Republicans abandon balancing the budget

The spending bill the Senate will soon consider would significantly increase government spending. While the bill only covers this fiscal year and next, its practical effects will last longer. If you increase discretionary spending by $150 B per year for each of the next two years, you establish higher expectations and a new benchmark, a new baseline, against which future discretionary spending proposals will be judged. This is true even if the bill is drafted to technically cover only the next two years of spending.
Using press reports for some back-of-the-envelope calculations of my own, it appears that Congress is heading toward increasing discretionary spending by about $1.8 trillion over the next decade (+2/3 of this unfinished budget year), and will have to borrow about $1.7 trillion more from financial markets to finance those net spending increases.
In making this calculation I am being generous in all as-yet unspecified respects. I am ignoring rumored discretionary spending increases outside the spending caps in law, as well as reported possible mandatory (entitlement) spending increases. I am ignoring another $60ish B in added interest expenses that would result from the added government borrowing, and I am giving them full credit for a claimed $100 B in offsets that will, in all likelihood, consist partially of budget gimmicks.
The effects of this bill would be twofold. First, the numbers are really big.
  • This bill would add about $1.7 trillion to debt held by the public over the next decade. Debt/GDP is now in the mid-7os percent, and is projected to grow to about 90 percent by the end of the decade. This law would increase that by another 6 percentage points.
  • This bill would increase government debt 58% more than did the tax law enacted last December. (This bill: +$1.7ish trillion; tax law: +$1.07 trillion after incorporating faster economic growth.)
  • The immediate government spending increases would create pressure on the Fed to raise interest rates faster, making it more expensive for businesses to finance new factories and families to finance buying homes.
Second, the Republican policy reversals are staggering:
  • Members of Congress who once claimed to be committed to debt reduction would increase debt by more than $2.7 trillion in just seven weeks.
  • Congressional Republicans would increase government spending by 50% more than they cut taxes two months ago.
  • The self-labeled fiscal conservatives in Congress, who had once insisted that all government spending increases be offset by spending cuts, would abandon that principle.
  • A party that just a few years ago proposed reforming old-age entitlement spending, the principal driver of government spending growth, would have no proposals to do so. If press reports are true, this bill may even increase Medicaid spending.
  • The Republican Congressional Majority, which built last year’s balanced budget plan on deep future cuts to nondefense discretionary spending, would be supporting big increases in that spending.
With this bill, Republicans would abandon their goal to balance the budget. The smart way to achieve this goal is to restructure and significantly slow the growth of the big 4 entitlement spending programs: Social Security, Medicare, Medicaid, and the Affordable Care Act.
Instead, last year’s House Republican majority proposed a budget claiming to reach balance principally through cutting non-defense discretionary spending. At the other end of Pennsylvania Avenue, the President’s advisors reconciled a balanced budget and a large tax cut through a $2 trillion accounting mistake/gimmick.
Now that the tax cut has been enacted and Republicans are about to embrace large increases in non-defense discretionary spending, even those feeble budgetary fictions evaporate. President Trump’s advisors and Congressional Republicans have over-constrained themselves. They refuse to reform Social Security, have failed to repeal the Affordable Care Act, are discussing only small changes to Medicare and Medicaid, and are now about to enact large increases in both defense and non-defense discretionary spending. At the same time, they can no longer claim unspecified economic growth benefits from future pro-growth policies, since their pro-growth policies are all behind them. They can’t make the arithmetic work. This may explain reports that they won’t even try to pass a budget this year.
Other than their relative prioritization of defense over non-defense programs, when it comes to government spending and borrowing, it is now quite difficult to distinguish President Trump and Congressional Republicans from Democrats.
By | 2018-02-07T13:45:44+00:00 Wednesday, 7 February 2018|