Business

Trump, GOP at new crossroads on deficit

by Vicki Needham and Sylvan Lane - 02/11/18 10:30 AM ET

Congressional Republicans who for years breathed fire about fiscal restraint have opened the floodgates to spending, prompting criticism from GOP budget hawks and incredulity from outside groups worried about the nation’s spiraling level of debt.

Congress sent President Trump a $1.5 trillion tax-cut bill in December, and on Friday approved a massive budget measure that would boost spending over the next decade by $300 billion, giving Republican leaders another legislative victory.

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The legislation eliminates budget ceilings put into place by a 2011 budget law agreed to by President Obama and former Speaker John Boehner (R-Ohio), and allows federal funds to flow more freely to the Pentagon and a host of nondefense programs.

Trump, GOP leaders in both chambers and a majority of Republicans in the House and Senate back the bill, but it has been fiercely criticized by its opponents within the party as a betrayal.

“Republicans have lost every single bit of credibility on the idea that they care at all about debts and deficits,” former Rep. Jason Chaffetz (R-Utah) said Friday on Fox Business’s “Mornings with Maria” show.

“They can talk all they want, but when they had the chance to do it, they caved and they spent so much money it’s stunning,” added Chaffetz, referring to the GOP’s control of the White House and Congress.

The conservative House Freedom Caucus opposed the measure, and deficit hawks ripped the bill as it moved toward passage.

“This spending proposal is disgusting and reckless — the biggest spending increase since 2009,” said conservative Rep. Justin Amash (R-Mich.), one of 67 House Republicans to vote against it.

Republican Sen. Rand Paul of Kentucky was so furious about the bill he refused to let the Senate vote on it until 1 a.m. Friday, angering his colleagues in the process and forcing lawmakers to close the government for several hours.

Democrats have ripped Republicans opposed to the bill for their inconsistent policy stances, highlighting Paul’s support of the tax-cut bill that they say will have longer-lasting effects on the deficit.

The spending bill, signed by Trump, raises the $20.6 trillion federal borrowing limit until March 2019 — an action Congress had to take this month partly because of declining revenue after passage of the tax cuts, which reduced the corporate rate from 35 percent to 21 percent.

The tax cuts bill and increase in government spending come as the economy is expanding, which some also criticize.

“Deficit-financed tax cuts and now government spending increases in a full-employment economy is poor economic policy,” said Mark Zandi, chief economist with Moody’s Analytics.

He predicted soaring interest rates.

“The Federal Reserve will have little choice but to raise short-term rates more aggressively, and the Fed tightening combined with the increased government borrowing will drive up long-term rates more quickly,” Zandi said. “Lawmakers are doing the opposite of what economic textbooks suggest they should be doing.”

The White House said Friday it is adjusting its budget request for fiscal 2019, which is expected to be released Monday, to account for the new spending levels.

When asked about rising deficit levels, White House spokesman Raj Shah told reporters Thursday that Trump’s budget “does move us toward of path of restoring fiscal responsibility” despite the heavy debt load of the two major bills.

During former President Obama’s tenure, Republicans pressed for restrained federal spending as the nation struggled to dig out of the worst economic crisis since the Great Depression.

The first big “Tea Party” class of Republicans who arrived in Washington after the 2010 election won office campaigning against Obama’s stimulus and health-care laws, which they argued were bankrupting the country.

They also saw the previous GOP administration led by former President George W. Bush as having betrayed the party’s principles on the deficit.

The Republican push culminated in the 2011 Budget Control Act, which introduced spending ceilings on defense and nondefense spending.

But the sequester was never popular with either party, and the Pentagon and its supporters on Capitol Hill in particular balked at the constraints.

Still, it’s a surprise to many that with control of both ends of government, it is the GOP that is now driving up the deficit, which is likely to hit $1 trillion this year and stay at that level for the foreseeable future.

While campaigning for the White House, Trump vowed to erase the nation’s debt within eight years.

But he has since softened that stance while calling for upward of $2 trillion in infrastructure spending and more money to build up the military.

Trump made no mention of the debt or deficit in his recent State of the Union address.

Speaker Paul Ryan (R-Wis.) has pressed the need to reform entitlements, arguing they are the greatest drivers of deficits. But Senate GOP Leader Mitch McConnell (R-Ky.) has indicated that entitlement reform will not be on the agenda in this midterm election year.

Conservative groups have hailed the tax cuts as a law that will unshackle the economy. Some are defending the increased defense spending but argue that nondefense programs should have been cut.

“There’s little doubt that the increases to defense were justified and the GOP can be happy about that, but are any number of nondefense programs that could have been cut to help pay for the package,” said Justin Bogie, a senior fiscal policy analyst at the conservative Heritage Foundation.

“If the package couldn’t pass without nondefense increases, then the GOP should have demanded that all the increases be fully paid for,” he said.

An analysis by the nonpartisan Committee for a Responsible Federal Budget, said the spending deal would add nearly $420 billion with interest to the national debt over 10 years.

If the tax and budget laws are made permanent, it could add more than $2 trillion to the debt in that time, the analysis said.

Bill Hoagland, a Capitol Hill budget veteran with the Bipartisan Policy Center, called the budget bill a “disaster as it relates to fiscal policy.”

With the combination of the tax law and the new budget spending levels “we are really creating a terrible situation for future generations … imposing a tremendous burden of debt in the future,” he said.

Hoagland said the biggest problem is that the legislation fails to address the major driver of the nation’s debt — entitlement programs, Medicare, Medicaid and Social Security.

“Let’s be honest about it, these are things that are politically risky for Democrats and Republicans in a midterm election year,” he said.