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Republican fiscal hawks have every justification to be concerned about the federal government’s finances. Both the federal budget deficit and total federal debt held by the public are at all-time highs. For the first time ever, the federal government is spending more on interest payments to service its debt than it spends on national security. This is utterly undesirable, unreasonable, and unsustainable.
The election of Donald Trump with a Republican-controlled House and Senate is a generational opportunity to rightsize spending and put the federal government on a more stable fiscal footing. However, unless the strategies employed by Republican hawks change — they are right in motive but wrong in tactics — the result will be more spending and higher deficits, the opposite of what they want to accomplish.
Last week, House Republicans had an opportunity to pass a slimmed-down spending bill — from 1,500 pages to just over 100 — along with a rise in the federal government’s borrowing authority that was requested by Trump. Almost 40 House Republicans balked at this compromise, insisting on trillions of dollars in spending cuts to secure a vote to raise the debt limit. The vote failed, and now, Trump will have to find the votes in the next Congress to prevent federal spending from being cut by a quarter beginning sometime around June.
Fiscal conservatives view the debt limit as an opportunity to force the federal government to make hard but necessary choices and cut spending, but that is not how debt limit fights have ended in the past, particularly under Trump. The debt limit was raised three times during his first term, and each time, Trump was forced to go to Democrats in Congress to find the votes to raise the ceiling, and the price of Democratic support was massive increases in discretionary spending.
If Republicans think Trump wouldn’t work with Democrats again to increase spending in exchange for raising the debt limit, they are mistaken.
The debt limit is not the only must-pass vehicle fiscal hawks will have to cut spending. If Senate Republican action matches their rhetoric, fiscal hawks will have an opportunity this February to make sure the first reconciliation bill focusing on border security and deportation will be fully paid for. This can be accomplished by dialing down outlandish price tags for the bill (we’ve heard it might be $200 billion) and identifying smart, conservative ways to pay for the new spending with cuts elsewhere in the budget.
Fiscal hawks will again have an opportunity to make real cuts when the continuing resolution passed last week expires in March. Instead of negotiating with Senate Democrats, House Republicans will be negotiating with Senate Republicans. This should produce better results. Senate Republicans will still need some Democratic votes to reach 60, which will mean more spending than desirable. As House Republicans deal with those talks, they should realize that the best way to get spending down is to stay united. Every time a Republican breaks ranks with the party and votes against a spending bill, the final price goes up as another Democrat needs to get paid off for final passage.
If everything goes according to plan, fiscal hawks will have yet another opportunity to force spending cuts when a second reconciliation bill is voted on before the Trump tax cuts expire next December.
According to the latest Congressional Budget Office Report, federal debt is set to reach $50 trillion by 2035. It was just $10 trillion as recently as 2011. This astronomical rise is entirely caused by rising spending. From 1974 until today, federal revenues have averaged 17.3% of the economy and are set to rise to 17.9% by 2035. The problem is spending is rising much faster. Federal government spending is already 22.7% of the economy and is set to rise to 24.1% by 2035.
It would be simply impossible to raise taxes high enough to reach that level of spending. The highest federal tax revenues as a percentage of the economy has ever reached was 19.8% during World War II. Even at that historically high rate, we would still be running trillion-dollar deficits every year.
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Trump has made the spending problem harder to solve by pushing Social Security and Medicare off the table entirely. However, fiscal hawks can still make progress. Other forms of spending, including food stamps and some higher education spending, have been moved from discretionary to mandatory. Republicans should move them back and then freeze all discretionary spending levels. This would be real progress.
Trump was not elected on a platform of deficit reduction. That doesn’t mean the federal debt isn’t a real concern or that fiscal hawks should ignore it. What it does mean is that those concerned with the debt should be realistic about what they can accomplish and strategic in how they pursue it.