The federal government subsidizes higher education through a multitude of grants to universities, subsidized loans, and direct scholarship funding. In addition, the tax code includes at least 14 different programs that distort the education system and complicate tax filing. All told, the tax code subsidizes higher education to the tune of $322 billion over ten years.

From an education policy perspective, the accumulation of all this federal spending has a distorting effect. Over time, the subsidies have likely contributed to the high price of college as subsidies increase demand, which drives up prices. This cycle then drives significant student debt burdens and demand for additional government subsidies.

From a tax policy perspective, the tax treatment of higher education is an example of the seemingly infinite complexity and inefficiency of the tax code. Table 1 at the end of this piece summarizes 14 different such provisions across the tax code. On their own, each provision’s rules and structure are designed for some specific policy goal or political constituency. When added together as a system, the education tax programs illustrate one of the problems with using the tax code to subsidize one activity over another—it often ends up being an incoherent mess that complicates a system designed to raise revenue, not fund college degrees.

Congress should repeal all the tax subsidies for higher education and expand the treatment for education savings to all savings. However, short of repeal, simple changes could make complying with our tax laws more straightforward.

Subsidies for Repeal or Reform

There are nine tax subsidies for higher education that are estimated by the U.S. Treasury to lower federal revenue by $322 billion over ten years (2023–2032). Congress should repeal all these preferences to simplify the tax code.

The American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC) are two of the most prominent ways the tax code subsidizes college. The AOTC is a partially refundable tax credit of up to $2,500, applying to 100 percent of the first $2,000 of qualified education expenses and 25 percent of $2,000 in additional expenses. The AOTC can only be claimed four times per student and is only available for students attending at least half-time. Up to $1,000 of the credit is refundable for taxpayers with no income tax liability. The LLC is a nonrefundable $2,000 credit that covers 20 percent of qualified education expenses. The two credits cannot be claimed simultaneously, have different definitions of qualified education expenses, and have separate eligibility criteria.

The complexities of these two programs create an environment in which more than 3.6 million taxpayers “received more than $5.6 billion in potentially erroneous education credits” in 2012, according to the Inspector General for Tax Administration. Despite changes to the law and enforcement since 2012, the AOTC improper payment rate was 26 percent in 2020, higher than the improper payment rates for the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC). While some of these payments may be outright fraud, the majority are likely due to taxpayer confusion about the rules and necessary documentation.

For some full-time students, the tax code offers two additional benefits. Taxpayers who claim a full-time student between ages 17 and 24 as a dependent are eligible for the $500 Credit for Other Dependents. For certain other non-married taxpayers, the larger standard deduction from Head of Household status is also available when claiming a full-time student child dependent under age 24.

After receiving tax credits during school, students who graduate with student loan debt get additional write-offs. The tax code allows student loan holders to deduct up to $2,500 in interest payments from taxable income. And for those student loan holders who benefit from certain loan forgiveness or cancellation programs, they do not have to include the value of the loan in taxable income as they would for some other types of loan forgiveness.

The tax code also exempts some non-wage compensation from the income tax if it is associated with college or graduate school. For example, certain income paid through scholarships, fellowships, and grants is excluded from income if used to pay tuition and required fees. Similarly, up to $5,250 of employer-paid tuition or other education expenses can be excluded from taxable wages.

Policymakers who are concerned that the tax code penalizes investment sometimes favor write-offs for education expenses, just as businesses write off equipment expenses. This is part of the rationale behind the business deduction for work-related education expenses and similar individual deductions that were available in past years. However, today’s higher education is not just an investment, it also includes a lot of status signaling and consumption—intellectual consumption, as well as campus amenities. Given all the other ways the government subsidizes education, the cleanest answer is to remove the tax code from the education system.

Make Savings Programs Less Targeted

The second group of education-related tax programs include different forms of savings incentives (or more accurately, the elimination of savings penalties). Removing taxes only on savings for education incentivizes people to save and then spend on education instead of other goals that do not benefit from similar tax programs.

