By Brian Riedl
Tuesday, January 19, 2023
The new Republican House majority is gearing up for a fight on escalating spending and deficits. This enthusiasm is commendable but early indications suggest they may repeat the same mistakes that have doomed previous attempts to rein in spending. Rather than offer a realistic plan to modestly cut spending and build momentum for larger reforms, many Republican lawmakers are making implausible demands to quickly cut trillions of dollars and balance the budget. Rather than portraying spending restraint as responsible and non-disruptive, many Republicans are threatening a debt limit showdown that will only anger voters and ultimately fail to win real reforms. Rather than do the hard work necessary to design and build support for specific reforms, many Republicans are relying on stale talking points and gimmicks totally detached from fiscal and political reality.
As inflation rages and the economy weakens, Washington ran a staggering $7.2 trillion in budget deficits the past three years. Annual deficits are likely to surpass $2 trillion within a decade even with peace and prosperity—and approach $3 trillion if interest rates continue rising. Yet, for too long, “spending restraint” has been merely a Republican talking point.
Paradoxically, getting serious on spending means scaling back the amount of promised spending reductions. Rather than performatively promising unrealistically bold savings that will be discarded as unpassable, serious lawmakers should offer more modest and plausible savings targets and then actually follow through. A Congress that enacts $400 billion in 10-year spending cuts is more fiscally responsible than one that promises to balance the budget within a decade, shuts down the government, brings a public backlash, and ultimately enacts nothing.
The classic challenge for fiscal conservatives is that, while restraining spending and deficits is broadly popular—so are most federal programs. Over the next decade, Social Security, Medicare, Medicaid, defense, veterans’ benefits, and interest payments will account for 75 percent of federal spending. And Social Security and Medicare shortfalls—projected to top $100 trillion over three decades—will drive nearly 100 percent of rising deficits over the long-term. Unless Republicans are prepared to significantly and immediately pare back those popular programs, the ambitious calls for a balanced budget or trillions of dollars in short-term spending cuts are just empty rhetoric.
Even worse, overly ambitious promises have long sabotaged the case for spending restraint. Conservative voters hear calls for a balanced budget or the “Penny Plan” and imagine that fixing the federal budget is as easy as paring back government waste and a few unpopular programs, and then they become jaded when Republicans fail to deliver. Meanwhile, moderate and progressive voters hear “trillion-dollar cuts” and assume (correctly) that such a large figure must include significantly chopping popular programs. Throw in the inevitable reckless comments denigrating Social Security or the safety net by a few inartful Republicans (obsessively amplified by the media) and a voter backlash against a GOP-induced government shutdown or debt limit showdown, and the Republicans will once again have nothing to show for a spending fight.
Recall the 2018 budget fiasco. That year, Republicans unveiled a budget resolution promising to balance the budget with $6.5 trillion in spending savings over the decade. No actual plan was ever designed to do so, and these promises were discarded as soon as the budget debate concluded. In fact, the very next day, this same unified Republican Congress voted down a rescission bill that would have trimmed $1 billion—or 0.02 percent—out of a $4.2 trillion budget that was growing by $300 billion annually. At the time, then-Sen. Richard Burr told reporters he cast the deciding vote to defeat the bill because “It cut $16 million out of the Land and Water Conservation Fund. Period, end of sentence.”
So a party that 24 hours earlier had promised to slash $6.5 trillion in spending ultimately balked at a $16 million haircut—1/400,000th of the promised cuts. The next day, GOP lawmakers moved on to passing a budget-busting farm bill. That same Congress also repealed discretionary spending limitations established by the Budget Control Act. All those promises to slash trillions of dollars proved empty—essentially a public relations stunt for a Congress engaged in a reckless spending spree.
A more effective approach to reducing runaway spending would: 1) freeze discretionary appropriations; 2) craft a modest package of low-hanging entitlement savings while building the case for larger reforms; and 3) tread carefully on the debt limit by pressuring Democrats to accept popular reforms, without threatening a default.
Budget Gimmicks Over Substance
Restraining spending is slow and arduous work. Each program builds constituencies, and achieving sustainable savings within popular programs typically involves altering spending formulas to produce savings that grow gradually over time (yet ultimately can save a lot of money). Regrettably, Republicans have long treated budget cuts as a quick fix by prioritizing ambitious yet gimmicky and unrealistic spending targets. The reflexive call to “balance the budget in a decade” (or less) is no longer remotely plausible with escalating deficits. If one assumes that current tax cuts will be extended, balancing the budget would require slashing $12 trillion in scheduled spending over the decade, and $2.7 trillion in 2032 alone. That means eliminating one-third of all projected federal spending a decade from now. Eliminating waste, foreign aid, Ukraine assistance, and the other usual suspects will barely make a dent. By 2032, Social Security, Medicare, Medicaid, defense, veterans’ benefits, and interest on the debt will comprise nearly 80 percent of all spending. Preserving the vast majority of that popular spending would mean eliminating all remaining federal spending: the rest of the federal safety net (food stamps, child nutrition, disability benefits, refundable tax credits), as well as infrastructure, highway aid, the NIH, FDA, national parks, homeland security, U.S. embassies, NASA, federal prisons, K-12 education, Pell grants, unemployment benefits, and disaster aid. This libertarian fantasyland would be fortunate to get five votes in Congress.
