Even before the ink was dry certifying the GOP’s 4 seat majority in the House of Representatives next Congress, the hard right rump of the caucus was demanding that GOP leader, and Speaker candidate Kevin McCarthy use the necessity of raising the debt ceiling next year as a bargaining chip to force Democrats into something:
There is concrete evidence that key House minority leaders plan to hold the borrowing cap hostage, threatening a catastrophic U.S. default unless they get the cuts they seek to Social Security and Medicare. According to Bloomberg Government reporting, four House Republicans, all vying to be the next House Budget Committee chair, have indicated that they plan to hold the debt ceiling hostage to Social Security and Medicare cuts if their party regains the House majority
Lest we forget, this is a fight about paying bills already incurred, for which federal agencies have the authority granted in federal law to cut checks. Failing to raise the debt limit doesn’t prevent future spending – unless the US defaults and then we would be in territory no one has ever seen. So the GOP wants to hold spending it helped create hostage to cut future spending. Of course, all this begs the question – what would be cut? And why cuts and not raising taxes?
There’s an old saying in DC that the federal government is basically an insurance company with an army. That’s not exactly true, but it’s close. Defense spending, Social Security, Medicare, and Medicaid combined made up about 62 percent of the federal budget in 2019 (see this CBO infographic). During the pandemic, huge stimulus and unemployment payments pushed that percentage down, but in normal times about three out of every five federal dollars go to those programs. If you add in other “mandatory” programs like federal employee pensions and food stamps, and interest payments on old debt, the share grows to over 85 percent.
With that background, its no wonder that allegedly fiscally responsible Republicans would take aim at federal spending, especially when you consider that we spend about a trillion dollars more then we take in. And if one goes to the CBO infographic cited by Vox – it becomes easy to see why. Discretionary spending, those pesky appropriations bills Congress can never pass by the beginning of the federal fiscal year, is about $1.3 Trillion. Everything else, including earned benefits like Social Security, Medicare and Medicaid, is mandatory, which means it gets paid regardless. So, essentially, the DoD, FBI, EPA, NOAA, Interior, congressional operations and the rest are on the credit card. This is made worse by the fact that revenue from one stream – like income taxes – can’t legally be used to cover the other revenue stream. Of course, that pesky fact never stopped Congress from borrowing against the trust funds to pay earned benefits, which feeds back into the debt cycle. Add in ill advised tax cuts like the one passed in 2017 and you have a budget that would get corporate CEOs fired and jailed, but seems to get Congress largely reelected.
Let’s not forget that Republicans tried this before – forcing a showdown in 2011 that resulted in the 2013 ill named Sequester which drove almost a trillion dollars in subsequent cuts to non-defense discretionary spending. Of course because it came from non-defense discretionary spending, a lot of those cuts hurt the economy, as they rolled back things like basic research and development support, college education grant programs and infrastructure support via DOT block grant programs. Those cuts, and the language requiring them, did little to actually change how Congress does its fiscal business however, since the structural reforms have no constituents who vote – largely because voters are never told in a straightforward way what the problem actually is.
So aside from making a lot of good sound bites for two years what’s the upside here for the GOP? They hope its the next chapter in the Two Santa Clauses fight:
First, when Republicans control the federal government, and particularly the White House, spend money like a drunken sailor and run up the US debt as far and as fast as possible. This produces three results – it stimulates the economy thus making people think that the GOP can produce a good economy, it raises the debt dramatically, and it makes people think that Republicans are the “tax-cut Santa Claus.”
Second, when a Democrat is in the White House, scream about the national debt as loudly and frantically as possible, freaking out about how “our children will have to pay for it!” and “we have to cut spending to solve the crisis!” This will force the Democrats in power to cut their own social safety net programs, thus shooting their welfare-of-the-American-people Santa Claus.
Meaning the GOP hopes to further back the Democrats into a corner as “wasters” of “hard earned American wages” who no longer deserve American political support. And considering their relative success deploying this strategy for 40 plus years who is to blame them?