529 Plans are the most notable of these savings vehicles, allowing taxpayers to save and invest after-tax wages in a Roth IRA-style account. Any earnings are tax-free if the withdrawals go toward qualified education expenses. Coverdell Education Savings Accounts provide the same incentive but include additional rules, such as annual contribution amounts and income limits. The tax code offers similar tax-advantaged savings for retirement through vehicles like employer-provided 401(k)s. In certain circumstances, taxpayers are allowed to use their retirement funds for education expenses.

In general, the tax treatment of 529 Plans and retirement savings is the correct tax treatment of savings. A return on investment compensates for delaying consumption (saving rather than consuming). By taxing investment gains through taxes on capital gains and dividends, the system taxes savers at higher marginal effective rates than those who spend their income immediately. By removing taxes on account earnings, 529 Plans and retirement accounts help alleviate a double tax that hits Americans who choose to save and invest.

What Can be Done?

Congress should repeal all the tax preferences for higher education programs and expand the treatment of education savings so that all savings can get the same benefit. Short of repeal, simple changes would make complying with our tax laws more straightforward.

The AOTC, LLC, and benefits for full-time students under 24 could be consolidated into a single nonrefundable credit with one set of rules that are simple and easy to follow. House Republicans proposed a single education credit as part of the 2017 reforms, but it kept some of the complexity by maintaining time limits and changing rules in the fifth year of the expanded credit. If Congress is going to provide subsidies through the tax code, it should strive for simplicity. Congress could also create one definition of qualified education expenses that apply across similar programs.

Instead of tinkering with the rules of 529 Plans or adding new education exceptions to 401(k)s (as Congress recently did in the SECURE 2.0 Act), Congress should create a Universal Savings Account so that taxpayers, instead of politicians, get to decide what they can spend their saving on. The 529 Plan education subsidy is not the exemption of earnings from tax; it is the rules restricting the funds to education.

Congress can tinker around the edges to make tax paying easier, or it could decide to get the tax code entirely out of the education system. Both would be an improvement, but only the latter will remove the distortions caused by the current tax system. 

Legislators frequently use recurring rhetorical devices to simplify budget debates. For example, they’ll call for dollar-for-dollar agreements and the parity principle across defense and non-defense spending. As simple and fair as these concepts may appear on the surface, Congress should budget based on fiscal realities and in accordance with national priorities, instead of basing decisions on catchy, yet misguided, tag lines.

Both concepts were used during the debt limit debate of 2011, culminating in the Budget Control Act—a law to raise the debt limit in exchange for spending reductions of the same size (dollar-for-dollar), with cuts targeting defense and non-defense discretionary spending by roughly equal amounts (parity).

There is a major problem with this approach: There is no parity between defense and non-defense spending in the federal budget. As the graph below shows, non-defense spending has far outpaced defense spending when it comes to the overall federal budget.

Cumulatively speaking, over the past 50 years, non-defense spending grew nine times faster than defense spending, after adjusting for inflation. Just considering fiscal year 2022, non-defense spending was more than seven times larger than defense spending.

Over the next ten years, the U.S. federal government is projected to spend $10.8 trillion on defense and $69.1 trillion on non-defense (with $36 trillion of that amount alone going to pay for Social Security and Medicare benefits). These projections are based on the latest Congressional Budget Office report.

Divided by U.S. households, American taxpayers will be hit with $78,172 in defense spending, $340,683 in spending on Medicare, Social Security, and interest on the debt, and an additional $239,800 in other non-defense spending over the next ten years. That’s the size of one gigantic short-term mortgage that will only partially be paid for with taxes. The rest will add to the already massive federal debt.

Parity in spending reductions among defense and non-defense categories, in the context of the entire federal budget—not just the one-third of discretionary appropriations legislators haggle over each year—means something very different than dollar-for-dollar cuts.

A New Budget Control Act

As Congress engages in debt limit negotiations this spring and summer, some Republican members are considering pushing yet again for an agreement that would raise the debt limit by one dollar for every dollar in spending cuts. Exact figures are not yet under discussion, but one possible bid could be for another Budget Control Act to reduce and cap discretionary spending.

