Behind GOP Unity, Trump Plans May Be Stymied by Fiscal Hawks

  • Ryan and McConnell focusing on where their agendas line up
  • Trump’s spending and tax initiatives may add billions of debt

Trump Looks to Establishment, Alt-Right to Build Staff

In the afterglow of Donald Trump’s unexpected triumph, Republicans exulted over what they could accomplish with control of both chambers of Congress and the White House.

But behind the public show of unity, a stark difference looms. House Speaker Paul Ryan is a fiscal hawk who wants to couple tax cuts with deep spending cuts. Trump catapulted himself into the presidency talking about tax cuts too, but he also is proposing a multibillion-dollar infrastructure plan and has vowed to protect entitlement programs like Social Security and Medicare.

Such gaps went unmentioned when Trump met with Ryan and Senate Majority Leader Mitch McConnell last week. But ultimately, one side will have to bend, whether Trump ends up moderating his spending and tax-cut plans, or congressional fiscal hawks relent on their opposition to new spending.

The signs of a looming clash are already there. One day after meeting with Trump, McConnell poured cold water on Trump’s spending plans, telling reporters that a government stimulus wasn’t going to help the economy.

“A government spending program is not likely to solve the fundamental problem of growth," he said Friday.

Highways and Bridges

But Trump mentioned only one policy proposal during his victory speech last week: his infrastructure plan.

“We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals. We’re going to rebuild our infrastructure, which will become, by the way, second to none,” he said. “And we will put millions of our people to work as we rebuild it.”

Such a plan may be too much for congressional Republicans to swallow, and Ryan and McConnell haven’t backed it.

But House Majority Leader Kevin McCarthy of California showed some softening on the issue Monday, telling reporters that an infrastructure bill can be "a priority" and "a bipartisan issue." He said there can be ways to pay for it, though he didn’t provide specifics.

"Infrastructure in America is lagging far behind," McCarthy said, noting that Congress passed a highway bill this year for the first time in more than a decade.

Anthony Scaramucci, an economic adviser named to Trump’s 16-member transition executive committee, cited the president-elect’s $1 trillion infrastructure plan, saying it would be financed by "historically cheap debt" and private-public partnerships.

“We can close the wealth gap in America by replacing emergency-level interest rates with fiscal stimulus,” Scaramucci, the founder of the investment firm SkyBridge Capital, wrote in an op-ed in the Financial Times last week.

Ryan and House Republicans have spent the past six years enforcing strict budget caps aimed at holding down the federal debt. Republicans even took the government to the brink of default in a battle over raising the debt limit.

"As we move from campaigning to governing, something will have to give since cutting taxes without major spending cuts will make our already unsustainable debt situation even worse," says Maya MacGuineas, president of the non-partisan Committee for a Responsible Federal Budget in Washington.

These differences may take some time to emerge. Republican leaders last week talked up the many areas where they are broadly in sync with Trump, including repealing and replacing Obamacare and dismantling President Barack Obama’s financial and environmental regulations. And the appointment of Republican National Committee Chairman Reince Priebus, a close Ryan ally, as Trump’s chief of staff will reassure congressional Republicans that there is a path to enact a broad GOP agenda.

Still, Trump campaigned on a series of plans that, taken together, would increase the deficit dramatically. Those include the infrastructure plan, as well as building a wall along the U.S.-Mexico border, changing immigration and trade policies, and boosting military spending -- all while slashing corporate and personal taxes.

‘Debt Bomb’

Representative David Brat of Virginia, a member of the ultra-conservative House Freedom Caucus, said Friday that members are on board with much of Trump’s agenda, but he wasn’t willing to predict where they’d end up on his spending plans.

Trump "has been thrown into a $20 trillion debt bomb scenario," said Brat, who also noted the debate over whether the proposed tax cuts would add too much debt in the short term. But, Brat noted, the markets are saying "if you don’t get the economy moving again, and particularly business capital investment, then the debt problem will become catastrophic in 10 years."

Mark Zandi, chief economist at Moody’s Analytics, expects Trump will be the one who has to compromise. "The Trump administration will have to significantly scale back his policy proposals for both political and economic realities," he said.

Trump hasn’t provided much detail about his proposals, which makes it difficult to assess their potential impacts on the budget deficit. And that vagueness could give him room to scale back his proposals and avoid accusations that he’s reneging on campaign promises. Indeed, Trump has hinted at times that his campaign policy statements were only opening salvos for a negotiation. 

But in general terms, Trump argues that his plans to lower corporate and individual taxes, combined with deregulation, will generate higher economic growth -- and that the growth will offset most of the lost tax revenue from his proposed cuts. 

Penny Plan

He has also proposed a so-called penny plan to enact 1 percent budget cuts annually to non-defense discretionary programs to rein in spending. But those cuts, which would exclude defense spending and entitlements like Medicare and Social Security, would apply to a relatively small portion of government spending.

The Committee for a Responsible Federal Budget projects that Trump’s proposals would add $16 trillion to the national debt over 20 years -- the result of $14.5 trillion of tax cuts, $2.5 trillion of spending cuts and $3.8 trillion of higher interest costs. 

In just the next decade, according to estimates from the conservative Tax Foundation, Trump’s tax plan would increase the national debt between $4.4 trillion and $5.9 trillion.

Republicans in Congress have also called for cuts in tax rates, but many want to pair those with steeper reductions to Medicare and Social Security. During the campaign, however, Trump largely ruled out cuts to those programs.

For now, McConnell, Ryan and other Republicans aren’t talking about many of the specifics of Trump’s proposals.

"We’re going to pursue the agenda that he talked about during the election," McConnell said Friday. "Fundamentally I think these people were not satisfied with the status quo and I think that’s what allowed him to win the election."

During the campaign, Ryan was dismissive of Trump’s infrastructure plan. Ryan and McConnell also haven’t supported Trump’s proposed building of a wall along the U.S.-Mexico border.

"House Republicans are only just beginning to talk with President-elect Trump and Vice President-elect Pence about the agenda for 2017," Ryan spokeswoman AshLee Strong said in a statement. "Speaker Ryan intends to continue these discussions with the transition team."

Debt Limit

An early debate looms next year over how to address the debt-limit moratorium, which expires this spring.

A House Democrat, Gerry Connolly of Virginia, predicted in an interview that, over time, rifts will emerge with the House and Senate Republican leaders over Trump’s proposals. Those tensions will grow, he said, as campaign promises aren’t kept and fights brew, and voters will see him as the "snake oil salesman he is."

But Zandi predicts Trump and congressional Republicans will come to a compromise, with lawmakers agreeing to tax cuts that are one-third the size of what Trump has proposed -- perhaps closer to $2 trillion.

"Future budget deficits and debt will still be much larger, but not nearly as large as they would be if the new president got precisely what he proposed during the campaign," he said.

— With assistance by Steven T. Dennis

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