless task of trying to get young people vaguely interested in the national debt. But the combo-pack of Congress’ intractable differences on fiscal policy and the public’s general apathy toward the debt don’t discourage Troiano. “For us, it’s more of a reason to get involved, not less of a reason,” he told me.
Most of the debt comes from entitlements—Social Security, Medicare, and Medicaid—and an aging population means more people are relying on federal dollars for longer. Higher interest rates and a devalued dollar could lead to a declining standard of living for future generations. That’s why Troiano’s group is lobbying for the Intergenerational Financial Obligations Reform Act, or the INFORM Act. The bill would provide two types of analyses—fiscal gap and generational accounting—to federal budgets in the hopes that it would pressure lawmakers and agencies to focus on longer-term budget solutions.
Right now, the Congressional Budget Office only offers 10-year projections for legislation, and 75-year spending projections that can be used to calculate the fiscal gap.* The CBO used to use generational accounting, but decided to nix it from its budget baselines in 1995, saying it’s better used as “a tool for examining broad policy options, rather than as an accounting statement.” That seems to be how the INFORM Act’s authors want to see it used—as more of a sign post than a road map. The INFORM Act would require the CBO to include fiscal gap analyses on any “major pieces of legislation”—laws that would affect GDP by half a percentage point over 10 years.
What do these analyses actually do? Troiano explains:
The fiscal gap calculates the present value difference between total future projected government spending and revenue, plus our current debt. In 2012, our country’s fiscal gap was $222 trillion, 13 times larger than the official debt reported by the government. Generational accounting calculates the net taxes of each living generation and future generations. A 2011 generational accounting completed by the International Monetary Fund found that current adults will receive more back from the government over the course of their lifetimes than they paid in taxes, meaning this gap is being closed by a transfer of wealth from young to old.
Simply giving the public higher debt projections may not seem like a terribly lofty goal, but Laurence Kotlikoff insists it would “change the whole nature of fiscal policy-making.” Kotlikoff, an economist at Boston University and the self-described “father of generational accounting” (along with Alan Auerbach and Jagadeesh Gokha wrote most of the language of the bill with UC-Berkeley economist Alan Auerbach. Past attempts to include these analyses in the federal budget, however, have been rejected by both the Clinton and Bush Sr. administrations. “Historically, whenever the government’s tried to do fiscal gap and generational accounting, some politician has tried to censor it,” Kotlikoff says.
But the INFORM Act seems to be gaining traction, that term everyone in This Town uses to connote political momentum: It’s sponsored by Sens. John Thune (R-SD), Tim Kaine, (D-VA) Chris Coons, (D-DE) and Rob Portman, (R-OH) who used to lead the Office of Management and Budget. And it’s been endorsed by more than 700 economists, 12 of whom are Nobel laureates. (I asked the Office of Management and Budget to weigh in on the INFORM Act and haven’t heard back.)
Do we really need another mechanism to tell us that we’re in a lot of debt? Dean Baker, who co-founded the Center for Economic and Policy Research, says no. “The point of these things should be to elucidate rather than obscure,” Baker told me. “If you want a big scary number, fine, but don’t use taxpayer money to do it.” Baker says we should focus on rising health care costs and unemployment rather than debt projections, and says a better projection to make would be future standards of living.
The tricky part is, these analyses don’t just project expenditures into the future—they also theoretically project revenues, and thereby our future tax policy. Of course, this (and any) type of long-range projection falls short in that it’s impossible to predict the policy decisions of the future. “We’re not actually making policy for 20, 30, 40 years out,” Baker says. “The idea that it’s just going to sit there for the next 100 years, that’s just kind of silly.” But hey, it’s worth a shot!
Correction, September 9, 2013: This post originally said the CBO produces a 75-year fiscal gap analysis. The agency produces 75-year cash flow projections.