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Them Before Us Podcast
Them Before Us #069 | Will Debt Cripple Our Children's Futures? Pro-Child Politics | Phil Kerpen
00:29:46
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- [00:00]
A
Foreign and welcome to the Them Before Us podcast. Today we're continuing our Pro Child Politics author series with contributor Phil Kirpin, who wrote our chapter on debt. Phil Kirpin is the president of a 501c4 advocacy group called American Commitment and a 501c3 educational charity called the Committee to Unleash Prosperity. Mr. Kirpin has previously served as Vice President for Policy at Americans for Prosperity and as an analyst and researcher for the Free Enterprise Fund, the Club for Growth, and the Cato Institute. Mr. Kirpin, thanks so much for joining us today.
- [00:42]
B
Oh, my pleasure.
- [00:43]
A
I'd love to start by just hearing a little bit maybe about your career trajectory. What, what drew you to be interested in caring about government, fiscal responsibility and the debt and finances and things for the American people? As for as a career, yeah, I've.
- [01:00]
B
Been working on this stuff for a long time, I would say. Really. You know, I started out interning for Steve Moore at the Cato Institute in the Fiscal Policy Studies department. And I was really interested in doing that because I had come from an academic debate background where a lot of these things got debated. And it's kind of like, okay, where can we actually do something about it that can have an impact? And that's kind of why I applied to Cato and came to Washington originally back in 1999. And then when we started, when Steve Moore started Club for Growth, the idea was let's take the ideas we've been working on at Cato and in other think tanks and try to apply them into the political sphere by backing candidates who actually believe in these ideals of fiscal responsibility and low taxes and economic growth and getting involved in particular in Republican primaries. And then I went with Steve to Club for Growth and I was there for about five years. And then there was after the 04 cycle, which was somewhat disappointing, there was sort of a crack up with the board of directors and we ended up leaving Club for Growth. I left with Steve. We started a new group called Free Enterprise Fund, which was fairly short lived. Steve abandoned me for the Wall Street Journal after just a few months. And then I had a parade of different bosses and board things and other goings on. That organization is defunct, but it actually won a major Supreme Court victory in a case called Free Enterprise Fund versus pcaob, which was a big landmark appointments clause case. But by the time we wanted the Supreme Court, the organization was defunct. So we couldn't get any media or attention or execute kind of the legislative strategy was supposed to be associated with that. And then There was a grassroots group called Americans for Prosperity that was getting a lot of attention in town around that time. And I went and I actually pitched them on adding a policy department, which they didn't have at that time, which is interesting now because that's a huge part of what that organization does now is talking policy. But I pitch them on like, if you're going to be getting activists organized and engaged on issues at the state and federal level, you really need to have a policy department that's developing the material, synthesizing what's going on in the various think tanks so you can get something that's kind of activist friendly into people's hands. And they agreed and they hired me. And then I was sort of part of AFP and kind of the, the, you know, the Coke Industries network. And David Koch was the chairman of the AFP C3 at the time. He's since passed away, unfortunately. But I was there about five or six years when I decided in the 2012 election cycle to start my own organization. And that's when we started American Commitment, which is really geared towards jumping in on whatever the fiscal, economic or regulatory issue is where people can make an impact with a little more citizen education and engagement might tip the outcome in a more free market direction. So we do a lot of letters into Congress on upcoming votes and a lot of letters into regulatory agencies, comment dockets and really, you know, rather than specialize in just one issue, we try to kind of COVID the field broadly all the economic issues, but hone in on the things that are really on the margin at any given point in time so that people can have as big an impact as possible. And then a few years ago, actually 2020, I guess it's five years ago now, Steve Moore asked me to join the group that he had started with Art Laffer and Steve Forbes and Larry Kudlow called Committee to Unleash Prosperity. And so Steve and I reunited on that. I also now do both organizations, American Committee Commitment and Committed Unleashed Prosperity. And we do a daily newsletter with Committed, an educational group, really supply side economic analysis. And it doesn't do direct advocacy like the C4, but it just does education and research and analysis. And then, you know, we started this newsletter like the first week of COVID lockdowns. And I thought it was going to last a week or two. And I ended up becoming like, you know, an amateur epidemiologist following all these virus charts and all this stuff for what ended up being years. And we actually still do that daily newsletter. And it's Free if people want to get it every weekday. And it's, you know, obviously no longer Covid focused. Now it's more broadly focused kind of on all the economic and political issues. And people want to check that out. UnleashProsperity.com is where you can sign up for that. And I think it's a pretty good product. So that more or less covers the last 25 years of my life and tells you kind of the stuff that I work on. You can see why. You know, when you asked me to write the chapter about debt, I said yes. Cause it fits in so squarely with all the things I've been doing.