Serious lawmakers understand that balancing the budget is unrealistic, but many still rely on first passing broad spending-and-deficit limitations that would cap total spending growth at inflation plus population growth, or some formula based on tax revenues. The idea is that first passing broader limitations would be easier and would achieve public buy-in for the later programmatic reforms. I used to agree with this approach and even helped draft some of the spending cap proposals. Unfortunately, 25 years of legislative proposals to broadly cap total spending and deficits have gone nowhere even among Republican lawmakers—negating their usefulness as a more popular first step to spending reductions.
Additionally, the proposed deficit and spending targets are often untethered from political reality. For a decade now, several lawmakers have promoted the “Penny Plan” that would reduce total federal spending levels by one additional percent per year for five years (so approximately 5 percent by year five). This sounds easy, until one notes that inflation and population growth are projected to expand spending by 20 percent over those five years. So on a per-person basis, inflation-adjusted government spending would be cut by roughly 25 percent over five years, which is nearly impossible. Social Security costs are set to rise by 35 percent over that time simply because of retiring Baby Boomers and inflationary benefit adjustments. Are lawmakers really going to quickly slash scheduled Social Security benefits by 40 percent to accommodate the Penny Plan? Alternatively, shielding Social Security and other favored conservative programs would require imposing elsewhere the drastic reforms described above.
These fiscal targets sound like easy common sense until one begins mapping out the specific programmatic reforms they would require—especially when most realistic entitlement reforms would produce savings that gradually ramp up over many years. Even if the tough and immediate fiscal targets were enacted, lawmakers would repeal them before they would allow popular programs to be cut that drastically.
The GOP’s Spending-and-Backlash Cycle
For more than 40 years, Republicans have behaved like an overeating person who occasionally tires of being overweight and makes an impossible promise to lose 100 pounds in six months, before quickly realizing that such a promise is unrealistic and then returning to overeating.
The cycle begins with years of bipartisan overspending and deficits. Then, every 10 or 15 years, a populist spending revolt leads to wild promises of slashing unspecified trillions of dollars and balancing the budget. This is typically followed by a government shutdown or debt limit crisis, flippant comments about slashing the most popular federal spending, and predictable voter anger. In the end, chastened Republicans embark on a spending spree to distance themselves from that slash-and-burn image, until the cycle repeats itself.
In 1981, new President Ronald Reagan promised significant social spending reductions to rein in deficits. These promises were quickly cast aside by a Democratic House, and by a presidential focus on enacting large new tax cuts to improve the economy. Republicans did little to address spending again until 1995, when the Newt Gingrich-led GOP seized control of Congress and then demanded the elimination of four Cabinet departments, targeted the most popular programs, and then shut down the federal government when President Clinton balked at these reforms. The ensuing public anger persuaded Republicans to abandon spending restraint and dramatically hike spending for the next 12 years (the 1998-2001 balanced budgets were a temporary accident brought on by end-of-Cold War defense savings and a temporary tax revenue bubble). In fact, George W. Bush’s “compassionate conservatism” theme in 2000 was a direct repudiation of the Gingrich Congress’ early attempts to cut popular social spending.
That GOP spending spree continued until soaring deficits, the Great Recession, Wall Street bailouts, and enactment of Obamacare brought a Tea Party House majority in 2011. Once again, Republicans overreached and (with President Obama) nearly brought a debt limit default before finally winning approval of the Budget Control Act that would supposedly save $2.1 trillion over the decade. The conservative base’s unrealistic expectations peaked when the Heritage Foundation’s lobbying arm opposed this historic spending cut as too small to be worth the bother. Following the BCA, Republicans returned to spending as usual, eventually repealing much of the BCA’s reductions, and contributing to the deficits we see today.
Overpromising unrealistic spending cuts serves only to scare moderate voters. The resulting underdelivery of any spending reforms only disillusions conservative voters who had been told that balancing the budget would be easy. Lawmakers should begin with an achievable target of, for instance, identifying $400 billion in low-hanging savings over the decade and then build momentum.