Of course, history is not quite that clean and neat:
Democrats, he said, had been able to be “Santa Clauses” by giving people things from the largesse of the federal government. From food stamps to new schools to sending a man to the moon, the people loved the “toys” the Democrats brought every year.
Republicans could do that, too, the theory went – spending could actually increase without negative repurcussions. Plus, Republicans could be double Santa Clauses by cutting people’s taxes!
For working people it would only be a small token – a few hundred dollars a year on average – but would be heavily marketed. And for the rich, which wasn’t to be discussed in public, it would amount to hundreds of billions of dollars in tax cuts.
The rich, Reagan, Bush, and Trump told us, would then use that money to import or build more stuff to market, thus stimulating the economy and making average working people richer. (And, of course, they’d pass some of that money back to the GOP, like the Kochs giving Paul Ryan $500,000.00 right after he passed the last tax cut that gave them billions.)
Notably the rich don’t drive economic expansion – they buy back stock, which gooses their billions. And with unemployment currently back at pre-pandemic levels (which were called full employment by economists) tax cuts are not necessary to stimulate economic growth. So the GOP doesn’t actually need a Tax Cut Santa Clause right now.
The end game of course isn’t discretionary spending – where the lack of DoD cuts by Republicans is always noticeable. Its Earned Benefits, because those huge pots of government money are outside the private sector, where no one can grow obscenely rich off them. That they are a direct outgrowth of the Great Depression – an American sin caused by excess greed rivaling todays impecunary financial sector is but a historical footnote to the GOP, who remain more worried about keeping their power then doing good for Americans. Of course the GOP won’t outright say this – the closest anyone has come recently was Florida Senator Rick Scott, who proposed a plan to sunset ALL laws every 5 years – which would include the laws creating earned benefit programs.
Make no mistake – I believe the House GOP intends to follow through with some form of this brinkmanship. And I suspect we will see another round of Democrats trying to preserve the country by caving somewhat and carving bits and pieces out of the discretionary side, including out of my agency. Because it would be too much for them to call out the GOP bullies or raise taxes, even though both are likely necessary to really bring down the debt. Democrats are too timid to have the frank conversation with Americans. So are Republicans. and the ordinary voter will be the one most hurt by all this no matter what.
This strikes me as a gambit that would work really well when you’ve got a +20 Congress.
It doesn’t strike me as a gambit that works really well with a +4 Congress.
I will withhold judgment until they pick a speaker but I think that picking a speaker will give us insight into what to expect.
I am not expecting them to be able to achieve lockstep. I am not expecting them to get even *CLOSE* to lockstep.Report
I don’t expect lock step either. but the rump in the House GOP caucus will try this at least once if it doesn’t get what it wants from whoever is elected speaker. and partly it will be to slap Mitch McConnel in the face for not following them into extremism.Report
It’s easier to be a rump when you have margin for 5ish congresspeople on the bubble to peel away.Report
Agreed, and when you perceive the opposition as so weak they will save you from yourselves.Report
They’re going to learn that “being saved from themselves” looks a lot like “irrelevancy”.Report
The GOP strength is their voters’ willingness to endure suffering for the cause of hurting the other side.
As we’ve seen with Trump’s tariffs, and the anti-vax nonsense, there is a very large group of GOP voters who will support them, literally to the point of death.
And what the expose’ of Meadows’ texts reveal is that there is also a very large group of GOP elected officials who are true googly eyed believers and will eagerly drive the economy to ruin.Report
Data point:
Donald Trump Digital Trading Card Collection.Report
Disagree – I think those texts show GOP politicians eager to keep and consolidate political power, who believe that any ruination will not come to them. Its a variation of the “Whom the law protects vs. whom it binds” problem.Report
In one sense the True Believer vs Cynical Operator distinction becomes irrelevant due to Popehats Rule of Goats.Report
“Notably the rich don’t drive economic expansion – they buy back stock, which gooses their billions.”
