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The Republicans' Greek Tragedy for America

July 14, 2015

For the past five years, Republicans determined to gut federal spending have been warning that "we look a lot like Greece." A preposterous claim then, the charge is even more ridiculous now. Unlike Greece, the United States controls its own currency and has enjoyed economic growth even as Washington's national debt as a share of its GDP is only about half that of Athens. Since President Obama first took the oath of office, federal spending has been flat and the annual budget deficit was reduced by two-thirds. And while cuts at the state and local government level produced an anti-stimulus that dramatically slowed the American recovery, the U.S. has avoided the Greek "death spiral" of draconian austerity policies which inevitably lead to economic contraction and falling tax revenues and thus more austerity. "The only lesson the United States should draw from Greece," Daniel Drezner correctly concluded, is "the United States Is not like Greece."
Nevertheless, Americans could still suffer their own Greek tragedy. The U.S. could starve the Treasury of revenue by the simple inability--or refusal--to collect the taxes Americans owe Uncle Sam. More cataclysmic, the United States could simply refuse to pay the debts the federal government has already run up. But these dystopian scenarios can only come to pass if Republicans get their way.

Debt ceiling votes since 1980.

Four years ago, Senator and 2016 White House hopeful Lindsey Graham (R-SC) comically sounded the alarm, "What is calamitous is the path we're on as a nation. We're becoming Greece." But that January of 2011, Graham issued a warning that was deadly serious:

"Let me tell you what's involved if we don't lift the debt ceiling: financial collapse and calamity throughout the world."

That's right. A sovereign default due the failure of the United States to raise the debt ceiling would make the empty store shelves and bank closures in Greece look like a walk in the park. As the new Speaker of the House John Boehner explained in January 2011, a refusal to boost Uncle Sam's borrowing authority "would be a financial disaster, not only for our country but for the worldwide economy." As then House Budget Committee Chairman Paul Ryan put it:

"You can't not raise the debt ceiling."

Nevertheless, in 2011 and 2013 Congressional Republicans were poised to do just that. Despite the fact that the national debt tripled under Ronald Reagan and nearly doubled again George W. Bush, the House GOP had both the votes and the intent of blocking a debt ceiling increase unless President Obama capitulated to the draconian spending cuts they sought to extort. As Senator Marco Rubio (R-FL) put it in a March 2011 Wall Street Journal op-ed:

I will vote to defeat an increase in the debt limit unless it is the last one we ever authorize and is accompanied by a plan for fundamental tax reform, an overhaul of our regulatory structure, a cut to discretionary spending, a balanced-budget amendment, and reforms to save Social Security, Medicare and Medicaid.

Rubio, like many of his default-denying GOP colleagues, was engaged in a delusion of the most dangerous kind. As Speaker Boehner admitted, the $5 trillion in red ink projected over the ensuing decade would require Congress to raise the debt ceiling repeatedly. And Rubio's own tax plan announced this spring would make matters much worse by adding yet another $2.4 trillion in new debt in its first 10 years. Had Rubio, Ted Cruz and their ilk gotten their way, the United States would have been unable to pay the bills it had already incurred. The result of a default by the United States would make the Greek economic implosion pale in comparison.
In 2011, one-time GOP presidential frontrunner Michele Bachmann (R-MN) declared "we don't raise the debt ceiling, but we use the revenue still coming in to pay off creditors first and whatever we think most important second". That way, we "don't violate our credit rating" and "prioritize our spending."
In response, Ezra Klein described Bachmann's fantasy as "the scariest thing I've ever heard on television."

It makes perfect sense unless you, like me, had spent the previous few days talking to economists, investors and economic policymakers about what could happen if we start playing games with the debt ceiling. Their answers were across-the-board apocalyptic. If the U.S. government is so incapable of solving its political problems that it can't come to an agreement on the debt ceiling, they said, that's basically the end of the United States as the world's reserve currency. We won't be considered safe enough to serve as the investment of last resort. We would lose the most important advantage our economy has in the global financial system -- and we'd probably lose it forever. Skyrocketing interest rates would slow our economy and, in real terms, make it even harder to pay back our debt, which would in turn send interest rates going even higher. It's an economic death spiral we associate with third-world countries, not with the United States.

It's no wonder the Government Accountability Office (GAO) recommended that Congress do away with the debt ceiling altogether.
Standard & Poor's, which that summer downgraded the U.S. credit-rating, certainly thought so. Even though default was averted in August 2011, the uncertainty the GOP's brinksmanship had created gutted U.S. job creation and smothered consumer confidence:

A Standard & Poor's director said for the first time Thursday that one reason the United States lost its triple-A credit rating was that several lawmakers expressed skepticism about the serious consequences of a credit default -- a position put forth by some Republicans. Without specifically mentioning Republicans, S&P senior director Joydeep Mukherji said the stability and effectiveness of American political institutions were undermined by the fact that "people in the political arena were even talking about a potential default," Mukherji said. "That a country even has such voices, albeit a minority, is something notable," he added. "This kind of rhetoric is not common amongst AAA sovereigns."