- [05:29]
A
Yeah, for sure. And it's so important because so many of us, you know, you're. You're talking right now to an audience of lay people that are primarily concerned with marriage and family issues. Right. So that's what done before us does. And this book is pro child politics is really nice because it's really trying to give everyone a primer and some resources about a variety of different topics that still impact all of us as the American people, but primarily children. But you know, I just, I imagine that you are driven nuts by just the political rhetoric you hear. I mean, there are things that even to me, you hear that we have enough money to give illegal immigrants different amounts for different things, and then we have a big natural disaster. Now there's not enough money when you know that they're just spending money on anything they want at any given time. You know, kind of both sides of the aisle are doing that. So it all feels very big, confusing, out of control. It doesn't feel like I, as just a typical person and a voter, can really do anything about it. So those resources will be really helpful to people and the chapter will be really helpful. You start your chapter with a really stark reminder of what the debt is going to do to individuals. But you start with a little picture of a person named Noah. So my friends first grandson Noah was recently born. As he took his first breaths, he was already saddled with over $78,000 in federal debt that he had no say in accumulating. And the national debt. I even just looked at the debt clock. I don't know, would you say that thing's accurate, that website? That's like tracking all the different little things. It says we're at 35.6 trillion. You can just watch it clicking up. Your life, your money going away.
- [07:10]
B
Yeah, I mean, you need to be a little bit careful of that because about 9 trillion of that is Money that the government owes to itself, it's in Social Security. So the actual debt held by the public is probably, you know, 26 trillion, something like that right now. But yeah, and you say that what's, what does trillion mean to anyone? That's why I think the amount, the amount that a baby right today is owes is a more salient amount. And you know, I think when I wrote the 78,000, I was only able to get 2023 data. So it's probably over 80,000 now. So it's, it's a very large amount, but it's not an incomprehensibly large amount. We kind of have a feel for what that means, you know, from other things we might owe debt on homes and cars and what have you.
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A
Right.
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B
Yeah.
- [07:52]
A
And you say for an adult, you know, in that same instance, that baby Noah, by the time he's in his mid-30s, would owe then 20 to $225,000 of the natural of the national debt. You know, so you see that it's.
- [08:05]
B
Growing and that's what if we stay on the path we're on, it's rising very, very sharply. Yeah, it's not like, you know, it's not like you're paying it down and it's being less. In fact.
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A
Right.
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B
If on the projections, when we keep spending a lot more than we bring in in revenue. So that debt burden just keeps growing.
- [08:20]
A
And we do hear politicians particularly talk about. This is one of the lies you, the first lie you talk about in your chapter is that federal spending stimulates the economy. We heard that in Covid a lot. They sent everybody a check. This is. So it'll help people get through the problems that they're facing or it will, you know, they're going to get this money and then put it back into the economy. But so why is that not true? That federal spending and the government, you know, whether they're putting money into, they say housing or they're putting it into infrastructure or roads. Why isn't that helping the economy?
- [08:56]
B
Well, every dollar that the government spends into the economy, it first extracts out of the economy. There are only three ways that government can get the money that it spends. It can raise it from taxes, it can borrow it through selling bonds, or it can print the money by having the Federal Reserve buy the bonds and create the money by pressing click. And then it gets spent by the federal government. So the government spending can't make us richer because every single way the government gets the money to spend makes us poorer. And if government Spends money less efficiently than individuals do who know their own wants and needs and so forth. And I believe it almost always does. Then government spending doesn't just not make us richer, but it makes us poorer because it displaces private decisions with and, you know, more efficient resource allocation with politicized decisions and less efficient resource allocation. So government stimulus is a myth because it's essentially single entry bookkeeping. If you only look at the effect of the government spending, then you can find positive effects. But if you look at the other half of the equation, which is where does the money come from, then it at least negates those effects. It may actually make things even worse.