In a way, that’s true. The becoming-rich drive economic expansion.Report
one would assume, but most recent tax cuts were not aimed at that cohort. At least not in a meaningful way.Report
The potential becoming-rich might not make the effort unless they know they’ll be able to keep the money.Report
if that’s the real worry they need better accountants.Report
Or they need tax law that doesn’t require a team of accountants.Report
Take that up with the well-heeled interests who lobby successfully to make it that way.Report
We need a way to control non-discretionary spending. The concept that historical congresses can hand out benefits and future/current congress just needs to find the money will break things.Report
Control is not the issue – adequate funding is. We, through Congress, refuse to tax ourselves appropriately for the things we want. If we taxed incomes according to discretionary spending we wouldn’t need to borrow against Earned Benefits Trust Funds.
And lets be honest, the generations after the Boomers are smaller, which is part of the problem, but its only temporary.Report
Pretty much. And even to the extent Dark has a point about controlling non-discretionary spending it isn’t like default is some consequence free outcome. Periodically playing chicken with a self-imposed fiscal crisis is not responsible government and certainly not any more responsible than the government by IOU conservatives say they’re worried about.Report
That statement should also be flipped. If we had discretionary spending at levels which we were politically willing to fund, then we wouldn’t be borrowing at levels which will cause problems.
The political desire to spend needs to be balanced against the political reluctance to tax.Report
My point is that under current funding levels, you can’t have discretionary spending AT ALL unless you raise taxes. because while “payroll” taxes and income taxes are supposed to be kept separate to fund different things, in reality the only way it works is to float IOU’s against both of them. The problem comes because of the size of the imbalance, and the unwillingness of politicians to deal with it forthrightly.Report
Or lower entitlements.
Or barrow which is what we’re doing.Report
Sure you could lower Earned Benefits. The GOP certainly wouldn’t mind what with wanting to privatize the whole thing.
But that only addresses part of the problem. We still don’t collect enough in income taxes to cover discretionary spending. And while we can borrow against the trust funds to cover that shortfall, you can’t close that gap (which is the annual deficit) without either cutting discretionary spending or raising income taxes. You can’t cut your way to solvency without massively slashing things people like and benefit from – unless you went after Defense. And even there, you’d have to eliminate a whole branch of service to make any real dent.Report
Here’s a pie chart of the gov’s incomes and spending.
https://en.wikipedia.org/wiki/2021_United_States_federal_budget#/media/File:Federal_Revenue_and_Spending.png
The budget items in order are:
1) Income Security $1.65T
2) Social Security $1.14T
3) Health $0.80T
4) Defense $0.76T
5) Medicare $0.70T
6) Interest $0.35
Everything else combined is something like $1.4T
Income
Income Taxes $2.0T
Payroll Taxes $1.3T
Misc Income $0.6T
Deficit $2.7T
Income Taxes + Misc ($2.6T) easily supports everything the gov does without entitlements ($2.5T). Entitlements and fighting inequality ($4.29T) is crazy more than Payroll Taxes ($1.3T).
4 of the top 5 big spenders and all 3 of the top 3 are entitlements. Just because of the numbers, that’s what we need to control.
Or we could raise taxes by about 2.8 Trillion dollars. So something like doubling income taxes or tripling payroll taxes.
If forced to do something like this, we’d probably do a combo of both. Cut spending and increase taxes.Report
This is the eternal fantasy, that the budget could be balanced by cutting stuff I don’t like.
It isn’t possible. No one has ever been willing to construct a hypothetical balanced budget without massive tax increases.
Because inevitably it would involve ending Medicare outright, as well as draconian cuts to Defense. The math just doesn’t work any other way.
And so the question becomes, “then what happens?”
