Monday, November 8, 2010

Seth Hanlon: Conservatives now need to do the math

  “You campaign in poetry and govern in prose,” is a classic phrase attributed to former New York Gov. Mario Cuomo. But the reality nowadays is that governing is done in numbers—hard numbers representing budgets, taxes, and debt. During the midterm campaign season that ended last week, Republicans pledged to bring down the deficit and build long-term fiscal stability. The presumptive next Speaker of the House of Representatives John Boehner (R-OH) said Republicans are “ready to work with President Obama” toward these goals.

  Both Democrats and Republicans say fiscal responsibility is a key priority, presenting an opportunity for bipartisan cooperation. But if the new Republican majority in the House is genuinely committed to reducing our nation’s debt, its members are going to have to put aside some of their campaign talking points and take a closer look at the numbers.

  During the campaign, Republicans pledged to enact $4 trillion in additional tax cuts weighted toward the wealthiest Americans, and simultaneously to “put us on a path to balance the budget and pay down the debt.” It will soon become clear that they can’t possibly deliver on both promises. The tax cuts they propose would dwarf the savings that would be achieved from any realistic spending cuts, as our recent report “A Thousand Cuts: What Reducing the Federal Budget Deficit Through Large Spending Cuts Would Really Look Like,” makes clear.

  On the campaign trail, candidates often use questionable math. But when Republicans assume governing responsibility in the House of Representatives on January 3, their campaign rhetoric is going to meet some hard numerical realities. Specifically:

    * Tax cuts don’t pay for themselves. They increase the deficit.
    * Cutting spending isn’t enough. Alone, it won’t balance the budget.
    * Symbolic changes won’t address the deficit problem. They could make it worse.

  Let’s look at each of these impossible-to-ignore realities facing the incoming 2011 Congress.

Tax cuts don’t pay for themselves. They increase the deficit.

  During this election season, many conservatives simply denied that tax cuts decrease revenues. Senate Minority Leader Mitch McConnell (R-KY) asserts baldly that “there's no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue, because of the vibrancy of these tax cuts in the economy.” In fact, the Bush tax cuts are the single biggest reason our fiscal situation has deteriorated since 2001, increasing the national debt by about $2.5 trillion.

  Sen. McConnell expresses a widely shared belief among conservatives that tax cuts don’t need to be offset to avoid increasing the deficit. Candidates can pretend all they want during a campaign that tax cuts don’t decrease revenues, but when they are entrusted with the reins of government, make-believe time is over. The Congressional Budget Office will attach revenue estimates on all of the tax cuts proposed by Republicans—and then it will become perfectly clear that extending the Bush tax cuts for the rich, or eliminating the estate tax even for the largest estates, will drastically worsen the nation’s finances.

  The reality is that tax cuts decrease revenues. Even “dynamic” budget models—those that take macroeconomic effects into account—show that they decrease revenues. Indeed, the claim that extending the Bush tax cuts will increase revenues was contradicted by an economic analysis by the Bush administration itself. Specifically, extending the Bush tax cuts for the wealthiest 2 percent of Americans would put us $690 billion deeper into debt. It all adds up to this: The new House majority will have to choose between giving out more upper-bracket tax cuts or acting as responsible fiscal stewards. They can’t do both.

Cutting spending isn’t enough. Alone, it won’t balance the budget.

  On the campaign trail, one hears misleading platitudes such as “Washington doesn’t have a revenue problem. It has a spending problem.” In fact, the country has a big deficit problem, which can only be addressed by focusing on both revenues and spending.

  The country’s long-term budget challenges are so severe that it would be wildly impractical to balance the budget by cutting spending alone. Our recent report “A Thousand Cuts,” details the magnitude of the spending cuts that would be required to achieve modest deficit reduction in 2015. The cuts total $255 billion over and above the deficit reduction measures already proposed by President Obama and would involve wrenching changes. Of course, long-term deficits are much worse.

  The Republicans’ “Pledge to America” offered only vague generalities, proposing only to impose “hard caps” on discretionary spending without identifying specific programs. The notion of discretionary caps sounds appealing, but they would barely reduce deficits. In fact, the deficit for fiscal year 2010, which ended October 1, at $1.34 trillion was nearly as large as all discretionary spending combined ($1.36 trillion), more than half of which goes to homeland security and defense.

  What discretionary spending will the Republican-controlled House propose to cut? The Department of Defense? The Centers for Disease Control and Prevention? The FBI? They are going to have to start getting specific.

Symbolic changes won’t address the country’s budget problems. They could make them worse.

  Symbolic statements make for good applause lines at campaign rallies, but none of the dramatic gestures that Republicans offered during the campaign are likely to have any significant positive impact. Republican leaders, for example, pledge to eliminate earmarks, which is a worthy goal. The current Democratic-led 111th Congress made significant progress toward that goal, but earmarks only represent a minuscule fraction of federal spending—less than one half of 1 percent.

  Or consider incoming House Speaker Boehner’s promise to scrap “paygo,” the procedural rule that requires Congress to offset both spending and tax cuts with spending decreases or revenue increases. In place of “paygo,” Boehner proposes a new rule that would require offsets for spending but not for tax cuts. The new proposal obviously won’t work to restore budget discipline, and probably isn’t even intended to. What it would do is facilitate massive high-income tax cuts while ignoring their negative effects on the deficit.

  Republicans also pledge to cancel any stimulus funding that has yet to be spent. But the American Recovery and Reinvestment Act of 2009 added almost 2.7 million jobs to U.S. payrolls, according to an analysis by economists Mark Zandi and Alan Blinder. Given the precarious state of the economic recovery, canceling the unspent funding is a terrible idea. As of a month ago, 90 percent of the funds that have yet to be spent were already committed to specific projects. Cutting off this funding would shut down projects that are already under way. It is doubtful that Republicans actually want half-built bridges. Regardless, since the Recovery Act was a one-time, short-term measure, canceling unspent funds would not improve the long-term budget outlook in the slightest.

  The American people expect the Republican-led House to work with President Obama and congressional Democrats to address the substantial challenges facing the nation. To share in the responsibility of governing, Republicans will have to put aside the myths that have been spun about taxes and the budget and focus on the numbers. Only then will real bipartisan cooperation be possible.

  About the author: Seth Hanlon is Director of Fiscal Reform at the Doing What Works project of the Center for American Progress.

  This article was published by the Center for American Progress.

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