Beyond facing the health and economic challenges brought on by the COVID-19 pandemic, President-elect Joe Biden and Vice President-elect Kamala Harris plan to focus on building racial equity and addressing climate change. But current budgetary restraints could make tackling such initiatives difficult.

Eugene Steuerle, co-founder of the Urban-Brookings Tax Policy Center, spoke with Marketplace Moring Report host David Brancaccio to discuss some of the obstacles that lie before the Biden administration that go beyond the pandemic.

The following is an edited transcript of their conversation.

David Brancaccio: There are the campaign promises — let’s call them promises with good intentions. But when a new administration comes in there is, what would you say, a reality check?

Eugene Steuerle: Oh, it’s more than a reality check. I’m reminded when Alice Rivlin came on board as the deputy head of the Office of Management and Budget. She came on in the beginning of President [Bill] Clinton’s administration. And the president had promised far more in his campaign than he could deliver. In his case, more spending and tax cuts than he could deliver as he pled for fiscal sanity.

So at an early meeting, he got furious with his staff, who laid out the fiscal facts that he had to backtrack on some of his promises. And Alice, who’s probably the most credentialed and influential government economist in our history, before perhaps Janet Yellen, said, “But Mr. President, you are president, and now we have to decide.” So as they were leaving this meeting, Alice explained to Bo Cutter — who told me this story, he’s now at the Roosevelt Institute — she said, well, you know, the most relevant training for her job was being a mother. So it’s going to be the new heads of Treasury and the Office of Management and Budget, people like Janet Yellen and Neera Tanden, if they get approved, to play this role that Alice played.

Brancaccio: I mean, I don’t mean to be a jerk, but borrowing money’s practically free these days. So, you know, maybe the president-elect stands a better chance of delivering on his promises.

Steuerle: Well, actually, he stands a worse chance. You’re right about the borrowing in the following sense. So we’ve had this massive increase in debt because of the pandemic and the recession. But it also has resulted, but not for good reasons, in much lower interest rates. So if you look out even in the medium term, 10 years from now, the Congressional Budget Office doesn’t even project that interest costs are going to be any higher than they had projected beforehand. However, beforehand, they had already projected that they were going to rise quite substantially because we’ve got these ever-increasing deficits. And the current president basically faces headwinds unlike those that have ever been faced by any modern president.

Brancaccio: And the headwinds certainly include the pandemic, but not just the pandemic.

Steuerle: That’s right. In fact, the pandemic and the recession, as bad as they are, are temporary. They’re not really determining the long-term budget.

So let’s just list some of the issues that the president faces beyond dealing with those, which obviously have to be a priority at the beginning of his administration. The first is that we’re in the midst of a massive baby boom retirement, which is dramatically reducing the number of workers that support retirees, basically from about three workers per retiree to about two. And that’s been taking place, starting about 2008 or 2010 and works its way through 2035. So he’s president right in the midst of this enormous pressure on the workforce to pay for this ever-growing retirement population.

Our debt has never been higher in our history, certainly in peacetime. And it’s approaching World War II levels. But if you think about what’s built in — that is, the deficits in the future built in — we’ve never had so many deficits scheduled for the future. In fact, at the end of World War II, we had just the opposite. The troops were coming home, and the debt was scheduled to drop enormously. And the big concern there was that was going to be our problem, is how to keep the debt up at least a little bit and not cause another recession.

Think of what’s happening to housing prices for people or what’s happened to the stock market. You may think that looks good, but it’s a real bubble. It’s either liable to burst or, if it doesn’t burst, then it’s going to provide much lower returns on assets with all sorts of implications for leveraged real estate, and state and local pension plans, and everything else.

Social Security and Medicare trust funds soon won’t be able to pay full benefits. And interestingly, we’ve been talking about this for 30 years, we’ve known this for over 30 years, it’s always been scheduled not to be able to pay benefits in the future, but now, that inability to pay the benefits falls within the 10-year budget window that the president puts forward when he does his budget. So now, all of a sudden, presidents can’t dodge the issue. And, of course, they’re causing huge impacts on the deficits we’ve got as well, at this point. So all these issues are coming to a head. And they’re really affecting the ability of this president to set a new fiscal agenda, much less just getting the budget under control for the long term.

The problem with raising taxes

Brancaccio: Well, I mean, number one, the economy, one hopes, starts growing a lot quicker once we get pandemic behind us. But then President-elect Biden, you know, he says he’s gonna raise taxes on households with, broad brush, more than $400,000 in income. That’ll bring in some money for some of this.

