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And now… on to spending

Suppose — just suppose — that your goal in politics were to defund the deep state, the entrenched Washington bureaucracy that is more interested in preserving its prerogatives than in serving the country. Suppose — just for another moment — that diminishing government’s ability to regulate business or to protect the environment was your fondest desire.

Then — still supposing — might you plan your strategy carefully? Might you first increase the federal deficit by about $1.4 trillion over 10 years? Might you then begin to express worries about the deficit, just as the old-time conservatives you revile (but whose convictions now are conveniently useful) have done for a century? And then might you call for big cuts in federal discretionary spending, and maybe even in entitlements such as Social Security and Medicare? Might you do all these things?

Maybe this wasn’t part of the Republican rebels’ thinking about the tax bill, with its $1.4 trillion boost in the deficit, but instead just a happy byproduct of it. Maybe this hasn’t occurred to the Democrats on Capitol Hill, for there was nary a peep out of them about these unnoted implications of the tax bills that passed both houses and will be reconciled in a House-Senate conference committee.

Maybe these deficits are in fact strategic deficits. Maybe the commentators who are noting the apparent great irony of the season — the contrast between the traditional Republican abhorrence of budget deficits, which animated GOP stalwarts from Calvin Coolidge to Bob Dole, and the GOP push for a tax overhaul that produced a huge deficit — are missing the point.

That $1.4 trillion addition to the deficit may not be an obstacle, or an embarrassment, or a contradiction or even an irony. It may be a goal.

That’s not because the Republicans suddenly have embraced the deficit-spending economic notions put forth by John Maynard Keynes and deplored by the conservative economists who are identified by this city. They haven’t, though some of the nostrums of the Chicago school of economics, especially the celebration of the virtues of free markets, have been adopted by the new-style Republicans on Capitol Hill. But the new brand of Republicans is more serious about diminishing the size of the government than was President Ronald Reagan, whose record — a tripling of the deficit — was criticized even by the Ludwig von Mises Institute, the spiritual home of an important branch of free-market economics.

Right now, the Republican Study Committee, a group of about 150 House conservatives, is examining cutting $1 trillion from entitlement spending. This may be the confrontation next time, and next time is approaching swiftly — before the end of the month, with the threat of a government shutdown less than a fortnight away.

It makes for a complex political challenge: keeping the government operating and avoid cutting spending in programs dear to the very Republicans who were reluctant to sign on to the tax bill and whose support will be essential after the conference committee completes its work — all in an age when Washington deal-making is in disrepute. This is quite a task.

Meanwhile, some tax-cut advocates dispute the nonpartisan deficit projections, suggesting the reductions will produce economic growth. That is what animated supply-siders aligned with the late GOP Rep. Jack F. Kemp — who in any case was less leery of budget deficits than the traditional Republicans who dismissed his ideas as optimistic fantasies.

Besides, some others believe, that $1.4 trillion deficit increase may sound like a wallop but actually isn’t that big a thud.

“The deficit is already enormous anyway,” said Mark Sniderman, a former Federal Reserve Bank of Cleveland economist who now teaches at Case Western Reserve University. “What’s another trillion? It’s not as if we have a balanced budget. But there is no question that this will add pressure to address outlays.”

All this is a dramatic contrast from the measure the current tax bill is compared with, the landmark 1986 tax overhaul. But that legislation differed in vital, fundamental ways.

That legislation was bipartisan, with the support of Reagan, a Republican president, and Rep. Dan Rostenkowski, the Illinois Democrat who headed the tax-writing House Ways and Means Committee. Together they won backing from both parties, making the legislation an expression of the political center.

“We were dealing with deficits in 1986 and we knew what was coming — growing entitlement costs associated with the aging population,” recalled William Hoagland, a top Senate Budget Committee aide in 1986. He is now the senior vice president of the Bipartisan Policy Center in Washington. “That wasn’t any different in 1986 than it is in 2017. Back then the political center was narrowing — but there was a center. Right now there is no center.”

But from the beginning, the governing principle was that after months of hearings and negotiations, the final product had to be revenue-neutral, which is to say that it could not increase the deficit.

Everything else was negotiable. Revenue-neutrality was not. In fact, Reagan made it clear that he would veto any tax bill that increased the deficit.

“We were working with that directive,” former Sen. Bob Packwood, the Oregon Republican who was chairman of the Senate Finance Committee in 1986, said in a telephone conversation last week. “That in a way gave us a tremendous opportunity. To get the rates down, which the Republicans wanted, we had to close loopholes, which the Democrats wanted. And at that time the issue wasn’t income inequality. The issue was answering critics of the tax code who asked why General Electric and General Dynamics could make billions of profits and pay little or no taxes.”

This time — with the Federal Reserve’s discount rate under 2 percent, far different from the 5.5 percent the day Reagan signed the 1986 bill — the estimate of the increased deficit burden already is being contested. A group of Wells Fargo economists, for example, is considering whether a growing budget deficit might lead to more national savings for the purchase of Treasury securities rather than to fund the business investment the president and his GOP allies hope will result.

“The one thing you can guarantee about all these estimates,” Packwood said, “is that they will be wrong.”

David M. Shribman is executive editor of the Post-Gazette (, 412 263-1890). Follow him on Twitter at ShribmanPG.

David Shribman

David Shribman

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