- [10:11]
A
This is a little bit of a tax question, but that's sort of the frustration when people say, well, that goes down to another lie that you highlight. We can solve our fiscal problems by taxing the rich. We get a lot of the. The rich need to pay their fair share. But that's sort of inverting the reality. It's not that the government is owed X amount of dollars and everyone should do their be a good citizen and pay what they owe the government. It's that the government is creating different reasons they want to take. Like you're saying, they want to spend money and the only way they can is by taking it from other people to begin with. And there are some things that we need and want the government to do. I can't pay for my own security and private jets and things to protect me. If a country was to invade, the government is supposed to help protect us with the military or pay for our roads and things like that and libraries and think, okay, these are good things. But then there's a lot of things the government does. This is another lie you talk about too. Federal spending is an investment in our future. Well, it's only an investment if they're making wise choices that are giving us a return. Right. So can you talk a little bit about either of those if you'd like to. But why taxing the rich isn't going to solve our problems?
- [11:30]
B
Well, first of all, the revenues, where they are right now and where they're projected to be are about in line with historical norms. They're about 18% of the economy. And one of the interesting things when you look at the historical record in terms of revenues is we've had tax rates on the rich as high as 95% and we've had them as high as 70% in the 1980s before the Reagan tax cuts. Now the top federal rate, I believe is 37%. And even when you have this huge variation, it goes up to 95%. It came down to 33, now it's up to 37. Revenues just don't move that much. It's not like when you're at 95%, you brought in massively more revenue as a percent of the economy than when you're down at 37%. What happens when you have very high tax rates is the rich invest a lot of their time and efforts and resources into avoiding those taxes, either through through avoidance strategies or even illegal evasion tactics, or just reducing their effort, not producing as much so that they don't have as much to be taxed. And so the economic harms and the waste that comes from all of those avoidance activities means that you can't really extract a massive amount of revenue from the rich. Even if you try to, you end up doing an awful lot of harm and not really collecting that much more in revenue. And so that's the main reason that you can't solve the problem. And even if you could confiscate every dollar that the R rich have, the magnitude of the debt that we have is such that it would make a pretty limited dent in the overall outlook. You would still need spending restraint to really make much of a difference in terms of the debt outlook. If you wanted to have a permanently larger government and you wanted to finance it and not accumulate debt, you would have to have broad based new taxes, which is what Europe has done. They have national sales taxes in the form of value added taxes. And they have much, much higher taxes on middle income and lower inc income people than we have in the United States. The irony of the Democrat obsession with taxing the rich and fair share is we have the most progressive tax system in the world. Nobody has more of a difference in terms of the rich paying much more than middle and lower income people than the United States does. Certainly Europe does not. And so we've had all of these rounds of tax cuts where we take more and more lower and middle income people off the tax rolls completely. And even when Republicans are in charge, they're so scared of being accused of tax cuts for the rich that they tend to tilt their tax bills away from benefits going to the rich and then they get accused of being for the rich anyway. So the Trump tax cuts actually made the tax code much more progressive than it was before because the supersized standard deduction means that most of the benefit went to people on the middle and lower income end of things. But they still got accused of it anyway. And they said, oh, it's tax cuts for the rich. And so this idea that you can just tax the rich, I think ignores where we are right now in terms of having a very progressive system. That ignores the negative economic and growth effects that ignore, ignore. It ignores the evasion and avoidance behavior that goes on. And more, more to the point, it ignores that the problem is on the spending side. It's not on the revenue side. We have kind of normal revenues in historical terms right now. And so unless you're going to have a much larger government as a percent of the economy than you had historically, the solutions need to come on the spending side because that's where the problems are.
