What the midterms can’t fix
In a little over a month, political pundits and experts will spend an enormous amount of time telling us what changes in Congress will mean for the country. Current polling at least hints at Democratic gains, particularly in the House. If the Democrats take control of the U.S. Senate, their agenda immediately becomes more forceful, all the more so if they make changes to the filibuster rule. Perhaps nothing underscores the stakes more than former President George W. Bush, who has largely avoided electoral politics since leaving office, stepping back into the fray to help raise money for some Republican Senate candidates.
But whatever happens on Election Day, the next Congress will inherit many of the same problems as the current one, including a fiscal outlook that no election result can make go away.
Whoever controls Congress in January will inherit a federal government running a projected $1.9 trillion deficit this fiscal year, with debt held by the public equal to roughly 101% of GDP. CBO projects that debt to rise to 120% of GDP by 2036, driven in significant part by growing mandatory spending and interest costs. Rising interest rates and Treasury yields are making it increasingly expensive to service our enormous national debt. Interest payments on the debt surpassed defense spending back in July.
That debt in the next few years, as a percentage to GDP, will be the largest ever, surging past the end of World War II levels. And as we know, Washington’s spending binge is becoming less of a far off and opaque problem and something that continues to make nearly everything more expensive now.
“So long as the cost of government is high the cost of living will be high,” warned Calvin Coolidge. And Mitch Daniels was 100% correct when he coined our spending and debt as the “new red menace” back in 2011. The more it’s ignored, it only becomes significantly worse.
I find it both amusing and tragic when Congressional candidates and lawmakers propose more spending and programs to address the rising cost of living, issues Congress itself has created by the way.
But as we’ve continually pointed out at American Habits, this is clearly not just a Washington’s problem. States have become deeply intertwined with the federal government’s spending. Federal funds accounted for over 34% of total state revenue in fiscal year 2024, making Washington a critical source of funds for state governments. If public pressures eventually force Congress to restrain spending, states that have built programs and budgets around a continuing flow of federal dollars could face difficult choices of their own.
States need to be more concerned about how exposed their budgets are to Washington, developing contingency plans for reductions in federal funding, building up reserves, and ultimately getting to a point where they can say no to federal dollars.
The last part of that is key.
Mostly, because I believe the grow-up moment where Congress all of a sudden decides to be responsible and put the Republic first is never going to emerge in a vacuum. It hasn’t happened once over the last previous decades. Washington is still broken and refuses to fix itself. The amount of fraud we see in news stories tied to federal spending is by itself quite demoralizing. And with Republicans potentially back in the minority, they can at least pretend to care about our debt again, but even that schtick is becoming meaningless given their governing track record in Congress.
And while many Americans may celebrate a turnover in Congress as a ‘stick-it-to-Trump’ moment, a change in congressional control will do little to resolve the deeper fiscal pressures contributing to Americans’ concerns about the cost of living. Instead, a healthier fiscal order will require states and citizens to demand greater responsibility from Washington while building greater independence from it.
—Ray Nothstine
— The Federalism Beat