(Bloomberg Businessweek) -- Rand Paul, the Kentucky senator, made a nuisance of himself the night of Feb. 8 when he tried to shame fellow Republicans into voting down a $300 billion spending increase. He asked, “If you were against President Obama’s deficits and now you’re for the Republican deficits, isn’t that the very definition of hypocrisy?” He put up a series of posters of allegedly wasteful federal spending, including a $356,000 scientific study that he said was designed to determine “whether Japanese quail were more promiscuous on cocaine.” And he refused to allow a vote before the midnight deadline for budget extension, forcing a technical shutdown of the federal government that lasted several hours.
Senate colleagues of the sleepy-eyed physician-politician were unimpressed. John Thune of South Dakota, the Senate’s second-ranking Republican, called Paul’s jeremiad “a colossal waste of everybody’s time.” One mean person on Twitter wrote, “Every member of the GOP in that room is thinking, ‘Now I know why the neighbor beat him up.’ ”
Paul’s peers could afford to tune him out for one simple reason: Voters don’t care about federal budget deficits. And that, in a nutshell, is why the deficit hawk is an endangered species in the environs of Washington.
Voters used to care about deficits. In 2013, when Obama was trying to get the economy out of its post-recession doldrums, reducing the budget deficit ranked third on the public’s list of priorities, behind only the economy and jobs, according to polling by Pew Research Center. The public’s fear of red ink made it easy for Republicans in Congress to oppose Obama’s infrastructure-spending proposals.
By this January, reducing the budget deficit had tumbled to 14th on the list, between immigration and drug addiction, according to Pew. The decline in concern crossed party lines.
Senate Majority Leader Mitch McConnell of Kentucky and House Speaker Paul Ryan of Wisconsin seem to have absorbed the pollster’s message. They vowed repeatedly last year that any change in tax laws would be revenue-neutral. Nope. On a party-line vote in December, Republicans pushed through a bill increasing deficits by $1.5 trillion over a decade. They followed it in February with the two-year, $300 billion spending package that Paul railed against. If that higher spending isn’t allowed to phase out, it could add more than $2 trillion to the national debt over a decade, including interest expense, the nonprofit Committee for a Responsible Federal Budget estimates.
The December and February votes could help GOP incumbents by accelerating job growth before the midterm elections in November. Federal debt as a share of gross domestic product rose under Republicans Gerald Ford, Ronald Reagan, George H.W. Bush, George W. Bush, and now Trump, while it fell under Democrats Bill Clinton and Jimmy Carter. (Debt to GDP did rise under Obama, but he inherited a meltdown and still cut the deficit 60 percent from his first year.) Yet Republicans continue to be regarded as the party of probity. “It’s really difficult to take somebody’s view about a party and try to shift it,” says Democratic pollster Anna Greenberg.
Budgeting is about making difficult choices. The desire for lower taxes is incompatible with the desire to strengthen the military while also spending more on an aging population. Trouble is, politicians don’t get reelected by forcing medicine down their constituents’ throats. Huge deficits are the result.
The latest tax cuts and spending hikes threaten to overheat an economy that’s already close to full employment. The January jobless rate was only 4.1 percent, and inflation is (finally) picking up. Tax receipts from individuals and businesses are as strong as they ever get. Despite that, the government is on track to run deficits of 5.4 percent of GDP this year, up from 3.1 percent in Obama’s last year in office, estimates JPMorgan Chase & Co. On Feb. 12, Deutsche Bank AG said the U.S. is the Group of 10 member most in need of fiscal austerity—even as Germany, the Netherlands, and Sweden continue to require stimulus.
The political problem for would-be deficit hawks is that members of the public tend to perceive the danger of deficits exactly backward: Because families have to tighten their belts when times are hard, many voters believe that the government should do the same—even though that’s when the government needs to spend money to mitigate the downturn.
Voters’ instincts are wrong on the upside, too. Because families can afford to spend more when times are good, as now, they tend to forgive government red ink—even though now is precisely when the government should be tightening its belt to keep the economy from overheating and to prepare for the inevitable bad times ahead.
Groups opposed to deficits argue that the public really does care and GOP politicians shouldn’t take for granted the support of antideficit voters. “Eventually those voters are going to just stop showing up. After all, what’s the difference between the two parties?” says Andy Roth, a lobbyist with the Club for Growth. “People are concerned about these issues and want them to be a priority,” says Michael Peterson, chief executive officer of the Peter G. Peterson Foundation. The group goes to college campuses to remind young people that they’ll be saddled with paying their elders’ debts.
If voters don’t put a stop to deficits, bond investors might. Concerns about overstimulus of the economy and increased debt issuance by the U.S. Department of the Treasury have driven the yield on 10-year Treasuries to 2.9 percent, from just over 2 percent, as recently as September.
For now, Washington is blasé. Exhibit A is Mick Mulvaney, who was a fierce enemy of deficit spending as a congressman from South Carolina but has negotiated huge deficit increases as the director of Trump’s Office of Management and Budget. Pressed on that in October on Fox News Sunday, Mulvaney said he’d come around to the idea that tax cuts that expand deficits in the short run would stimulate growth and raise tax revenue in the long run, thus eventually shrinking deficits. “We need to have new deficits because of that,” he said. “We need to have the growth.”
Mulvaney’s contention—in essence, that tax cuts pay for themselves—has been discredited by real-world experience. As recently as May the University of Chicago Booth School of Business’s Initiative on Global Markets asked 42 economists from across the political spectrum whether Trump’s tax cut proposal “would likely pay for itself through higher growth.” Only one said yes, and it turned out he had meant to say no.
As owner of the world’s principal reserve currency, the U.S. can borrow for years to come before creditors balk. Still, interest expenses are rising. Some Democrats fear that the tax cuts will be paid for by massive cuts in social spending. As if to validate their fears, the Trump budget released on Feb. 12 called for a 42 percent reduction in nondefense discretionary spending over 10 years and $700 billion in savings from repealing and replacing Obamacare.
Even Republicans won’t vote for those cuts, though. “Deficit concern exists solely as a political weapon for Republicans to use against Democrats,” says Bruce Bartlett, a former domestic policy adviser to Reagan who’s turned into a critic of the GOP. “I personally will not tolerate anyone who supported that absurd tax bill lecturing me about fiscal discipline ever again,” says Senator Brian Schatz, a Hawaii Democrat. Deficit hawks are indeed a dying breed.
To contact the authors of this story: Peter Coy in New York at pcoy3@bloomberg.net, Sahil Kapur in Washington at skapur39@bloomberg.net.
To contact the editor responsible for this story: Howard Chua-Eoan at hchuaeoan@bloomberg.net, Eric Gelman
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