What would be the social and political consequences?Report
I think this is right and where Republicans abandon chesterton’s fence. After a certain point of development people are going to demand basic safety nets, and aren’t going to tolerate just letting the elderly live in squalor or not have healthcare because they’ve become uninsurable. A major and strangely forgotten context of the creation of Medicare was the aging of the WW2 generation. Conservatives act as if there’s some plausible history where the care of those people would not become a major political issue and source of demand for solutions from the government. That remains true today, and even if the Republicans got their way and eliminated or massively cut these programs there would be immediate demand for something to replace them. As usual the GOP has no answer and is more interested in whatever short term extra it can siphon off to the richest people in the country.Report
Libertarians have no regard tor Chesterton’s fence. They also typically don’t hold office, so they don’t have to address real-world implications of their policy recommendations. I doubt that there’s any Republican officeholder who wants to eliminate Social Security and Medicare, and unfortunately only a minority are serious about reforming them. But they can be reformed without taking down Chesterton’s fence. Even the American Progress article only cites proposals for raising the retirement / eligibility ages and means testing.Report
This is certainly true, that the cost of Medicare can be trimmed with modest cuts.
But, that still isn’t enough. not by a long shot. That might save billions but we need hundreds of billions.
At some point we have to face the fact the even with the level of government Republicans want, tax increases are necessary.Report
What we need to do is reform Medical spending, as opposed to Medical Insurance spending.
If we compare actual free medical markets (lasik surgery, plastic surgery, pet medical care) to what we have; something like 90% of our medical dollars are spent on the system rather than on care.
The amount of economic pain caused by those kinds of reforms would be insane. “Fire tens of millions of well paid workers” insane.
That doesn’t change that we’re paying one set of paper pushers to fight with another set of paper pushers and calling it “medicine”.Report
As Chip also said, it’s the commitment to tax cuts, and the consistent implementation of tax cuts, above all other priorities, that leave me unconvinced.Report
Unconvinced about what? The Republicans’ deepest longings? I wouldn’t trust them either, but you can’t argue that any interest in entitlement reform is proof that they don’t want to do anything other than cut taxes. Talk about small-scale entitlement reform can’t be evidence that they want to do way more than that and also they don’t want to do it at all. And that’s probably not what you’re saying, but that’s what I’m getting out of it.Report
I’m saying I don’t believe they’re actually interested in entitlement reform, I think they’re interested in entitlement hollowing out. I also think they’re willing to nip at small scale reform not as a fix but as a way to give tax favors to people who need it least.Report
What makes you think that Republicans will hollow out entitlements? By your own narrative, it hasn’t happened, no one’s talking about it, it’d be political poison, and it wouldn’t work.Report
They haven’t had the votes in my lifetime to do it. I do of course recall the partial privatization scheme that fell apart under George W. Bush.
More recently I’m pretty sure Rick Scott was just proposing policies in the spring that would have ended social security and Medicare as we know them. While the GOP may have distanced itself I think that was because it was so politically toxic they had no choice, not because they wouldn’t do it if they could.
But say you’re right, and they would never actually pull the trigger on elimination. What they will do is cut them wherever they can in the service not of making them more sustainable but as part of a larger round of unsustainable tax cuts. To me that isn’t much better.Report
W rolled out the plan as “private SS accounts”, and when that polled badly changed to “personal SS accounts”, then when Democrats kept calling them “private accounts”, accused them of playing dirty.
I wonder how much longer the CDO scam would have gone on if it had been propped up by lots of privatized Social Security money.Report
If I’d had access to my SS money decades ago it would be a heck of a lot bigger now than what I’m expected to pull in.
I don’t see why I’d have “invested” in complex securities I didn’t understand with my SS money when I didn’t invest that way with any of the other money I managed for my family.
Now would someone somewhere have made foolish choices? Yes. But that doesn’t change that my entire generation is unlikely to get back what we put in.Report
You might have taken complete charge, but most of the privatized SS money would have been given to professional money managers, and CDOs were the hot investment vehicle until they weren’t.Report
Which in turn would have resulted in demand for some kind of political solution. The biggest flaw among several is the belief that this stuff would just happen. As if no one would care that they’re suddenly supporting their parents or other relations that can no longer make ends meet or state and local social services are dealing with a bunch of old people unable to support themselves.Report
This is why I keep coming back to saying the problem is just basic arithmetic.