One of the proposals currently in circulation among House Republicans would reduce non-defense discretionary spending (transportation, education, energy, etc.) by $130 billion next year, reducing the overall spending level to what it was in fiscal year 2019. This would return non-defense spending to pre-pandemic levels—a very reasonable target.

If members of Congress froze non-defense at the pre-pandemic level for the next ten years while increasing defense spending at no more than two percent each year, this would save about $4 trillion from 2024 through 2033. $4 trillion is also roughly the amount Congress would need to save, if legislators wanted to strike a deficit reduction deal that’s at least as large as the Budget Control Act of 2011 was.

The math is simple: the Budget Control Act, if fully implemented, would have shaved five percent of projected spending over the ten years during which it was to take effect. Five percent of projected spending over the next ten years amounts to roughly $4 trillion. A new Budget Control Act should account for how fiscal realities have shifted since 2011.

So at least in theory, Republicans are aiming at a deficit reduction deal roughly equivalent to the Budget Control Act of 2011; only this time all the savings would come from the non-defense side of the discretionary budget.

Reduce Spending Growth to Stabilize the Debt

Another problem is that $4 trillion in spending reductions saves only about half of what’s needed to stabilize the debt at its current elevated levels. U.S. debt levels are projected to exceed the size of the entire U.S. economy as measured by gross domestic product (GDP) as soon as next year.

Such high and rising debt levels slow economic growth, reducing Americans’ incomes and dragging down productive investments. Without reforms, unsustainable debt growth will limit the federal government’s ability to respond to unforeseen emergencies, whether they be a public health crisis like COVID-19 or a major war engagement. Excessive debt growth also increases the risks of a fiscal crisis in the United States, during which legislators could be forced to make sudden and steep spending cuts and significant tax hikes, as interest rates spike and inflation grows out of control.

To avoid further adding to the debt as a share of the economy, legislators would need to agree to reduce deficits by at least $8 trillion over the next ten years. Such a deal would shave about ten cents off every dollar the federal government is currently projecting to spend. Seems doable.

Put another way, annual federal spending is projected to grow from $6.2 trillion in 2023 to nearly $10 trillion in 2033. That amounts to a cumulative increase in spending of about $18 trillion, compared to implementing a budget freeze in 2023. The federal government could stabilize debt as a percentage of GDP by cutting the projected growth in spending in half.

Congress should adopt an agreement to stabilize federal debt over the next ten years, at no more than its current level. Congress can achieve this goal by reducing the projected growth in spending. The responsible choice as Congress confronts the need to raise the debt limit later this year is to adopt spending reforms that stop further growth in debt as a share of GDP.

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Census data shows, on average, state and local government spending as a percentage of personal income rose sharply between 1962 and 1977, but then flattened out in the years leading up to 2020. However, there is substantial variation across jurisdictions: while some states have seen little overall change in the percentage of income devoted to government spending since 1962, others experienced dramatic growth.

The animation below shows how state and local government spending have evolved in all fifty states and DC since 1962. Spending data comes from the Census Bureau’s Annual Survey of State and Local Government Finances, and includes expenditures of federal funds as well as own-source revenue. State personal income data comes from the Bureau of Economic Analysis. We used personal income for the second quarter of each year, since June 30 is the most common fiscal year end date for U.S. state and local governments.

In nominal terms, government spending has skyrocketed over the last sixty years. Evaluating spending as a proportion of a national income measure (like personal income or GDP) over time corrects for inflation and economic growth.

But the notion that government spending should remain a constant proportion of personal income is open to debate. Some essential industries decline as a percentage of income as our society grows richer. For example, an analysis of USDA data shows that food expenditures (both at home and away from home) fell from 16 percent of personal income in 1962 to 10 percent in 2021. Over the same period, expenditures on “clothing, footwear, and related services” fell from 7 percent to 2 percent of personal income.

State and local government spending (including their expenditures of federal funds) in the median state rose from 15.92 percent in 1962 to 20.50 percent in 1977. For 2020, the most recent year Census data is available, the median ratio was little changed from 43 years earlier at 20.67 percent.

