Last fiscal year Uncle Sam had some budget good news. After running $1 trillion-plus deficits four years in a row, Washington had to borrow “just” $680 billion in 2013.
True, that was the fifth highest deficit in history, 50 percent greater than the pre-financial crash record. But it’s only the taxpayers’ money, so what’s the big deal?
Now Republicans and Democrats have come together on Capitol Hill to increase both outlays and taxes. Bipartisanship in action!
That the Democratic Party wants to spend more is hardly surprising. But the GOP has demonstrated yet again that its principal role in Washington is to hold the coats of Democrats who raid the Treasury.
The legislation adopted by the House drops sequestration, which actually trimmed federal outlays, and hikes spending over the next two years by $62 billion. In return, Congress promises to lower the collective deficit over the next decade by $85 billion.
The accord raises revenue, including $12.6 billion in airline taxes. There are a few spending reductions—kind of.
As I point out in my latest Forbes online column:
in the same bill the House GOP voted to drop discretionary spending cuts for 2014 approved just two years ago. Yet the new entitlement caps are slated to take effect after two presidential elections and four congressional elections. Which means the reductions will never occur.
Of course, holding only the House means the Republican Party has to compromise, as it learned during the recent health care battle. However, a budget fight would have been far easier. The GOP merely had to support the fiscal status quo, sequester included, unless the Democrats offered equivalent alternative cuts.
Earlier this year the Congressional Budget Office highlighted the stakes: “Between 2009 and 2012, the federal government recorded the largest budget deficits relative to the size of the economy since 1946.” The debt-GDP ratio “is higher than at any point in U.S. history except a brief period around World War II, and it is twice the percent at the end of 2007.”
Today the national debt exceeds both $17.2 trillion and runs nearly $150,000 per taxpayer. Before the GOP cave-in the CBO figured that in the best case Uncle Sam would add $6.3 trillion more in red ink over the next decade. Starting in 2016 deficits would begin another inexorable rise.
Unfortunately, CBO expected Congress to act like Congress—meaning to abandon fiscal discipline and avoid making hard decisions. The agency’s “alternative” fiscal scenario figures the added red ink over the coming decade could run $8.8 trillion.
Of course, the biggest long-term issue is entitlements. Explained CBO, absent serious and meaningful reforms in this area “debt will rise sharply relative to GDP after 2023.”
Putting everything together yields a mountain of liabilities. Economist Laurence Kotlikoff figured Uncle Sam’s total unfunded obligations exceed $220 trillion, around 14 years of our current GDP.
The only alternatives to spending reform are confiscatory taxation and irresponsible borrowing. However, warned CBO: “Increased borrowing by the federal government generally draws money away from (that is, crowds out) private investment in productive capital. ... The result is a smaller stock of capital and lower output in the long run than would otherwise be the case.”
Which ultimately means a smaller economy and lower incomes even as government obligations increase. Concluded CBO, higher debts and marginal tax rates would “reduce real GNP by about 4 percent by 2038,” and as much as six percent. The more pessimistic but realistic “extended alternative fiscal scenario” yields even worse results, most likely a seven percent drop in GDP, and perhaps more.
As usual, the GOP is putting party politics before national interest. The Democrats do the same, of course, but at least they are less sanctimonious when doing so. Republican dishonesty and hypocrisy compounds Republican budget irresponsibility.