- [14:53]
A
Yeah, it sounds like we would never be able to get out of this debt issue without a significant decrease in our spending. And it does seem like when we, it kind of depending on whoever's in power, then they'll approve the same spending bills.
- [15:12]
B
And actually there's another reason too, that tax hikes, even if you could extract much more revenue, wouldn't be a great solution, which is if you have a higher tax burden on the economy, you're going to have a degraded economic performance. You will have less work and savings and investment and capital formation and all of the good things that drive rising living standards and economic growth. You'll have less of them if you tax them more. You know, if you impose a burden on them, you'll have less of all of those things. And that means you'll have lower incomes and you'll have kind of a worse performing economy over time. And you might avoid the debt accumulation crash scenario. But without the debt, you know, you could have the economy growing pretty well while the debt accumulates and then have that crash where you could have the degraded economic behavior now and not have the crash, but you might end up at the same exact place economically. Whereas if you solve the problem the right way by getting some restraint on spending, then you could have good economic performance and avoid the crash as well. So that's really the solution that we should focus on if we want the best possible economic outcome.
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A
Yeah. And so I appreciate what your organizations are doing because it sounds like you're helping educate people on the candidates that are serious about doing these sorts of things. Have you seen places where this is successfully being done at the state level?
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B
Yeah, I mean, I think the, the most famous tax and spending limitation is in Colorado. It's been degraded a few times since it was originally passed, but it's generally been very effective at limiting the growth of Spending and, and taxes in that state. It's a little bit different in general on the state level because most states don't have the ability to run large deficits. They're sort of limited in what they can do in terms of bond issues. So most states generally tend to balance their budgets are close to it. So it's not, you know, the danger isn't as great, the possibility for imbalance isn't as great at the state level. But we certainly have seen a number of effective tax and expenditure limitations on the state level that have made a big difference. And also internationally, kind of the best model that we have is what they have in Switzerland where they actually have a real limit on spending that can only be overridden by a referendum vote. And they've had, you know, they had an increase in spending like everywhere else during the COVID lockdowns, but theirs was much less than we had, for instance, in the United States. And they generally, since they adopted a constitutional limit on spending, they've had much, much better fiscal outcomes. And so that is the, I mean, that's kind of the, the best solution is a constitutional constraint, a hard cap that limits spending. Other than, you know, a true emergency situation, I would say with a super or with a referendum requirement, something like that, where, you know, if there's a real emergency, you can get permission from the people to override it. But the rest of the time you should have a limitation on government spending. And if you have that limitation, if you have that cap in place, and we've had sort of soft caps at the federal level, statutory caps that have various holes in them and so forth, but there's some pretty good research that when caps are in place, even weak caps, you get lower spending than you get when there are no caps in place. And that makes all the sense in the world. Right? Because if you don't have some kind of a constraint to force prioritization and trade offs and a discussion of what really is more important than something else, you get these, these sort of worst case scenario agreements where I'll put in your priority and you put in my priority and we put in his priority and we just spend all the money on everything that all the politicians want and everyone wins except for our children and grandchildren that get stuck paying the bill. And so you really want to have some sort of hard cap or at least a soft cap in terms of the overall level of spending because then you forced discussion of trade offs and prioritization.
- [18:55]
A
Yeah, you, the one truth that you identify in your chapter is that if we don't apply the brakes, debt disaster will visit our children. Can you talk a little bit more about that?