What's also not common amongst AAA sovereigns is the inability to collect all of the tax revenue due to the government. And when it comes to tax evasion, cheating and fraud, Greece is the poster child. Its "shadow economy" accounts for 27 percent of the nation's GDP, more than triple the size of the "off-the-books" business in the United States. Athens loses 6 percent more of GDP to tax evasion than the average of the other rich OECD countries. As GlobalPost reported in the fall of 2011:

As Greece's colossal debt problems weigh on the global economy, its wealthy have become famous for their brazen unwillingness to pay taxes.
By some estimates, a third of Greek taxes go unpaid, amounting to $20 billion or more. At least half of the country's budget shortfall could be eliminated if only the government could collect these revenues.

But if Congressional Republicans continue on their current path, the United States could start to look a lot more than Greece. The estimated $500 billion annual "tax gap"--the difference between what Americans owe the IRS each year and actually pay--is now as large as the federal budget deficit. And on Capitol Hill, Republicans want to make that shameful situation worse.

As the Washington Post detailed last month, House Republicans want to once again slash funding for the Internal Revenue Service, this time by 8 percent:

The financial services-general government appropriations bill would set the agency's 2016 budget at $10.1 billion, which Democrats said is below the level of a decade ago even though the agency's workload has grown substantially. The amount is $838 million below the fiscal year 2015 level and $2.8 billion below the White House's request.

A recent analysis by the Center on Budget and Policy Priorities (CBPP) summed up the impact for the IRS of having lost 18 percent of its funding and 13,000 agents since 2010 even as its responsibilities and the volume of returns jumped by seven percent. Nevertheless, in this year's "CRomnibus" spending bill, Congressional Republicans once again took an ax to their least favorite government agency:

Spending negotiators this week froze most agency budgets but reduced the IRS funds to $10.9 billion, a 3 percent cut over last year and $1.5 billion below the president's request. Appropriators bragged in a release that the level is even lower than the IRS's 2008 budget.
Those new cuts come atop more than a $1 billion reduction to the IRS budget since 2010, which has forced the tax-collecting agency to shed 13,000 employees while it serves an additional 7 million taxpayers, according to IRS Commissioner John Koskinen.

The results of this right-wing temper tantrum are as predictable as they are counterproductive. IRS customer service has continued its steady erosion. Even before the cuts, only 53 percent of taxpayers calling the agency for help were projected to even get through, while wait times were forecast to grow to 34 minutes. IRS Commissioner John Koskinen warned that the tax collector would have to resort to furloughs and shutdowns to balance its own books, painful steps which could delay taxpayers' refund checks. Meanwhile, the government's ability to prevent, detect and punish tax cheats, frauds and evaders will be further curtailed, with the result that the estimated $500 billion "tax gap" between what Americans owe Uncle Sam each year and what they actually pay will continue to grow.
By punishing the IRS for scandals that did not materialize and for simply doing its job in managing Obamacare tax credits and penalties, the GOP has opted for a "penny-wise, pound-foolish" policy of the worst kind. The IRS has repeatedly explained that each additional dollar added to its budget produces between seven and 10 times more revenue for the United States Treasury. As Ezra Klein pointed out when House Republicans first slashed the IRS budget in 2011:

Converting dollar bills into $10 bills is an excellent way to pay off your credit card. Except, it seems, if you're a House Republican.

It's with good reason Jonathan Cohn labeled the GOP the "pro-deficits, pro-tax evasion" party. In the summer of 2013, then House Majority Leader Eric Cantor (R-VA) announced his party's intent to slash IRS by 25 percent, a move even Charles Krauthammer called "silly and small." For his part, IRS chief John Koskinen recently warned that there is little he can do about a GOP-controlled Congress still seeking retribution for "the problems of the past...overspending on conferences, making some ill-advised videos and, of course, inappropriate scrutiny of applications from groups seeking social welfare status and others." But that wasn't Koskinen's only warning to Congress:

"I have not figured out either philosophically or psychologically why nobody seems to care whether we collect the revenue or not."

Unless, of course, your goal is to make the United States look a lot more like Greece.
Writing in the New York Times last week, Paul Krugman summed up the idiocy of Republicans pointing to the crisis in Greece as a lesson for America:

The point is that if you really worry that the U.S. might turn into Greece, you should focus your concern on America's right. Because if the right gets its way on economic policy -- slashing spending while blocking any offsetting monetary easing -- it will, in effect, bring the policies behind the Greek disaster to America.

But austerity isn't the only way America could go Greek. If Republicans continue to gut the IRS and encourage a culture of non-compliance with basic tax collection, the prospect for the Hellenization of the United States seems unavoidable in the long-term. And if the GOP refuses to raise the debt ceiling again, Americans could be going Greek by this fall.


About

Jon Perr
Jon Perr is a technology marketing consultant and product strategist who writes about American politics and public policy.

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