The runup in state and local spending during the 1960s and 1970s is linked to the inception and rollout of Great Society programs under President Lyndon Johnson. During this period, Congress established Medicaid, a state-administered program that provides health coverage to individuals on low incomes. It also expanded Aid to Families with Dependent Children and the food stamp program (now known as the Supplemental Nutrition Assistance Program).

Once Medicaid was fully implemented and some level of cost control was put in place, the program stabilized as a percentage of personal income in many states. But in the District of Columbia, Medicaid spending has continued to grow rapidly, reaching $3.4 billion in 2022, which is over $5,000 per resident. One cost driver is high enrollment: as of late 2022, 43 percent of DC residents were enrolled in the program (or its sibling, the Children’s Health Insurance Program), a proportion higher than any of the fifty states.

DC also has relatively high educational costs. In 2020, DC’s per pupil cost of public education (excluding capital expenditures) was higher than every state except New York and 69 percent above the national average.

New York is among the states that saw the most rapid growth of spending relative to revenue. Aside from high educational costs per pupil, it also has a high level of Medicaid dependency with over 37 percent of Empire State residents on either that program or CHIP. Another challenge for New York, relative to other large states, is slow personal income growth. This, in turn, is related to the state’s relatively slow population growth. In the 1960 Census, New York was still the nation’s most populous state; it has now fallen to fourth.

Alaska also has relatively high Medicaid enrollment and costs. But the main cause of its surge in state spending after 1977 was exploitation of the Prudhoe Bay Oil Field. A gusher of energy revenue inspired legislators to implement a costly industrial policy, increase transfer payments to individuals, and raise public employee compensation. A drop in oil prices in the 1980s constrained personal income growth, contributing to a further rise in the spending to income ratio. Since peaking at over 55 percent in 1987, the ratio has been trending downward.

Two other states that have seen relatively rapid spending growth relative to personal income growth are New Mexico and Delaware. New Mexico’s Medicaid dependence is second only to DC’s with about 42 percent of the state’s population currently enrolled. Medicaid spending of $8.4 billion is roughly 8 percent of personal income. Delaware’s Medicaid costs are less of an issue, and it does not appear that any one factor is driving cost growth in the First State. In the 1960s and 1970s Delaware experimented with big government, raising marginal income tax rates to over 18 percent (a level unmatched anywhere back then or ever since). But these confiscatory taxes were rolled back under Governor Pete Dupont in the late 1970s.

With some notable exceptions discussed here, it appears that interstate competition for residents and the need to balance budgets are keeping a lid on state and local spending, at least as it relates to state personal income. But whether state and local governments need to grow proportionately to their economies remains a debatable proposition.

Remote work has proliferated as a work arrangement since the COVID-19 pandemic began in 2020. While its popularity has declined since its Spring 2020 peak, remote work remains far more common today than it was before the pandemic (see Figure 1). Research from Nicholas Bloom and others found that last month, nearly 13 percent of workers were fully remote, and an additional 28 percent worked in a hybrid arrangement.

In our chapter on remote work in Empowering the New American Worker, we explain how remote work can benefit both workers and employers, and we identify several state policies that make remote work needlessly difficult (especially across state lines). This includes:

• State income tax filing and withholding requirements that often require workers to file state income taxes if any income is earned in that state, and tax withholding thresholds that often force employers to withhold state income taxes from employees after just one day of work in-state (see Figure 2).
• Convenience of the employer rules that base an employee’s state income tax obligation on the location of their employer, not the employee’s actual residence. Four states utilize these rules, thus taxing workers in states where they neither live nor work (if remote) and potentially subjecting them to double-taxation.

Our chapter proposes general reforms to these and other policies affecting millions of American remote workers, but we didn’t dig into individual state policies and regulations or identify the states offering best practices. Fortunately, Andrew Wilford of the National Taxpayers Union has now released a handy ranking of states based on their remote work policies, in particular rules on tax filing thresholds, tax reciprocity agreements (agreements between neighboring states allowing commuters across state lines to only pay taxes to their state of residence), “convenience of the employer” rules, state income tax rates, and tax withholding thresholds. Filing thresholds, reciprocity agreements, and withholding thresholds are each worth a maximum of 10 points, while the tax rates component is graded out of five points. The study subtracts five points from states with “convenience of the employer” rules, and provides the following results:

State Rankings, ROAM Index

(Source: Andrew Wilford, “The 2023 ROAM Index: How State Tax Codes Affect Remote and Mobile Workers,” National Taxpayers Union, January 26, 2023.)

