November 23, 2014

Writing House Republican Budget Will Be No Tea Party

The problem with campaign rhetoric is that you’re stuck with it if you win.

The danger is that people might just believe you can really do all the wondrous things you promise and if you don’t deliver, they get angry. That, in part, helps to explain what happened to President Obama and congressional Democrats last week.

Now, it’s the Republicans’ turn to see if they can live up to their campaign rhetoric. On the fiscal front, they have set a very high bar for themselves.

Republicans campaigned on a written pledge to put the nation on a path to a balanced budget by cutting spending and not raising taxes.

It is easy to see the political appeal in that promise. Most people think the deficit is too big and that the federal government spends too much. Very few want to see their taxes go up.

The problem with the Republicans’ pledge is that the numbers don’t add up.

Forget ideology and just look at the projections. Last year’s deficit came in at $1.3 trillion. This year, the nonpartisan Congressional Budget Office (CBO) projects a deficit of $1.1 trillion. Beyond then, CBO projects 10-year deficits totaling $6.2 trillion.   

That’s the playing field confronting both parties. Now add the campaign promises.

Republicans promised not to raise taxes. If, by that, they mean that all expiring tax cuts will be made permanent, including relief from the Alternative Minimum Tax (AMT), this would add $6.1 trillion to the deficit through 2020 with another $1.5 trillion of added interest costs. In other words, the no tax increase pledge would more than double the projected 10-year deficit to nearly $14 trillion.

But Republicans have also pledged to cut spending by capping non-defense appropriations at 2008 levels. Allowing for certain exceptions, the probable new House Speaker John Boehner has estimated that this would save $100 billion per year. With interest savings, the projected 10-year deficit would be reduced to around $12.5 trillion. On the other hand, repeal of “Obamacare,” another GOP pledge, would add over $100 billion back to the deficit.

Obviously, this is not a path back to a balanced budget. Much more spending will have to be cut than was generally acknowledged during the campaign in order to show progress on the deficit while not increasing taxes. Inevitably, those spending cuts will have to come from the most sensitive parts of the budget; defense and the three largest entitlement programs (Social Security, Medicare and Medicaid). Rescinding unspent stimulus funds and remaining TARP authority saves very little because most of that money has already been spent.

So when the new House Budget Committee Chairman, Rep Paul Ryan of Wisconsin, sits down with his caucus to discuss the GOP’s budget proposals he will be confronting some tough math and even tougher choices. And he will also be stuck with his party’s campaign rhetoric, which played up low-hanging “waste” and played down defense and entitlement cuts.

That may work on the campaign trail but Ryan’s Budget Committee will need to deal with hard numbers. One such hard number is that beyond 2012 the combined cost of Social Security, Medicare and Medicaid will grow by more than the $100 billion per year Republicans say they will cut from other programs. Thus, even if the Republicans are successful in making these difficult cuts, the total cost of government, and the total national debt, would continue to grow.

Yet entitlements are only part of the problem. As deficits accumulate, so too does the cost of servicing the debt. Without additional and very substantial spending cuts the Republican Pledge policies would leave deficits in the trillion dollar range. Interest costs on the debt, like entitlement spending, would also grow by about $100 billion per year.

As for the debt itself, get ready for many more votes to raise the limit because its size will grow every year.

Republicans have set an expectation of swift deficit and debt reduction that will be far more difficult to achieve than their campaign promises would indicate. Will the public support them if they go after the entitlement programs to keep their deficit reduction promise? Will their most avid supporters have patience if they don’t?

None of this is to suggest that things will be any easier for the President or Senate Democrats who still have a responsibility to write their own budgets. They too have promised to extend most of the tax cuts and their campaign rhetoric indicated even less desire to slow the growth of entitlement spending.

Both parties must confront the sobering fiscal reality check delivered this week by Erskine Bowles and Alan Simpson, the bipartisan Co-Chairs of President Obama’s fiscal commission. Putting everything on the table, they went beyond domestic discretionary cuts to recommend cost-saving reforms of Social Security, Medicare, farm subsidies, defense and other programs. They also recognized the need for bringing in higher revenues by broadening the base of taxation while actually lowering rates. Even these substantial changes would not produce a balanced budget any time soon, but they would reduce the deficit to a far more manageable level.

Another example of a bipartisan path to fiscal sustainability will be delivered next week by the Bipartisan Policy Center’s Debt reduction Task Force, led by Alice Rivlin and Pete Domenici. While differing in details, this report will also demonstrate that no segment of the budget, including defense, entitlements and revenues, can be exempted from scrutiny.

We will soon see whether the political system and the American people are up to the challenge.

One thing is certain; budget season this year will be no tea party.