U.S. Economy

Hey, Republicans. Where's the Deficit Dudgeon?

Remember when conservatives told government to live within its means? That was before the age of Trump.

Republicans finally control Washington and are licking their chops about what they can achieve: tax cuts, ending regulations, a stronger defense.

But they are strangely silent on a centerpiece of their policy rhetoric during Barack Obama's presidency: federal budget deficits.

QuickTake U.S. Budget Deficit

Consider the dire warnings they sounded before their man made it to the White House on campaign promises of lower taxes and big spending programs. Senate Republican Leader Mitch McConnell liked to say that deficits are so dangerous that tax reform had to be "revenue neutral." House Speaker Paul Ryan trotted out plans to balance the federal budget in 10 years. Texas Senator Ted Cruz thundered that the government, like the ordinary American family, has to stop living on credit.

Here are three predictions to bank on even in today's crazy-quilt political world: 1) If Congress passes a tax reform plan, it not only won't be revenue neutral, it will lose trillions; 2) The budget won't be balanced in 10 years, and 3) The government, like many Americans, will keep using its credit card.

That won't much bother President Donald Trump, the businessman who once crowned himself "king of debt." What turns him on are a bigger, tougher military and lots of infrastructure building -- including wasting money to build a Mexican border wall.

What scares deficit hawks like Maya MacGuineas, who runs the nonpartisan Committee for a Responsible Federal Budget, is the prospect of a deal to give both Trump and Capitol Hill Republicans whatever they want. In that scenario, House Speaker Paul Ryan would get the huge tax cut he has always craved, with most benefits going to the wealthy, and would agree to take politically unpopular cutbacks in Medicare and Social Security off the table, as candidate Trump promised. Trump would get the money to bulk up the military and build lots of roads, bridges and airports.

To make Ryan's tax cuts permanent without touching the big entitlement programs that drive deficits, Republicans would have to take the axe to other domestic spending.

Robert Greenstein, president of the liberal Center on Budget and Policy Priorities, spearheads opposition to reducing spending on the poor and working class. But he has substantive credibility and works with some Republicans. Last week he warned there are "mounting signs" that Republicans are planning "harsher" cuts than they have offered in recent years, slashing as much as $8 trillion of non-defense spending over a decade.

That would take domestic spending, exclusive of Social Security and Medicare, to about half the average under President Ronald Reagan. The impact would fall heavily on the poor.

That would probably antagonize too many voters, though, including some who supported Republicans in 2016. The way to avoid that political trap while giving Ryan and Trump what they want? Let the deficit grow.

The federal budget has declined from a 2009 peak after the financial meltdown, when it soared above a trillion dollars for four consecutive years. The Congressional Budget Office projects that it will start to climb again after next year, and in five years will once again cross the trillion-dollar barrier.

Deficit Decade

U.S. budget deficit as a percentage of gross domestic product

Source: U.S. Treasury

Erskine Bowles, who was chief of staff to President Bill Clinton and later co-chaired a bipartisan deficit reduction panel, warns that if deficits soar and interest rates return to turn-of-the century levels, "Interest-expense alone could amount to a trillion dollars a year." That's money, Bowles has noted, that wouldn't be available to educate kids or make investments, and would necessitate more borrowing from foreign countries like China.

Bowles says the implications of Trump's promises should raise alarms.

He has said he will not touch Social Security or Medicare. He has said he would cut taxes by $3 to $5 trillion over the next decade, increase infrastructure spending by $1 trillion and defense spending by $500 billion.

"While this could increase short-term economic growth," Bowles said, it's a bad long-term plan that "will be placing an extraordinary debt burden on future generations of Americans."

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Albert R. Hunt at ahunt1@bloomberg.net

    To contact the editor responsible for this story:
    Jonathan Landman at jlandman4@bloomberg.net

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