The highest performing states are those without an income tax (e.g., Florida, Texas, and Washington) because they avoid tax filing, withholding, or other issues that only accompany an income tax. Of the 41 states with an individual income tax, however, West Virginia is the clear winner. The Mountaineer State’s reciprocity agreements cover 95 percent of affected workers, the tax withholding threshold is one of the highest in the nation at 31 days, and the state does not have “convenience of the employer” rules. That’s right in line with our proposals in Empowering, which recommended that states drop or avoid “convenience of the employer” rules and require workers to have at least 30 days of residence before triggering state income tax filing or withholding obligations. Other states, such as Minnesota (with a high in-state wage threshold equivalent to roughly 30 days of work) and Hawaii and Arizona (with respective tax withholding thresholds of 61 and 60 days of in-state residence), also score well in this regard.

On the flip side, Delaware and Nebraska actually earn negative scores, largely due to the five-point deduction for “convenience of the employer” rules. And several states have “global income” thresholds for tax filing, which require taxpayers to file taxes on all income earned, even if the income was mostly earned out-of-state. None of that is good for the millions of Americans who now work remotely and who, because of remote work, now have much greater freedom to choose where they can live.

This tax season, the IRS expects to receive more than 168 million individual tax returns, which will take Americans approximately 2 billion collective hours to complete. As we file our taxes, it is natural to wonder where the $4.9 trillion the Federal government collected last year came from and what it funds.

Government data shows that the federal tax system is highly progressive. The highest-income Americans pay a disproportionate share of income taxes and face the highest average tax rates across all federal taxes. We are also lucky to live in a relatively low-tax country, but Congress continues to spend well beyond its means. If spending stays on its current path, interest on the debt and other mandatory programs—primarily Social Security and health spending—will consume every dollar of revenue by 2031.

Income taxes are highly progressive

The primary tax system Americans interact with each year when they file their taxes is the income tax. The latest Internal Revenue Service (IRS) data on income taxes for the 2020 tax year shows that the federal income tax system is highly progressive and has become more progressive over time.

The lowest-income half of Americans paid an average income tax rate of 3.1 percent, while the top 1 percent of income earners paid a 26.0 percent rate. Across all taxpayers, the average income tax rate was 13.6 percent.

High-income earners also pay a disproportionate share of the income taxes relative to income earned. Figure 1 shows that as a share of adjusted gross income (AGI), the top half of income earners paid 97.7 percent of federal income taxes. The top 1 percent earned 22.2 percent of total income and paid 42.3 percent of all the income taxes. The top 10 percent earned 49.5 percent of the income and paid 73.7 percent of the income tax.

Since 2001, the earliest we have consistent IRS data, average income tax rates have fallen for all five income groups. Rates have fallen the furthest for those with the lowest income, declining from 4.9 percent in 2001 to 3.1 percent in 2020. For the top 1 percent, average tax rates fell from 27.6 percent in 2001 to 26.0 in 2020. During this same time, the share of income taxes paid by the top 5 percent increased from 52.2 percent to 62.7 percent, while the share paid by all other taxpayers declined.

Total federal taxes are also highly progressive

For all but the top 10 percent of income earners, Americans pay more payroll tax than income tax each year. Because the payroll tax rate is a flat 15.3 percent on wages below a $147,000 cap (split evenly between the employee and employer), they offset some of the highly progressive income tax system.

The federal government raises slightly more than half of its revenue from income taxes, about 30 percent from payroll taxes, and 10 percent from the corporate income tax. The remaining revenue comes from smaller sources, such as taxes on estates, tariffs, and excises.

The U.S. Treasury’s Office of Tax Analysis also estimates that the entire federal tax system is highly progressive, even after accounting for payroll, corporate, and other taxes. Figure 2 shows that average tax rates climb as incomes increase. The lowest 20 percent of income earners, measured by adjusted family cash income, face average tax rates that are either negative or close to zero. A negative tax rate means that the taxpayer is a net beneficiary of the tax system, likely receiving refundable tax credits, such as the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC).

