Retreat from deficit dogma
GOP DROPS MANTRA OF CUTTING BUDGET Economic growth pushed as answer to federal debt
The Republican Party has largely abandoned its platform of fiscal restraint, pivoting sharply in a way that could add trillions of dollars in federal debt over the next decade.
Cutting spending to balance the budget was almost religion to the Republican Party for much of the past eight years. But all year long, despite their control of the White House and Congress, Republicans have not taken steps to balance the budget, to overhaul entitlement programs such as Medicare and Medicaid, or to arrest the growth of the country’s $20 trillion in debt.
With the House passing a critical budget resolution last week, GOP lawmakers are charging forward this week with plans to cut taxes in a way that could add more than $1.5 trillion to the government’s debt over 10 years, with the goal of legislation by early next month. That is on top of an effort to significantly increase military spending. White House officials say their focus is on growing the economy now and dealing with the debt later.
The moves come as the federal deficit, the difference between what the government collects in revenue and spends on programs, is growing more quickly. It will be $600 billion this year and is projected to reach $1.46 trillion in a decade, even without additional policy actions.
“I felt there was a period, two or three years ago, when there was a real seriousness about trying to solve our fiscal issues,” said Sen. Bob Corker (R-Tenn.), a longtime deficit hawk who is part of a scarce group of Republicans consistently preaching restraint. “When the election result turned out what it was [in November], any thought of fiscal responsibility has gone out the window.”
He added: “It’s very disheartening to me that when the other side of the aisle was in charge we cared about fiscal issues, and now that we’re in charge we don’t care about fiscal issues. It’s very disheartening.”
initially tried but failed to cut spending this year, stymied by intraparty divisions they could not rectify.
They could not unify behind an effort to slash the growth of Medicaid, a joint state and federal health-care program for low-income Americans. And Democrats unified to block other proposed spending cuts to programs for the poor.
Congress also twice agreed to raise the debt ceiling without putting any new restraints on spending.
Three devastating hurricanes in August and September ravaged Texas, Florida and Puerto Rico, prompting emergency steps to seek $40 billion in new spending. A storm landing this weekend, Hurricane Nate, could create new spending pressure. In the past, some Republicans have sought to offset disaster relief spending with cuts in other areas, but no such demands were made this time.
Meanwhile, Trump rejected a proposal from White House Office of Management and Budget Director Mick Mulvaney to curb future Medicare and Social Security spending, saying he had promised voters in 2016 that he would not touch those programs.
But the most striking blow to the deficit isn’t what Republicans have failed to do, but the changes they are mulling.
Mulvaney — who was a leading deficit hawk when he served in the House of Representatives — and other White House officials are pushing hard for the tax-cut package, shrugging off the worry of growing deficits in the next few years by saying that letting people keep their own money is much different from cutting government spending.
Mulvaney, like many in the White House, argues that the focus should be on taking steps to grow the economy, which officials say will create trillions of dollars in new revenue to offset the impact of lowering tax rates.
He said in an interview that the White House offered more than 50 areas in which specific spending programs could be cut from the budget earlier this year and that agreed to only four or five of them. He said that the last time the budget was balanced, late in the Clinton administration, it was done through a combination of spending restraint and economic growth, a model the Trump White House wanted to follow.
“I have to work in the real world, and right now I just don’t think there’s the appetite to balance the budget based on spending alone,” Mulvaney said.
He added that if the House of Representatives wanted to pass a balanced-budget amendment to the Constitution, “that’s great. But I don’t think they can do that. I have to live in a world where we can pass cuts out of the House and of the Senate. And so growth is going to be the best chance we have to balance the budget.”
Mulvaney’s more pragmatic approach marks a major evolution. Six years earlier, during a fight over whether to raise the debt ceiling, Mulvaney picked up a Bible and read a verse from Proverbs 22 to colleagues: “The rich ruleth over the poor, and the borrower is servant to the lender.”
Corker said Mulvaney’s trans-Republicans formation from a budget warrior to allowing larger deficits is emblematic of others in the party.
“My gosh, this was a guy that had very much of the same feelings that I had about these issues, and obviously he’s ended up being in a different place,” Corker said.
Similarly, White House Coun cil of Economic Advisers Chairman Kevin Hassett wrote an article for the National Review last year titled “We Ignore the Debt at Our Peril,” arguing that the “U.S. might be closer to the brink than mainstream forecasts tend to imply.”
