The Senate’s Consequential Class of ’26

The headline item from Tuesday’s elections is that Democrats wiped out Republicans in the House and the Senate. Congratulations. But do our newly minted senators, with their terms ending in January 2033, realize that they will be the cohort of legislators who face the exhaustion of Social Security’s retirement trust fund in 2032?

Each official will choose between letting a 22% automatic cut to benefits go through, finally making the program’s math work by reforming its outdated design, or letting Washington borrow trillions more to prevent any cuts. Few, if any, of the candidates said a substantive word about it while campaigning.

In fact, fiscal sustainability was remarkably absent all election season. During the 2010s, powerful politicians openly championed “austerity.” As late as 2018, according to AdImpact data reported by The Wall Street Journal, 140 political ads mentioned the debt or budget deficit. During this cycle, only 30 did, putting the subject 52nd among campaign topics.

That’s beyond crazy. It has been widely reported that in the fiscal year that just ended, government debt held by the public reached 100% of GDP, a level last seen following World War II. The deficit is nearly $2 trillion, or 6.2% of GDP. Interest payments have more than doubled in only four years, surpassing the United States’ bill for military spending.

And because the Treasury kept the debt’s average maturity short, high interest rates are hitting the budget very quickly. About one-third of the marketable debt — more than $10 trillion — must be refinanced in the next 12 months. This debt must be rolled over at the new rate, so interest payments will continue to explode.

Indeed, some of that debt was initially borrowed at much lower rates. The 30-year Treasury yield is near 5.31%. The Iran war explains part of that, but investors also question a government and Congress with no plan to back the debt with future surpluses. So, they’re charging more while they wait for answers.

This is the situation many of us warned about 15 years ago. At the time, we all got the same pat on the head. Politicians who ran on fiscal issues were mostly pacified. After all, interest rates were historically low, and markets were buying all the debt that Uncle Sam was putting out there.

With some economists, like Olivier Blanchard, Jason Furman and others, making the intellectual case for the debt having no real cost as long as interest rates stayed below growth rates — and with many of the same people believing that this would be the case indefinitely and that inflation had been defeated — politicians were more than happy to spend away and borrow to pay for it.

However, what we fiscal hawks warned about wasn’t the short-term risk of borrowing at such low rates. We warned about what came next. Low rates were never a law of nature. When they drifted back toward normal, the country got higher rates applied to a now much larger debt.

Public debt was roughly $10 trillion in 2011 (65.5% of GDP). It stands now at $32.6 trillion (100% of GDP).

So here we are. In a world where politicians almost always blame the other guy, nobody gets a pass. In the last two years, Republicans have been cutting some spending and then cutting taxes even more. President Donald Trump promised $5,000 checks to every adult, at a cost of $1.2 trillion, if his party kept control of the House and Senate. And the GOP long ago adopted Trump’s rule that the two programs driving the debt — Social Security and Medicare — are off-limits.

For their part, Democrats want to reverse recent Medicaid savings and restore expanded Obamacare subsidies, and they are of course opposed to any structural reforms of Medicare and Social Security. They pledge more taxes on the rich while sheltering everyone else, which amounts to a European-sized welfare state funded by perhaps 2% of taxpayers.

Voters don’t get a pass either. Polls say Americans worry about the debt, yet few accept the necessary spending restraint. Many had other things on their minds this fall, to be sure. But interest costs and trust-fund expirations won’t care who won on Tuesday.

Of course, many of the new legislators will think raising taxes is the way to go. However, it’s really hard to solve this problem on the revenue side. Revenue collection has hovered around 17% of GDP for the last half-century (including when income-tax rates were much higher than today). Meanwhile, spending has climbed from about 18% of GDP in the 1960s to more than 23%, with this growth concentrated in programs for the elderly.

Closing the tax code’s carveouts to special interests would help, but there is no path to sustainability that avoids cutting (or slowing the growth of) benefits, raising eligibility ages to reflect longer lives and putting Medicare on a budget.

The new class of senators must now deal with reality. I wish more voters had asked them how they’ll do it.