Re­treat from deficit dogma

GOP DROPS MANTRA OF CUT­TING BUD­GET Eco­nomic growth pushed as an­swer to fed­eral debt

The Washington Post Sunday - - FRONT PAGE - BY DAMIAN PALETTA

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.)

MELINA MARA/THE WASH­ING­TON POST

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.

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