The top 10 percent of income earners pay an average tax rate of 26.7 percent. Treasury also breaks the higher income earners into even narrower slices, showing that as incomes rise, so do tax rates, even at the very top of the income distribution. The highest earning 0.1 percent, pay an estimated average tax rate of 32.4 percent.

Spending is the real tax rate

The United States is a low-tax country compared to similar countries around the world. Low taxes are a benefit to American workers and employers. In 2019, I estimated that a worker making about $40,000 in the United States would pay $6,000 more in taxes if he moved to the average European country where higher taxes are necessary to fund bigger welfare states. Beyond additional money in your pocket, lower tax rates also have broader economic benefits that foster innovation, higher living standards, and more job opportunities.

Just looking at current taxes obscures the fact that the U.S. federal government has run a budget deficit every year since the early 2000s, financing through government debt spending levels that are consistently higher than tax revenue. Even after the 2017 tax cuts expire at the end of 2025 and revenues remain well above the historical average, the gap between taxes and spending is projected to continue to grow as retirement and health spending increase at unsustainable rates. The Congressional Budget Office recently estimated that spending on interest and other mandatory programs will surpass revenue raised in 2031, leaving Congress to finance all other spending with additional debt.

Eventually, something has to give, either taxes will need to rise, or spending needs to fall. But the current system, where the top 10 percent of income earners pay 60 percent of all federal taxes, is unsustainable. No other large, peer welfare state supports its high spending without higher taxes on middle-class taxpayers. If the American people continue to demand high levels of government spending, politicians should be clear; big government means higher taxes and slower economic growth for all Americans. 

Social Security and Medicare have come back into the spotlight, following President Biden’s State of the Union. POTUS ruled out any cuts to Social Security or Medicare and attacked Republican members for suggesting reforms. What POTUS failed to mention is that doing nothing on Social Security and Medicare will lead to automatic benefit cuts. Reforming these major old-age entitlement programs is not an option; it’s an urgent necessity.

Can a commission break through the legislative gridlock?

Social Security and Medicare are governed by trust funds that are on the path to insolvency. Medicare’s Hospital Insurance trust fund is projected to run out of money by 2028. Social Security’s old-age and survivors insurance trust fund is projected to be exhausted by 2033.

And this isn’t just a future problem. Medicare is the largest among a myriad of federal health care programs. Together, federal health care programs and Social Security will be responsible for 60 percent of the growth in projected spending over the next decade. That’s according to the latest projections by the Congressional Budget Office (CBO). Cato’s Chris Edwards explains:

“The main drivers of rising deficits and debt are Social Security and Medicare […]. The combined cost of the two programs for the elderly is projected to leap from $2.35 trillion in 2023 to $4.46 by 2033. By then, spending on the two programs will be four times higher than spending on national defense.”

The Bipartisan Trust Act

Senator Manchin (D‑WV) has reportedly been in talks with House Speaker McCarthy (R‑CA) about a commission to reform programs like Social Security and Medicare, based on the Trust Act (S.1295), a bill the Senator co-sponsored with Senator Romney (R‑UT) and that has garnered broader bipartisan support. The House version (H.R. 2575) of the bill, sponsored by Representative Gallagher (R‑WI), earned the support of the now-House Budget Committee chairman, Representative Arrington (R‑TX).

Support among key congressional leaders bodes well for this bill becoming a key part of negotiations over the debt limit this year—despite POTUS’s apparent attempt to rule out any negotiations over the debt limit or entitlement programs. As Sen. Joe Manchin (D‑WV) has reportedly stated: it’s “unreasonable” to not negotiate.

The Trust Act would direct the top four congressional leaders to appoint three members each to serve in so-called “rescue committees.” Their task: to identify reform solutions that keep major trust funds from becoming depleted. They’d report their recommendations after 180 days for consideration by the broader legislative body under expedited floor procedures.

Commission Design

A bipartisan commission moves in the right direction on making entitlement reform a reality in Congress before trust funds run out of funds. Design matters, too.