- [19:06]
B
Yeah. I mean, I think the most vivid example of this is what happened in Greece when they had failed bond market auctions and they had a meltdown and a crisis and they, they had to, you know, have massive spending cuts and tax hikes as you know, sort of imposed austerity measures for the rest of Europe would bail them out. And you know, the US is on track for a Greece style meltdown if we continue to run massive structural deficits every year and then pile on new one time spending deficits on top of that with emergencies and new social programs. You know, nobody quite knows when it will happen and we have sort of the advantage or curse, depending on how you think about it, of being the world's reserve currency. So you know, we've got a much longer leash than other places. We can print our way out of debt to a certain extent. We're not going to have a failed treasury auction for the most part if the Fed can just, you know, electronically print more money and buy the bonds like we saw during, you know, all the COVID relief spending. But if we stay on the path that we're on and you look at that debt curve and you see it just goes up and to the right as far as the eye can see. At some point we will have one of two things happen. Either we will have a Greece style meltdown where there are just no buyers for our debt and we have to have the emergency crash measures that have a massive negative economic impact, or the federal just chronically print the money and we will have high, we will have chronic 10, 12, 15% inflation or worse, potentially even hyperinflation and destroy the currency like we've seen in places like Argentina. And either one of those scenarios will dramatically reduce quality of life and kind of the wealth that's available for our children, grandchildren when and if it occurs and if we don't alter the course that we're on, it is inevitable that there will be a reckoning of some sort at some point. No one knows exactly when, but it's the most predictable crisis in the history of the world. Because you look at these charts and I think it was economist Herb Stein who said something that can't go on forever won't and this is something that can't go on forever. And so I promise you it will stop at some point. I don't know exactly when, I don't know exactly how, but if we don't head it off with sensible policies to alter the trajectory and limit government spending, limit acquisition of debt so the economy grows faster than debt and the burden becomes more manageable over time. If we don't do that, then we're going to be forced by events to address this in a way that's going to be very chaotic and very damaging.
- [21:37]
A
Yeah. So as we're thinking about the election coming up, well, the sun is moving. I have a live, you can see my environmental issue here.
- [21:46]
B
So I've got protection on this end.
- [21:49]
A
Okay. What for people who the election's coming up and they want to make an informed decision, what do you see as sort of the two scenarios? If the Democrats get into power, let's say they win all three houses, all three parts of government, or if the Republicans win all three, what do you see as those two scenarios?
- [22:07]
B
Well, there are three, I would just add the there are three scenarios. The third one is we continue to have divided government and we've actually done pretty well with divided government historically and even for the last couple of years. I would say the reason inflation went from 9% to 2 and a half percent is we elected a Republican House that said no to a lot of the Biden Harris spending proposals. So they haven't really cut anything, but they stopped throwing new trillion dollar bills on the pile like was happening when Democrats controlled everything. And so that sort of allowed that bulge to be digested and things kind of got back to a normal trajectory. Now, the normal trajectory is not great for all the reasons we've been talking about, but it's much better than piling fuel on the fire, which is what was happening when you had undivided Democratic control. So that's we could continue to have kind of the gridlock type scenario where we add, you know, a trill where we add, you know, a trillion, trillion and a half in debt every year and it's kind of chronic deficits, but we don't pile new green, new Deal and new sort of, you know, Democrats Democratic spending priorities on top of that. That's probably the base scenario. Then you have the nightmare scenario, which is unified Democratic control with no alteration in their behavior. And the whole Biden budget with all of its massive increases in spending gets enacted and we go back to, you know, 9 or 10% inflation and we go back to even larger deficits and you know, as far as the eye can see because they or and let's say they add huge tax hikes as well, which means we start contracting the economy and we have a recession at the same time, we have inflation, a stagflation scenario. That would be kind of the worst case scenario. Now, maybe Democrats get in and they don't pursue all of that and they trim their ambitions to avoid that worst case scenario. And maybe you get something more like the divided government scenario. That would be kind of the optimistic case for a Democratic win. Now the third scenario is you get a Republican sweep. And of course, we had this after 2016 election for a couple of years. They, to be honest, didn't accomplish a whole lot on this issue. Spending continued to rise. And then of course, you know, we had the COVID lockdowns and the kind of the breakdown in spending discipline which did start under Republican control, although by that time there was a Democratic House. So that was kind of a divided control scenario. But let's say we get unified Republican control. What would the optimistic scenario be? The optimistic scenario would be they do this