The Thursday Question 2: 48: Rubbing SALT in the fiscal wound

The ugliest part of the Big Beautiful Bill

It might be hard for younger readers to believe, but back in 1992 when the US federal debt inched over 60% of GDP, government borrowing was a top concern in public opinion polls. Fiscal conservatism was a thing. That year’s presidential election saw independent candidate Ross Perot ride the national debt issue to a month-long lead against Bill Clinton and George H.W. Bush. Mr. Perot’s lead didn’t last - he withdrew from the campaign, then re-entered, and finished with 19% of the votes - but a message was sent. Two years later, Congressional Republicans under Newt Gingrich campaigned on a similar platform and won the House for the first time in 40 years. Dr. Gingrich’s aggressive style eventually led to serious negotiations with Pres. Clinton. The US federal budget was soon balanced. In Canada, Preston Manning and his policy chief, Stephen Harper, played the part of Perot and Gingrich in Jean Chrétien and Paul Martin’s budget balancing exercise at the same time.

Today, total US federal debt is double what it was in 1992 - 120% of GDP. The US Treasury borrows almost $1 trillion every quarter. That pace of borrowing can’t go on forever and, as the Reaganites used to say, if something can’t go on it forever it must eventually stop. What will that mean in the coming year or two?

I don’t see many parallels to 1992. Thirty years ago the US was a high-trust, moderate-fertility society. Most voters had kids or grandkids and worried they would suffer in a debt crisis. They also trusted that the sacrifices needed to balance the budget would be shared across the American citizenry. Today, the US is a low-trust, low-fertility society. Voters have absorbed Keynes’ axiom that in the long run, we are all dead. Half won’t be around to witness a debt crisis, and many of them won’t have grandkids. When the debt crisis comes, they know someone else will bear the burden. They rush to pillage the fisc today, while they can enjoy it, before the bankruptcy filing tomorrow, when they won’t have descendants.

The exemplar of this fin de regime thinking must surely be the return of the state and local tax deduction (SALT) in the Big Beautiful Bill Act.