At TPC’s “New Perspectives on the Fiscal Outlook: Can We Avoid a Crisis?” event, panelists painted a sobering picture:

• Deficits are now above 6 percent of gross domestic product (GDP)
• Federal debt has reached levels unseen since World War II
• Interest payments have overtaken defense, Medicare, and all federal spending on children combined
• Social Security and Medicare Hospital Insurance trust funds are projected to run dry by 2033, only eight years from now
• Investors are growing skittish about buying US government debt like Treasury bills or bonds 

But it wasn’t all doom and gloom. Across a range of perspectives, analysts agreed: The fiscal challenge is economically solvable. That shared understanding—and some surprising consensus on policy options—is a reason for hope, even if policymakers are, for now, choosing not to act.

The economics are straightforward

Bill Gale, a TPC senior fellow and the Arjay and Frances Miller Chair in Federal Economic Policy in the Economic Studies Program at the Brookings Institution, described what a new paper by Ian Berlin, Samuel Thorpe and him calls “fiscal consolidation.” 

In plainer terms, that means raising taxes, cutting spending, or both. Their review of dozens of international efforts finds that fiscal tightening, on average, hurts growth in the short run but succeeds when timed right—in strong economies and with balanced plans.

They found that spending cuts are less damaging than sharp tax hikes, though the difference depends on what is cut and who pays. Some taxes, like a small value-added tax or base-broadening reforms, don’t depress growth much. Others, especially sudden, high-rate hikes, can stall it.

The US, Gale said, is luckier than most countries that have faced debt crises: Its economy is strong, with unmatched borrowing capacity. Gradual, credible adjustments today would avoid painful austerity later. 

Policymakers should act now 

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, grounded the discussion with a reality check: “We don’t budget. We just borrow.” Congress can’t pass a budget, yet routinely adds trillions to the tab.

Her catalog of fiscal pressures was dizzying, including cybersecurity and defense, AI disruptions, climate costs, industrial policy, and housing affordability. Every new priority demands revenue that policymakers refuse to raise. Meanwhile, both parties compete in an “egregious, expensive bidding war” to give voters tax cuts and new spending without paying for any of it.

“We are already in a crisis,” she said. “We should have acted yesterday. It’s urgent that we act today, and I’m just as certain we won’t until tomorrow.” 

She shared a four-part “Break Glass Plan” that would 1) tailor emergency measures to respond to the presenting crisis; 2) borrow if necessary but offset that borrowing by twice as much in future deficit reduction; 3) introduce “default deficit reduction” by freezing automatic indexing, capping discretionary spending, and imposing a deficit reduction surtax; and 4) establish a fiscal commission to replace these policies with more targeted policies over time.

Gale offered an amendment to the plan’s fourth part: A bipartisan commission should have each party choose the other party’s members. “People know who they can work with.”

There is, after all, a lot of common ground

Moderator Jordan Weissmann of The Argument guided a panel of economists who concurred that the fiscal outlook is bleak, but all is not yet lost.

Jessica Riedl, a senior fellow with the Manhattan Institute, noted that the US has attempted 14 deficit-reduction efforts since 1983. They all needed two of three elements to succeed: 1) a penalty for failure; 2) sufficient worry among the public; and 3) an environment conducive to healthy negotiation. The half that succeeded combined a penalty with healthy negotiations. Right now, the US has zero of three elements.  

Douglas Holtz-Eakin, president of the American Action Forum, added that both parties share blame for the absence of public worry: Republican presidents cut taxes they can’t afford; Democratic presidents promise benefits they can’t fund. “And if the most important elected official says nothing about the problem [debt or deficits], what do you conclude? There’s no problem.”

Gopi Shah Goda, director of the Retirement Security Project at Brookings, focused on Social Security and health care. Together, the two programs drive 80 percent of future spending growth. She offered that Social Security might be better viewed as insurance against poverty, not wage replacement. Modest tweaks to benefits and contributions made over time are possible, if politically feasible.

Elena Spatoulas Patel, co-director of TPC and a senior fellow at the Brookings Institution, warned that rigid tax promises—pledges like “no new taxes under $400,000” or “No New Taxes”—make a sustainable budget impossible. She argued for broadening the base, trimming special breaks, and reviving debate over a destination-based cash-flow tax.

Panelists suggested a variety of other tools—for example a value-added tax (VAT), a consumption tax, raising the estate tax, or maximizing available fiscal space by reducing tax expenditures (like taxing employer-sponsored health insurance). 

All agreed on the goal: Stabilize debt, protect vulnerable households, and restore fiscal credibility.

Every voter needs to understand how the deficit affects everyone

One audience member’s question highlighted how voters can and should demand accountability. A high school biology teacher asked whether simply removing the earnings cap on payroll taxes that fund Social Security would fix the program’s insolvency problem. The panel’s short answer: It would help but eliminate only half or less of the funding gap. 

Indeed, Holtz-Eakin suggested today’s 55-year-old who plans to retire in ten years may soon be asking their elected officials, “What am I going to get? How are you going to fix this?”

Likewise, policymakers interested in solving the fiscal crisis need to make clear to voters that the deficit affects them as individuals. (For example, higher interest rates, symptomatic of primary deficits, affect the costs of borrowing to buy a home, go to college, or start a business.) 

There is room for cautious optimism

Despite the gloom, the conversation ended on cautious optimism. The US has the resources and know-how to right its fiscal ship. The economics are clear: Modest tax increases, sensible spending restraint, and rules that force Congress to plan ahead would stabilize the debt without derailing growth.

What’s missing is political leadership catalyzed by public pressure. If voters understand the depth of the impending fiscal crisis, and if they expect promises to be kept by those they elect, lawmakers might finally act before financial markets do.

As Gale put it, “Our political system was designed to make big changes difficult—and it’s succeeding.”

But audience member and TPC senior fellow Eugene Steuerle suggested that the time might be right to “go big.” 

The nation’s fiscal health, its residents’ financial well-being, and its future generations’ ability to thrive—can’t wait.