There doesn’t exist a proposal, anywhere that says “We can balance the budget by eliminating things that Chip likes”.
The only way to balance the budget is to eliminate things EVERYONE likes, and relies upon.
Vast majorities of Republicans, Democrats, conservatives, liberals, rural and urban residents all love, and demand, those parts of the budget called “Income Security”, or “Health”.
That’s how they got put into the budget in the first place!Report
That hollowing out entitlements is both political poison and mathematically the only way to balance the budget (absent tax increases) is exactly the point.Report
The GOP’s position since, Newt (at least) has been to cut taxes, drive up the deficit and then try and force spending cuts from the minority when Democratic politicians are in charge so the Dems will take the blame. They’ve just gotten increasingly livid as the decades have rolled on that their opposition won’t play the role they’ve assigned them.Report
They have already talked about SS/Medicaid cuts in the next congress. They want to use the debt ceiling to force cuts.Report
There’s a difference between cuts (or other reforms) and hollowing out, though. Right? Are we going to say that any cut is off-limits? I’ve said a few times now that they’ve talked about cuts, possibly via raising the eligibility age or means testing. I’m neither denying that nor denouncing it.Report
To your point, I don’t think any cut ever is off limits. We’re about to hit a serious hiccup with the combination of baby boomers and birthrates, and I think reasonable people can disagree on the right approach to managing that.
What isn’t reasonable to me though is one where regular people are asked to absorb all of the pain, and I think that’s the de facto position of the GOP due to the commitment to tax cuts. One of the more interesting aspects of Trump I thought was a willingness to at least rhetorically distance himself from that, but as usual with him it seems like all of the bad stuff stuck while the maybe not so crazy got papered over and buried.Report
The reason the SS trust fund has $3T in it is because the Boomers prepaid a significant chunk of their own SS benefits. Unlike any previous generations, or at least in the current scheme, any future generations. The 1983/4 plan put forward by the Greenspan Commission and passed by Congress called specifically for the trust fund to be drawn back down to a reasonable level as it was used for that part of the Boomers’ benefits.
Medicare would be solvent if our health care was no more expensive than other developed nations.Report
That’s certainly the myth and how those tax increases were sold. However the idea is nonsensical in a “pay as you go” system. If we were serious about prepayment then we should have privatized it.
Ignoring that it didn’t cover their actual benefits, that “pre-payment” was an attempt to force future politicians to put SS benefits first when making choices.Report
PAYG systems don’t accumulate $3T surpluses. The stated plan matches the trust fund balance for the last 40 years and the forecasts for the next 20 years remarkably closely.
The remainder of the plan — Congress will run balanced budgets, the SS trust fund will be offset by retiring the public debt and the trust fund drawdown can be funded by a similar offset in the other direction — was a joke for various reasons.
Privatized SS leads to one of two outcomes — the benefit level becomes stochastic, and some people who manage their money poorly will get squat. (See Chile, where the Chicago Boys’ privatized version was abandoned once that happened.) Or the SSA does the investing, and winds up holding a very large chunk of the private equity in the country.Report
You’d be ok with entitlement reforms that don’t affect tax policy?Report
I’d entertain ideas involving tax policy, but it’d be hard to get me on board with anything involving cuts.Report
Any grand piece of legislation that tackled entitlements and taxes would have something in it that would make you uncomfortable though. If I’m sitting here trying to think of how I can get people on board with entitlement reform, from what you’ve said I’d be better off doing it as a single-topic bill.Report
It’s hard to answer without knowing what I’m getting in return. If I was hell bent to get a deal done I assume I’d be open to some combination of lowering benefits but also raising taxes with the end game being long term sustainability. What I’m saying is off the table for me is lowering benefits and lowering taxes approach.
