The biggest challenge to reining in federal spending to bring down the national debt is not fiscal, but political, said Romina Boccia in a lecture hosted by Praxis April 13.

“Is this situation hopeless? If it were hopeless, I wouldn’t be doing what I’m doing,” Boccia said. “Then I would just be wasting my time. So don’t believe the situation is hopeless. But it is a very tricky political situation.”

Boccia, director of budget and entitlement policy at the Cato Institute, recommended an independent commission — composed of non-elected officials — that could propose a new spending cuts plan to the president who could enact or reject it without Congressional approval.

“What we will need to overcome the political problem is to provide cover for politicians for those tough decisions that will need to happen without them having to get their hands dirty,” Boccia said.

She said this would rearrange the political incentives to make necessary but unpopular spending cuts while removing the political accountability of members of Congress.

“Their primary concern is always the next election,” Boccia said. “That’s as far as most lawmakers unfortunately think. How can we make it easier for them to do what needs to be done without them worrying about being held accountable for it by their voters? That’s where I think an independent commission comes in.”

Federal, publicly-held debt is currently $24.6 trillion — approximately as large as the entire American economy — and is expected to grow, according to a February report from the Congressional Budget Office. Boccia said as the debt grows larger than the U.S. economy, Americans should expect higher federal spending to stunt economic growth.

“That money can suck up economic resources,” Boccia said. “Including employing workers that could have otherwise been employed the private sector and using other real resources that the private sector may have been employed in more efficient and effective ways. That’s because they actually have the information to do so through the profit mechanism rather than towards politically directed purposes, where there’s a higher likelihood of that money being wasted.”

Another negative effect would come from a decrease in business investment due to anticipated tax hikes.

“A business might make less risky investments because they know that the rewards that are going to be on the other side of that investment may not be worth it,” Boccia said. “So that would mean that we’re getting less innovation, which means less progress and fewer investments overall, because some of the entrepreneurs may be pricing in the high likelihood of higher taxes.”

Boccia pointed to differences between the U.S. and other countries that also hold large national debts, including Japan.

“The Japanese government has borrowed almost the entirety of its debt from its own citizens,” Boccia said. “It’s the Japanese people’s savings that are backing the Japanese debt. In the U.S. context, more than half of the debt borrowed in credit markets has been borrowed from foreign entities.” 

The largest U.S. debt holders are Japan ($1.1 trillion) and China ($867 billion), according to December 2022 statistics from the treasury department. This puts the U.S. in a more difficult situation, Boccia said.

“We are actually reliant on foreign investors financing our current government spending, which is not the case in Japan,” Boccia said. “Japan just borrows from its own population.”

To raise necessary revenue, Boccia expects the federal government would need to create new taxes.

“We would have a lot of trouble trying to raise a lot more revenue to close our current fiscal gap without introducing an entire new level of taxation,” Boccia said. “I think it would have to be a value added tax or consumption tax, and those tend to fall most heavily on lower middle income earners who consume a larger portion of their income than higher income earners who save more.”

Boccia said the main solution to higher deficits is to cut spending.

“It is likely that — for political reasons — taxes will have to go up, but not for reasons that are intrinsic to the problem,” Boccia said. “Because the spending is a problem, if we reduce the spending, we don’t need the taxes. I would also argue to that point that the debt and deficit are ultimately just symptoms of a spending problem.”

Boccia said she supports the debt limit and expects Congress will strike a deal before the U.S. government defaults.

“I do think it serves a valuable purpose, to the degree that it provides a focused legislative opportunity for lawmakers to consider the size of the debt and how fast it’s growing,” Boccia said. “It forces them to take some legislative action to either correct the debt or at least raise the debt limit, and it gives voters an opportunity to hold their lawmakers accountable.”

Boccia pointed to the next 75 years of the federal government’s unfunded spending obligations, totalling roughly $80 trillion. Social Security and Medicare make up 95% of the unfunded obligations, which Boccia said makes entitlement reform unavoidable.

“That’s remarkable,” Boccia said. “Because we were just told by President Biden that there will be no cuts to Medicare, Social Security. He has convinced most Republicans to now also go on record to say ‘Medicare and Social Security cuts are off the table. We’re not talking about them at the debt limit.’ Well, if we don’t if we can’t talk about Medicare and Social Security, what are we even talking about? Nothing else matters.”

Senior Josh Barker said he was skeptical of whether Boccia’s independent commission proposal would be an unconstitutional delegation of power to the executive branch.

“I’m more skeptical about whether or not it can be implemented in the U.S.,” Barker said. “Some of the commissions that have happened in Europe, the delegation of authority there will likely not pass, especially our 6-3 Supreme Court and its view of delegation of power. It shouldn’t, at least in my point of view.”

Junior Al Stamm, president of Praxis, said the lecture fulfilled the two goals of the political economy discussion group: educate on issues often left out of the classroom and expose students to current professionals in the field.

“I think it’s super important to be thinking about these kinds of issues as we go forward,” Stamm said. “The issue of federal debt was one of the first things I started thinking about when I started getting into economics in high school. So I was glad to have a speaker come talk about this issue.”