commission with Elon Musk, and unlike every past blue ribbon panel and commission that creates itself as a new bureaucracy forever on top of the old ones, this one is different because you got a guy who's the CEO of five companies and he's not looking to build a new federal bureaucracy and he's got limited time. And they cut right to the heart of the matter and they make major spending reduction recommendations and many of them can be implemented perhaps on executive authority without Congress. And you have a President Trump who's serious about that, and you have a significant reduction in government spending coming out of that. And we alter the trajectory for federal debt based on that, and we have major deregulation as well, which boosts economic growth, and we're growing both the denominator and shrinking the numerator, and the debt burden becomes much more manageable. That would probably be the most optimistic scenario. Now, the slightly less optimistic or even pessimistic scenario for Republican control as they come in and they drive defense spending up through the roof and they don't cut much domestically and they kind of say, sorry, we have to do it. And they kind of don't deliver on their promises. And we've certainly seen that in past Republican majorities. And you kind of get a continued accumulation of debt or even an increase if the defense buildup is really enormous and they don't cut anything domestically. So I think that every outcome of this election, we've got both optimistic and pessimistic scenarios. And what I would say is, first of all, I do think the potential for a really good scenario is much better under Trump than it is under Harris. Now, that said, maybe Harris brings in Mark Cuban or some other business leader. She does her version of an efficiency commission. I'm not that optimistic such a thing would happen, but maybe it's possible. But I think that the really key thing for people, and I know, you know, most of your activists are more on the social side, but I hope they've got some time to weigh in on this fiscal stuff, because no matter what happens in the election, there's a big range of outcomes, and a lot of what happens depends on the extent to which we make it politically necessary for our elected officials to care about this and to actually cut spending. And, you know, one of the reasons we tend to lose on this issue is anytime you talk about cutting spending overall, people say yes, and it's popular. But once you talk about cutting a specific program, the beneficiaries of that program care a lot about it, and everyone else cares a little or not at all, and it ends up not being cut. And so I think that if, when it comes time to do any of the budgeting or any commission or any process that comes next year, we need people to weigh in. We need letters written to the, to members of Congress. We need comments sent to the commission. If there is one from people who say, you know, I support these cuts even, and even if a cut might hurt me directly, I support them overall because we've got to have a process for changing this overall fiscal trajectory. And I think, you know, if we can make it so that members of Congress and maybe commission members, if there is a commission, if they see a downside attached to not addressing this, then I think they're much more likely to do something positive. So that's really going to be our focus next year, is kind of getting people that information of what's happening and giving them, you know, the click here to weigh in stuff so that people can try to, you know, attach some consequence to being on the right side of this.
- [27:34]
A
I do think, too, what we found with them before us is, granted, social issues, it's easy to connect them to how they impact people, human beings. But it does seem like telling these stories, stories of children impacted, stories of families impacted when it comes to things like, like debt and taxes and foreign policy really would help move the needle. We, we've talked a lot about how the left and more progressive folks have always used story a lot better than us, whether they're trying to just manipulate or whether they're just trying to grab the heartstrings and tell a story. But the right Maybe hasn't done as good a job of that. And so I love that your chapter has a number of graphs, and it's really trying to explain and make these concepts easy for us to understand in 3,000 words. But we're also talking a little bit about that human element. Kids are the ones who will pay the price for this. When we talk about that inevitable breakdown, kids are the ones who are going to pay the price, and grandchildren and their grandchildren and on and on and on if we don't start doing hard things and try to make a difference.
- [28:36]
B
Right. I mean, I think that's the main point is, you know, yeah, it's hard. It's hard to cut federal spending. It's hard to change the fiscal trajectory, but the options are going to be much, much worse if we do nothing. Just some of us won't necessarily be around, but our kids certainly will. And so I think that there is sort of a moral aspect to it. I mean, it's not as immediate as some of the other issues you deal with, but I mean, to place a significant debt burden on a generation that hasn't even been born yet and on a generation of young people right now are just starting out in life, that limits their opportunities, it limits their possibilities. And it's wrong for us to do that to them when we do have the means, if we can muster the political will, to prevent that, to address it now.
- [29:24]
A
Yeah, that's so good. Phil, thank you so much for your chapter, for all your work. We're going to make sure that all of your links to your website and social media are in our notes so people can find you. Thank you so much for joining us today.
- [29:36]
B
Oh, my pleasure. It.