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An Old Saw’s New Twist: Death (of the Deficit Hawks) and Taxes

A few Republicans clinging to old party orthodoxy could doom Trump’s big win

Office of Management and Budget director Mick Mulvaney has said “a lot of this is a gimmick,” referring to the tax bill’s expiration dates for some of the lower rates. (Tom Williams/CQ Roll Call file photo)
Office of Management and Budget director Mick Mulvaney has said “a lot of this is a gimmick,” referring to the tax bill’s expiration dates for some of the lower rates. (Tom Williams/CQ Roll Call file photo)

This apparent contradiction confronts Congress as it returns for a grueling month of legislating: The Republicans who run the Capitol, so many of whom came to Washington as avatars of fiscal responsibility, are going to spend the rest of the year working to make a worsening federal balance sheet look even worse.

December holds the potential for a productivity breakthrough, but it also threatens to end in embarrassing deadlock — which is why the clear consensus within the upper reaches of the congressional GOP is that it’s the right time to get comfortable with any feelings of hypocritical guilt.

The party’s acute political need to be seen as starting to make something with their unified government before the dawn of the midterm campaign season, the leadership and President Donald Trump have made plain, will need to take precedence over the demands of the relatively few remaining deficit hawks trying to push the party back toward its traditional core values of balancing budgets and holding the line on borrowing.

And so Job No. 1 for the Republican high command comes with a big dose of irony. They are deploying their once-a-year parliamentary superpowers — the “reconciliation” process created four decades ago to ease passage of tough-love proposals for raising taxes and lowering spending in the cause of shrinking the deficit — for a wholly opposite purpose: Wiping $1.5 trillion in anticipated revenue (at a bare minimum) off the books and threatening to make deficits grow much bigger in the coming decade.

Decoding Reconciliation: Why the Senate Only Needs 50 Votes on Tax Bill

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The Senate will pass its version of that sweeping tax cut, probably by the end of this week, unless more than two of the 52 GOP senators conclude they are unwilling to live with such cognitive dissonance — or vote against the measure for some other reason.

But that’s only the most prominent of the several potential budget busters Congress wants to complete before Christmas.

Just offstage, talks are intensifying on a plan for blasting through the legally binding caps on spending for the current fiscal year, now two months old. Tens of billions of dollars more than what’s technically permitted are in the offing to appease the GOP’s military hawks. And tens of billions more as well will be allocated to buy some support from those Democrats most interested in the health of domestic programs.

On top of that will come at least $100 billion more in appropriations — for items considered one-of-a-kind and thus exempt from that “sequester” limit debate, but nonetheless part of the deficit math. Mostly the money will be for the military’s operations against ISIS and in Afghanistan and the recovery from a season of devastating hurricanes.

And to counterbalance those generosities, what are the ingredients in the sponge of fiscal discipline designed to soak up some of that rapidly expanding pool of red ink?

There’s no such thing, at least so far.

There’s the theoretical, but hardly proven, view that the deepest tax cut in two decades will produce such a wave of economic growth that the legislation will eventually pay for itself.

And to be fair, Trump has at last gone through the motions of producing a $59 billion menu of cuts from which he’d like Congress to choose to offset his most recent $44 billion disaster aid request. Plus, in recent days, he’s talked vaguely about making once-in-a-generation “welfare reform” his money-saving priority for the coming year.

Watch: Trump’s Post-Thanksgiving Tax Bill Hopes Hang on Four Key Senators

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But the political will is next to nonexistent to further squeeze the regular budget to help the storm victims of Texas, Florida and Puerto Rico. And the chances are slim the fragile GOP majorities in Congress will push hard for shrinking the social safety net in the election year.

Piling up

Even without the coming moves that would result in the Treasury spending much more while at the same time taking in significantly less, the short-term fiscal picture has been getting grimmer and the long-term forecast even more dire.

The deficit for fiscal 2017 — in other words, the shortfall between revenue and outlays during the year ending Sept. 30 — was $666 billion, a whopping 14 percent increase ($80 billion) from the previous year. Outside the five years when the government was responding to and recovering from the Great Recession, that stands as the biggest deficit in a quarter century both in dollars and as a share of the national economy. (It amounted to 3.5 percent of the gross domestic product.)

The budgetary imbalance has been on a worsening trajectory in the coming decade, even without Congress relaxing the reins on domestic and especially Pentagon spending.

The programs over which lawmakers exercise their power of the purse each year, through their convoluted and always-behind-schedule appropriations system, routinely comprise just under 30 percent of all government outlays — and that share of the budget pie looks to increase only incrementally in the years ahead, almost no matter how Congress acts within its historical norms.

That’s because the so-called discretionary spending slice is going to get crowded out by two chunks of the pie that are growing fast.

Even before this year’s tax cut and extra spending got on the legislative front burner, annual interest payments on the national debt (which now tops $20 trillion and must be allowed to grow higher by enacting a law early next year) were on course to more than double in a decade. There’s little to be done about that, because all that borrowing is to cover spending from previous years that can’t be reversed.

The ballooning of the budget’s biggest piece is something Congress can do something about, but has chosen not to for readily apparent political reasons. Social Security, Medicare and Medicaid already account for half of all spending today, at a combined $1.9 trillion. They are entitlement programs, which means the medical and income security benefits keep flowing to whoever qualifies until Congress changes the rules. With the baby boom generation in the heart of its long-lasting retirement years — and likelier to vote than any other age group — the combined cost will mushroom by more than 70 percent in just the next five years.

Polling has been scarce on the public’s view of the intersection between red ink and tax cuts. This month CNN found 40 percent predicting the GOP tax bill would increase the deficit, but even more people unsure whether it would have any effect on the government’s books. In July, Bloomberg found 70 percent saying it’s “not okay to increase the federal deficit in order to cut taxes.”

A gimmick?

That view is still shared by a few Republicans. Some are openly skeptical about how the tax bill has been written such that its on-paper price tag does not breach $1.5 trillion over 10 years, which would prevent its consideration in the Senate under the filibuster-proof protections of reconciliation.

Most prominent among them is the White House’s own budget director, Mick Mulvaney, who says “a lot of this is a gimmick” in pointing to the bill’s expiration dates for some of the lower rates, which were written to hold down the short-term cost but will prove politically tough to stick with come 2026.

Mulvaney’s previous job was as a stalwart in the House Freedom Caucus, and a crucial bloc of those conservatives may yet come to agree with him and turn against any final compromise with the Senate — with maybe fatal consequences in the closely divided House. Holding their deficit hawkishness at bay is one reason the GOP leadership has been trying to keep the contours of the year-end spending spurt under wraps until after the tax bill is assured of passage.

Most immediate, though, is the threat posed to the tax bill by four GOP senators who have sounded skeptical mainly on fiscal prudence grounds. Two of them, Jeff Flake of Arizona and Bob Corker of Tennessee, have already announced their departures after next year and so are immune from normal lobbying pressures. The others are John McCain of Arizona, the only Republican still in office who voted against both of President George W. Bush’s tax cuts, and James Lankford of Oklahoma.

That group is more than big enough to sink the bill, given the GOP’s narrow majority and the fact that none of the Democrats are going to cast a dispositive “yes” vote.

But deficit hawks have still faded to a tiny endangered species in the congressional GOP, which is a remarkable turnabout in just four years.

At the time of President Barack Obama’s second inaugural, after all, it was Senate Majority Leader Mitch McConnell who labeled deficits and debt as “the transcendent issue of our era,” volunteering that “until we fix that problem, we can’t fix America, and we cannot leave behind for our kids the kind of America that our parents left behind for us.”

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