Steuerle: Yes, that’s true. But the real dilemma of any president or any Congress is that basically the middle class pays for most of government and gets most of government benefits. So the attempt to think that you can deal with these large budgetary issues simply by taxing people who make over $400,000 or going after welfare recipients, maybe if you’re on the other side of the agenda, is silly. The middle class pays for most of government, gets most of government benefits. And right now they’re scheduled to have, at least when they retire, massive increases in Social Security and health care and other things. But there’s a huge crimping of the budget for everything else. So that almost all the growth in spending right now is scheduled for health and retirement, and there’s almost nothing scheduled for working families, children or youth. Those items that might promote opportunity, investment, education, wage supports. And those items, by the way, are not just issues that affect the deficit, they also affect our long-term growth.

Brancaccio: Do you have any constituency on the right or the left for worrying about the deficit? I mean, it hasn’t been front and center on either party’s minds in recent years.

Steuerle: So the reason I mentioned who’s getting crimped — in terms of working families, children, youth, [Black and Hispanic people], also who really need these investment supports to be able to catch up in many areas of wealth-holding and others — the reason I mentioned them is that they should be a constituency for getting the budget in order. The deficit is just a symptom of what I’m talking about. The deficit is just what happens when you subtract the amount of spending we do from the amount of taxes we collect, and we see that there’s a shortfall. But that’s not the only issue. The issue is the direction of the budget itself. And the long-term direction of the budget has a huge impact on economic growth. It’s not just a deficit problem.

Millennials and retirement

Brancaccio: Tell me about the millennials. These are people who entered the workforce after the year 2000, we should remind ourselves. The oldest millennial, as we’re speaking, is around 38 years old. Now, while some have their doubts, most are still expecting to get their Social Security, to have their medical needs addressed by Medicare when they get older. But there are questions about that, as you’ve hinted.

Steuerle: Well, I think the notion that Social Security and Medicare won’t be there the future is also a bit silly. The issue is not whether they will be there in the future, the issue is whether the direction or the growth in these systems is sustainable. So millennials are a great example. Good question you ask.

Today, the average retired couple gets about a million dollars in Social Security and Medicare benefits. Those are real dollars. It’s even discounted, which I won’t explain. But, basically, they get about a million dollars. A lot of that comes from the fact that the average retiree retires for close to 20 years, and a typical couple now gets benefits often for close to 30 years. Millennials are scheduled to get about $2 million. So they’re scheduled to get almost double what current retirees are getting in terms of lifetime benefits. That’s what’s scheduled. It’s not sustainable. It’s not going to happen at that level. But it doesn’t mean they’re not going to get benefits.

And millennials are a great group to pitch for getting this budget in order because of what’s happening to them now, in order to pay for this enormous growth in retirement and health benefits. Well, we’ve put on them huge amounts of student debt. We’ve given them little help with homebuying. Many more of them are now living with their parents than ever before, which also is slowing down economic growth as well as family formation. We have very limited wage subsidies for anybody other than fairly low-income people, so we’re not really helping them with wage subsidies. Jobs supports are very minimal, particularly for blue-collar workers. They have a smaller share of society’s wealth today than did people from previous generations, who were young or similar age.

So millennials face a huge number of issues now. Government is not there for them. It’s scheduled to be there for them in spades when they get old. But even that schedule’s not sustainable. So the trade-off for them, I think it’s very clear: Let’s do more for them while they’re young, while we can help them, while they are entering job market, while they need education and job supports. Let’s do a lot more for them now. But in exchange, let’s slow down that rate of growth and spending that’s scheduled for them when they retire.

Brancaccio: Just so I understand, why are the millennials expecting to get twice what the current retirees would get? That’s just indexed to inflation?

Steuerle: Actually, I think their expectations are just the opposite. Their expectations are they might not even get anything. What I’m saying is the current system schedules them to have more than twice as much.

This comes about because of three main factors. Social Security is indexed for wage growth, so as long as average wages in the economy grow, Social Security benefits grow automatically along with them. That’s not a bad idea as a general theory, but we don’t do that for teachers, we don’t do that for spending on infrastructure. We don’t automatically increase spending in these other items automatically as wages grow. So that’s one reason that the benefits grow. A second reason is they get more and more years of benefits because we’ve never adjusted very much for increasing longevity. So that increases the amount of benefits that Social Security — in fact, it schedules a rate of growth forever faster than the rate of growth of the economy. And then the big factor going forward into the future is that we’ve never got health costs under control. So health costs continue to grow much faster than the rate of growth in the economy. And that increase in health benefits they’re scheduled to get also forms a big part of this package.

So to me, the obvious solution on getting those items under control is slow down the wage growth, at least for higher-income retirees. Let’s recognize that as we live longer, we have to work a bit longer. And let’s finally get the two parties together to try to control health cost growth.