The nonpartisan Government Accountability Office (GAO) surveyed entitlement reform efforts by developed, high‐​income Organisation for Economic Co‐​operation and Development (OECD) countries to distill lessons for U.S. policy consideration. “Since the early 1990s, almost all of the 30 OECD countries restructured their pension programs, with a clear trend toward reduced benefits,” writes GAO. Successful entitlement reform is more likely to occur when several factors are present, including:

• a broad consensus across parties and groups that reform is necessary;
• the development of proposals in commissions that insulate policymakers from political risk; and
• establishing iterative reform processes, such as standing commissions and mechanisms to automatically adjust benefits if adopted reforms prove insufficient to make programs sustainable.

The United States has had its own recent experience with a successful reform commission in a different politically tricky area. The Defense Department’s Base Closure and Realignment Commission (BRAC) provides important lessons on how Congress can overcome gridlock and special interest politics to realize bipartisan reform.

Closing obsolete military bases across the globe, following the Cold War, made good sense, and would allow Congress to fund other military missions and reduce the deficit. Yet, base closures resulted in the dynamics of concentrated benefits and dispersed costs. Districts in which bases were closed experienced the immediate pain of that decision while the benefits were shared among all taxpayers. It became increasingly difficult to carry out base closures as Members of Congress banded together to protect each other’s districts. In 1988, a well-designed commission to close and realign defense bases broke through the gridlock. According to Jerry Brito, then with the Mercatus Center:

“A spending commission modeled on BRAC should be focused, independent, composed of disinterested citizens who are given clear criteria for their decisions, and be structured in a way that allows its recommendations to be operative unless Congress rejects them.”

The BRAC’s recommendations had to be adopted as one package, with only an up or down vote in Congress and no amendments. If Congress approved the package, it would be submitted to the President for his review and possible veto. (Congress could override a veto with a two-thirds majority.)

Can the Trust Act succeed?

Does our current political Zeitgeist provide the conditions under which an entitlement reform commission, like the one proposed in the Trust Act, can succeed? Based on current rhetoric by some in Congress and the White House, it does not appear that there is a shared understanding that entitlement reform is a necessity. Even if such an understanding came to exist in the next few months, the Trust Act is not modeled after BRAC. A BRAC-style commission would consult outside parties, instead of members of Congress, to devise reform proposals, shielding elected officials under a cloak of “following expert recommendations.”

There’s also no enforcement mechanism. Will members of Congress have a strong enough incentive to come to an agreement, without the threat of some punitive action like automatic spending cuts? Some might argue the trust funds’ imminent depletion is incentive enough. The rescue committees could fail to send their recommendations to Congress, in a similar vein as the Simpson-Bowles commission failed back in 2010. And if they did fail, there would be no consequences other than some degree of public shaming, perhaps. That is until trust fund exhaustion would finally force legislators to do something. Their options will be significantly limited the closer that day comes.

It’s worth a try. At the very least, Congress and the administration may come closer to developing a shared understanding that entitlement reform is not only necessary but urgent as well.

With an impending showdown of the federal debt limit looming, neither Republicans nor Democrats are addressing the only real way to reign in debt and keep the U.S. fiscally solvent. In a New York Sun column today, I tell lawmakers a difficult truth:

The United States currently limits the federal debt to $31.4 trillion. Borrowing hit this limit on January 19, but the government will not default until at least July due to various “extraordinary measures.” If default occurs, a major financial crisis is likely. How should the United States respond?

By cutting Social Security and Medicare.

The United States is on an unsustainable fiscal path. Projections from the Congressional Budget Office show that under current policy, the debt-to-GDP ratio increases without bound. This means increasing borrowing costs, greater difficulty in rolling over the debt, and eventually fiscal and financial meltdown.

…

Medicare and Social Security, moreover, are precisely the programs to cut. This starts from the fact that both are large (11.4 percent and 17.2 percent of federal outlays, respectively). More importantly, both programs are projected to grow consistently at a faster pace than GDP. This excessive growth reflects the aging of the population (for both programs) and excess health cost inflation (for Medicare).

Read the rest here.