But asked about this Thursday, he said that addressing the debt would be a focus later in the Trump administration, after the tax-cut plan was voted into law.
“I think the debt problems are severe,” Hassett said. “I think the president views it as a multistage thing. The first order of business is to get 2 percent growth back to a rate we’re used to seeing.”
Treasury Secretary Steven Mnuchin has said the tax-cut plan could create $2.5 trillion in new revenue by lowering rates, a position many conservative and liberal economists dispute.
The tax-cut plan “will allow them to embark on a partisan product to cut taxes for the rich, raise them for the middle class and blow a huge $1.5 trillion hole in the deficit,” Senate Minority Leader Charles E. Schumer (D-N.Y.) said Wednesday.
The new GOP embrace of deficits and growing the debt is a whiplash from recent years, when Republicans frequently clashed with President Barack Obama about government spending and federal programs.
In 2010, a fiscal commission led by Democrat Erskine Bowles and retired GOP senator Alan Simpson sought to reduce the deficit over 10 years by $4 trillion, convinced that the combination of tax increases and spending cuts would stabilize the government’s debt as a share of the economy.
In 2011, 236 House Republicans and 25 Democrats voted to add a balanced-budget amendment to the Constitution, a sizable group that fell short of the two-thirds majority needed to send the amendment to the states for ratification.
But now, Republicans are taking steps to cut taxes and expand spending, moving sharply in the other direction.
“They are taking the ostrich approach,” said retired Republican senator Judd Gregg, who served on the Bowles-Simpson commission and supported the changes. He said the tax cuts could help grow the economy, but the lack of a focus on changes to Medicare and Social Security would prohibit any meaningful change to the debt.
The federal government is projected to spend $4.1 trillion in 2018 and bring in $3.5 trillion through taxes and other revenue. That deficit is projected to expand each year if no changes are made to the budget, until it eventually reaches a deficit of $1.46 trillion in 2027. This adds to the debt, driving up the United States’ borrowing costs and making it harder for the country to respond to emergencies, especially during economic downturns.
Cutting taxes — in the scope envisioned by the White House — could further expand the deficit because it will lead to a reduction in revenue. And Congress is looking to authorize $640 billion for the Pentagon next year, close to $100 billion higher than caps set in place by the 2011 Budget Control Act, which put annual limits on government spending.
Budget officials believe the United States is in the midst of a problematic shift, with rising health-care costs and an aging U.S. population that increases costs for Medicare and Social Security.
The House of Representatives, led by the Budget Committee chairman, Rep. Diane Black (RTenn.), narrowly passed a budget resolution Thursday that would require that any tax plan remain “revenue neutral,” which means it could not expand the deficit. It would also require $203 billion in spending cuts to programs such as Medicaid as part of any tax package, a provision demanded by conservatives.
But the Senate budget resolution would have much looser restrictions, allowing tax cuts to add $1.5 trillion to the debt over 10 years and waiving any requirement for mandatory spending cuts.
And the same House conservatives that demanded Black include the mandatory spending reductions in her bill have recently signaled that these changes aren’t necessary anymore, convinced that nothing should stand in the way of the opportunity to cut taxes.
Black, in an interview, said she would fight for changes to the Senate resolution during conference negotiation. But she also suggested that she would probably back away from the revenue-neutral provision in her House resolution.
“I think there is some openness to [see] how we can get in the middle there, understanding tax reform is something that we only have a once-in-a-generation opportunity to do,” she said.
Corker warned that some Republicans might become desperate, looking at that once-in-a-generation opportunity, and pass whatever they can, even if it adds trillions of dollars to the debt.
He wants the tax changes to be permanent and reduce the deficit, not grow it. If the plan doesn’t meet those parameters, Corker won’t support it.
“I fear that Republicans feel like they have to deliver so badly that I’m just fearful that there may be a movement to do whatever, even if it’s harmful to our deficit issues, just to pass anything,” Corker said.
“When the other side of the aisle was in charge, we cared about fiscal issues, and now that we’re in charge, we don’t care about fiscal issues. It’s very disheartening.” Sen. Bob Corker (R-Tenn.)
Sen. Bob Corker (R-Tenn.) has long been a voice of fiscal austerity and balanced budgets in Congress. He says such policies, once solid GOP orthodoxy, were abandoned with President Trump’s election.