Something Debt Ceiling Threatening This Way Comes

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.