Fighting Deficits Only During Democratic
Administrations
The Republican cycle of spending and then overpromising on cuts comes with a few additional angles. As the liberal writer Jonathan Chait notes, Republicans seem to impose unrealistic spending reduction demands on Democratic presidents while letting Republican presidents off the hook. Newt Gingrich and the 1995 Republican Congress shut down the government in a futile attempt to force Clinton to sign the most ambitious spending cut package in decades. The 2011 “Tea Party Congress” tried to force President Obama to save trillions from entitlement spending, and even shut down the government in 2014 in the delusional hope that Obama would agree to repeal Obamacare. Now, Republicans are readying debt limit plans to pressure Biden and Senate Democrats to accept trillions in savings.
Yet GOP presidents are almost never pressured to cut spending so much, even by a unified Republican Congress. Why would Democratic presidents agree to major spending cuts that unified Republican governments refused to enact? It’s as if fiscal reform is a weapon with which to club Democrats rather than a serious conservative priority.
Republican governments do not push for major spending reforms because they conflict with higher priorities. Specifically, Presidents Reagan, George W. Bush, and Trump each prioritized substantial immediate tax relief that—for whatever benefit they provided—used up much of these presidents’ limited political capital and cost the GOP any credibility in arguing that budget deficits require sacrifice and spending restraint. The Democratic attack ads write themselves (“Republicans cut taxes for millionaires and now tell us that the resulting budget deficits require us to trim grandma’s Medicare benefits”). Subsequently, Republican demands for deficit-reduction bring a chorus of “why not start by repealing your tax cuts” responses until GOP lawmakers just give up discussing spending and deficits altogether. Certain tax reductions may be good policy, but—in contrast to the “starve the beast” theory—they poison the well for spending cuts and are correlated with higher spending levels because tax-cutting lawmakers can no longer credibly offer deficit-based objections to new spending proposals.
Another higher Republican priority is defense spending. Congress has settled into a pattern where Republicans win large increases in defense spending by giving Democrats equal increases in non-defense discretionary spending. Ultimately, these bipartisan budget deals repealed the 2011 Budget Control Act’s discretionary spending caps. So Republicans seeking a $160 billion defense hike over two years (as in 2018 and again in 2019) end up passing $320 billion spending expansions, which in turn raises the yearly spending baseline and costs nearly $2 trillion over a decade.
In short, Republican lawmakers often rate deficit reduction as their third fiscal priority—right after cutting taxes and hiking spending.
A Responsible Path Forward
A conservative focus on reining in spending and deficits brings a welcome opportunity to address a leading economic challenge. But if conservatives focus on gimmicky and impossible goals like balancing the budget, or take hostage the debt limit, they will ultimately fail to reduce any spending. Instead, fiscal conservatives should aim to permanently stabilize the debt at 95 percent of GDP, rather than allow it to rise toward 200 percent of GDP over three decades. This goal would mean keeping deficits near 3 percent of GDP, compared to the baseline deficits rising past 6 percent of GDP over the next decade and 11 percent of GDP in three decades. In the short run, this means:
1. Freezing annual discretionary appropriations, which have grown rapidly in recent years and are an area where House Republicans have real leverage. Each percentage point that lawmakers reduce the growth of annual discretionary spending (such as 2 percent annually instead of 3 percent) saves $1 trillion over the decade.
2. Building momentum for mandatory spending reforms with a modest package of savings (perhaps $400 billion over the decade) that address lower-hanging fruit such as leftover pandemic spending, program overpayments, and federal spending benefits for upper-income families. Democrats may have a harder time demagoguing this type of bill.
3. Begin working toward Social Security and Medicare reform—which drive nearly 100 percent of long-term deficits—by building bipartisan working groups behind the scenes. Lawmakers should make a public case for tackling Social Security and Medicare insolvency but resist offering a specific public reform package that would only induce Democrats to attack the plan as a war on seniors, and cut off any serious negotiation. We’ve been down that road before.
4. Making a public case for attaching modest reforms to the debt limit (such as appropriations caps, budget rule tweaks, or the TRUST Act), without threatening a default.
5. Continue making the public case for spending and deficit reforms in preparation for the 2024 elections, as most real progress will likely need to wait until at least 2025.
6. Continue tweaking budget rules to crack down on budget gimmicks, allow open amendments to trim appropriations bills, and impose super-majority points of order against spending expansions.
7. Work quickly toward a bipartisan long-term solution to the 2025 expiration date for the 2017 tax relief (starting with the reality that Democrats will not want them to expire for middle- or lower-income families either). Regardless of how one feels about tax relief, the political reality is that Americans will not accept tough medicine on spending restraint while also seeing news headlines about tax cuts for millionaires. And all the conservative budget charts comparing the cost of tax cuts versus surging spending will not win that argument.
Lawmakers should be judged by what they can enact—not by unrealistic proposals or demands that are quickly discarded. It’s time for conservatives to roll up their sleeves, begin designing specific and detailed programmatic reforms, and building legislative coalitions. America cannot afford to squander this opportunity again.
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