To give you an example for social security, I would be open to phasing in an age increase and eliminating the maximum earnings limit on the payoll tax. I don’t love means testing but the proposal doesn’t cause me to leave the bargaining table either if I’m getting something in return.Report
Hollowing vs cutting is a matter of opinon. In the past the cuts have seemed pretty harsh to me. We’ve been hearing for almost a couple decades that R’s are just about to come up with a health care plan. What we get are cuts to Medicaid. We’ll see what they want but if there is a real desire to save big money then that will only come with big cuts.Report
Same kind of question to you as to InMD: would you consider a bill that just cuts / reforms entitlements, and nothing more? No omnibus once-in-a-generation thing, but a step in a more fiscally-sound direction?Report
It’s probably better to talk about real things.
Here is a good source for information about what we are talking about.
https://www.usaspending.gov/explorer
You can sort the budget by program, and see it represented by percentages and dollars.
Coupla points:
1.We run a trillion dollars in deficits, almost every year. A trillion dollars more in spending than revenue;
2. Almost all of the budget goes to Defense, Social Security, Medicare, Medicaid, and “Income Security” about 70% of which is the Child Tax Credit, Earned Income Credit, or SSI;
3. TANF and SNAP, what most people call “Welfare” is less than $200 Billion, less than 1/5 of the deficit.
3. “Income Security”, all of it, is less than the deficit. You could zero it out, wipe it completely from the budget, and still run a deficit.
So if you want to talk about a sustainable budget, these are the realities we need to address.Report
Not a great answer but it would depend on the reforms. If the reforms are good enough they yeah. I wonder if limiting it the way you suggest might make reform harder since it takes away options to make enough parties happy.
There is more to fixing ss/medi then just making them fiscally sound. SS has relatively easy fixes not that it makes it easier to agree to though.Report
Well, yeah, you and I aren’t going to be the ones voting on it. Typically the Death Star-sized bills have to have something for everyone, which means that everyone would have to swallow a bitter pill, and I don’t see that happening in our current climate. Also, it’s just not worth us doing a months-long negotiation in a comments section. So I was looking for a one-shot that everyone could sign off on. If there’s something that doesn’t offend the sides’ principles, then progress is possible.Report
Force all medical entities to publish their prices and follow them, i.e. no negotiation, no special deals with networks. Similarly force all medical entities to publish their outcomes.
They get to compete on price and results, not on sneaky deals. They’re all Walmart.Report
This isn’t a bad idea. I think urgent care facilities are a step in the right direction.Report
We do have a way- it’s called the international bond markets and currency exchanges. If the US ever truly gets out over their skis on spending vs income then bond rates will skyrocket, inflation will explode and then people will stop buying bonds (well before that, in theory, the bond rating will be impacted). With that pistol at their back then politicians will frogmarch themselves into the solution.
The problem for the GOP and their plutocratic masters is that they know that such a solution would involve massive increases in taxes (first), massive cuts to spending that benefits them (second) and then finally, as a last resort, cuts to entitlements.Report
I’m pretty sure we just got a real life lesson of what could happen from our cousins in the UK.Report
Maybe a real life shadow of the same. What happened in the UK was mostly the market freaking at proposed actions from the government. The market was mostly mollified by the government merely backing off those proposed actions. But it’s in the same family of crisis.Report
It should be noted that the thing that freaked the UK bond market into a panic was the idea of more …. Tax Cuts.
And the effect of just floating that idea was not just the collapse of the Truss administration, but massive and very costly (as in real money changing hands) interventions by the Bank of England to protect the system’s stability, resulting in HM Treasury to end in a worse position than before the announcement. And to repay those unplanned expenses, not only the announced Tax Cuts were nixed, but…. Income taxes had to be increased from where they were before mini-budget week.
Though unintended, the consequences of even announcing the Truss’ policies were easily foreseeable, and foreseen by many Bank and Treasury officials (the Senior Permanent Secretary of the Treasury being fired for his troubles). But Ms. Truss , MP, and Mr. Kwarteng, MP, are both known to be true believers, and won’t be bothered by experts’ opinions, who stand in the way of GROWTH!!Report
All pertinent points.Report
Have you ever heard of Murc’s law? You should look that up.Report
Murc’s Law is the intellectual equivalent of a grunt and the emotional equivalent of a pout.Report