Perrspectives - Bringing light to Darkness

The Coming Republican Budget Blow Up

March 14, 2015

This week, Congressional Budget Office (CBO) released its assessment of President Obama's proposed budget for fiscal year 2016. For those of us prioritizing economic growth over deficit reduction, the picture is a pretty good one. Despite new investments in education and infrastructure, the Obama budget will reduce the projected national debt by $1.2 trillion over the next decade. Thanks to new revenue from capping upper income tax deductions, increasing rates on estates and capital gains, and a one-time, 14 percent tax on the repatriation of corporations' foreign earnings, Uncle Sam's additional red ink is projected to decrease from $7.20 to $5.98 trillion.
But if Washington conventional wisdom says Obama's budget is "dead on arrival," a Republican alternative may be stillborn. There's no mystery as to why. Different groups of Congressional Republicans are simultaneously calling for increased defense spending, steep tax cuts and a balanced budget with a decade. And while the politics of squaring that circle is hard, the math--as the records of Ronald Reagan and George W. Bush sadly show--is impossible.

As the New York Times explained this week, Senate Minority Leader Mitch McConnell (R-KY) and House Speaker John Boehner (R-OH) have some tough sledding ahead even before the start of the new fiscal year on October 1:

In April, physicians who treat Medicare patients face a drastic cut in pay. In May, the Highway Trust Fund runs dry. In June, the charter for the federal Export-Import Bank ceases to exist. Then in October, across-the-board spending cuts return, the government runs out of money -- and the Treasury bumps up against its borrowing limit.

Now, for most of the next decade the national debt as a percentage of U.S. gross domestic product (GDP) will plateau. (Under Obama's proposal, the annual budget deficit would not exceed 3 percent of GDP in any year from 2016 to 2025.) Despite the absence of any debt crisis, Republican leaders nevertheless want to reach a balanced budget by 2025:

Both Senate Chairman Mike Enzi (R-Wyo.) and his House counterpart, Rep. Tom Price (R-Ga.) are under pressure to achieve nothing less than balance by 2025. But that's a huge undertaking given the splits in the party over defense spending and the GOP's reluctance still to include new revenues.

Closing a $7.2 trillion hole is hard enough. Doing it while boosting defense spending and slashing taxes is a dangerous fantasy. But that's precisely what some of the GOP's best and brightest want to do.
On defense spending, John McCain (R-AZ), Lindsey Graham (R-SC) and Rep. Mac Thornberry (R-TX) are leading the charge to do away with the sequestration process introduced with the Budget Control Act of 2011. The price Republicans extracted for raising the debt ceiling and avoiding a U.S. default in August 2011, sequestration automatically cuts defense and discretionary spending. McCain and Thornberry want to do with away not just with the FY2016 cuts, but with the sequester altogether. As The Hill explained:

Under sequestration, the 2016 defense budget will be $500 billion. The White House has submitted a defense budget for $535 billion. McCain and Thornberry went further, arguing it should be $577 billion -- the level planned before sequestration hit.
If the cuts aren't relieved by Oct. 1 or lawmakers don't find areas in the defense budget to cut, $35 billion would indiscriminately be cut from the budget by slashing an equal percentage from every Pentagon program.

But if the hawks want to add a trillion dollars in new defense spending over the next decade, the GOP's tax reform crowd wants to take away at least two trillion more in revenue. That's the potential impact of the proposal from GOP Senators Marco Rubio (R-FL) and Mike Lee (R-UT). Slashing the corporate tax rate to 25 percent, eliminating taxes on capital gains, dividends and estates, compressing individual taxes to two brackets of 15 and 35 percent, and delivering a $2,500 per child tax credit would create yet another hemorrhage from the U.S. Treasury. While the conservative Tax Foundation suggested the revenue loss could reach $1.7 trillion over 10 years, a Tax Policy Center analysis of an earlier, less aggressive version of the plan put the loss at $2.4 trillion within a decade:

[W]hile it is not accompanied by a budget score, the elements that it specifies would add trillions of dollars to the nation's debt over the next decade. It would also likely target the bulk of these new tax cuts to high-income households.

Rubio has plenty of company among the 2016 White House hopefuls. As Bloomberg detailed, "Republicans Vie Over Who Can Cut Taxes Most as Deficit Shrinks." For his part, Rubio admitted that on its own, his tax plan would balloon the national debt. "You still wouldn't bring the debt under control," he said, "You still you have to do the spending piece of it." And just what is the spending piece? As The Hill previously reported:

Rubio said that the tax reform plan would be part of a broader fiscal approach that included revamping entitlement programs like Medicare and Social Security to help get long-term deficits under control.

If the likes of McCain and Rubio get their way, the United States would add $10 trillion in new debt--$7.2 trillion from the CBO baseline plus $3 trillion from Pentagon increases and tax cuts--between 2016 and 2025. Yet the new House Budget Chairman Tom Price (R-GA) promised in January that he will get the annual budget deficit to zero within 10 years:

House Republicans will try to balance the federal budget in less than 10 years, the top House GOP lawmaker on budget issues said Monday.
"We will lay out a budget this year that will come to balance within what's called the window, within a 10-year period of time. I hope it's shorter than that," said Rep. Tom Price.

Good luck with that. Non-defense, discretionary spending as a percentage of the American economy is already down levels not seen since the 1950's. As Paul Krugman recently showed, the issue isn't the growth of Social Security or income support programs (i.e. EITC, food stamps, unemployment insurance, etc.), but of health care spending. And in recent years, the federal government has made great progress in reducing the rate of growth for Medicare, Medicaid and the provisions of the Affordable Care Act. So, Republicans like Tom Price or Paul Ryan simply can't there from here unless, that is, they change how math works. And that's what the "dynamic scoring" debate is all about.
Whatever happens, as Treasury Secretary Jack Lew reminded the House and the Senate this week, the debt ceiling will have to be raised soon. As the numbers above show, Uncle Sam's borrowing authority will have to be increased repeatedly in the years ahead. For his part, Senate Minority Leader McConnell pledged there would be no repeat of the GOP's default extortion schemes of 2011 and 2013. "I made it clear after November," he told Face the Nation, "that we won't shut down the government or default on debt." He might want to check first with Chairman Price on that:

Republican Tom Price, the incoming House Budget Committee chairman, said his party could demand steep spending cuts in exchange for raising the debt ceiling next year, the most provocative comments by a senior GOP member to date on how negotiations could play out.
The Georgia congressman, during an hour-long briefing with reporters Friday, said the expected mid-2015 debate over whether to raise or suspend the debt ceiling offered Republicans an opportunity to make a sizable imprint on government policy.
"I prefer to think about it as opportunities and pinch points," Mr. Price said.

Unfortunately, most sentient creatures think of that as a disaster.


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

Follow Us

© 2004 - 
 Perrspectives. All Rights Reserved.
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram