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 […]