Right Thing, Wrong Reason: Killing the Republican Tax Plan with Anti-Deficit Arguments Is a Bad Idea

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Posted in: Politics

In the American political conversation, there is never a shortage of uninformed nonsense about budget deficits and the national debt.  Everyone talks about our supposedly excessive borrowing, invoking high moral principles while demonstrating absolutely no understanding of even the most fundamental concepts of budgetary policy.

My usual role, therefore, is to counsel sanity and tell everyone that deficits are, at best, a secondary policy concern.  Now, however, we are in a unique situation where anti-deficit hysteria might be turned to good use as a tool to defeat the Republicans’ terrible tax plans.

As tempting as this might be, however, we should not stoke the flames of anti-deficit zealotry.  If we play with fire, Republicans will quickly (and gleefully) use such arguments to justify harming the middle and lower classes.  Their tax cuts will lead to increased deficits, which will then allow them to call for cuts to Social Security and Medicare.  We have seen this show before.

The Persistence of Debt Ignorance

Republicans, of course, are the champion debt-baiters in the United States.  They are hypocrites, of course, but they nonetheless reliably spout nonsense about deficits and debt while trying to convey the impression that they are gravely concerned about the future of humanity.  The message is always the same: Debt bad.  Politicians irresponsible.  People (read: non-rich people) have to expect less from their government.

Soon-to-be-retiring Senator Jeff Flake, for example, recently appeared on “The Late Show with Stephen Colbert” and talked in his quiet, self-important way about the need for mutual respect in politics.  So far, so good.  It certainly is helpful to have a certified right-wing extremist as a critic of Donald Trump.

But in order to prove that he was serious and not merely an apostate Republican selling books, Flake quickly insisted that there are “big things that we need to fix–and there are some big things out there–twenty trillion dollars of debt, uh, we need tax reform, we need immigration reform.”

No, no, and yes.  We do need immigration reform, but we do not need tax reform (especially of the sort that Republicans are now trying to shove down an unwilling nation’s collective throat).  And the ultimate bogeyman, the dreaded “twenty trillion dollars of debt,” is not even what Flake (and many, many others) think it is.

The latest numbers do show that “gross debt” for the federal government is roughly $20.5 trillion, but that includes money that the federal government owes to itself.  (That sounds strange, I know, but we do include intra-federal “debt” in the gross number.)  The debt “held by the public”–that is, debt that represents total lending to the government by households, businesses, state and local governments, foreign governments, and the Federal Reserve–is $14.8 trillion.

Note that I did not say “only $14.8 trillion,” even though that number is not even three-quarters of the number that Flake is mindlessly repeating.  The fact is that no responsible economist would ever analyze a debt situation in absolute dollar terms.  The national debt is currently just under 76 percent of GDP, which is on the high side historically but very much in line with (and generally lower than) other wealthy countries, such as ever-so-frugal Germany.

Unfortunately, it is not merely Republicans and pandering Democrats who often invoke the deficit as a show-stopper.  Interestingly, journalists endlessly repeat the higher, context-free number, along the lines of this recent New York Times news article:

“The budget measure would allow for a tax bill that adds as much as $1.5 trillion to federal deficits over a decade, at a time when the federal government is already piling up more and more debt, which has now topped $20 trillion. The deficit for the 2017 fiscal year, which ended Sept. 30, totaled $666 billion, an increase of $80 billion from the previous year.”

So it is not just that the (meaningless measure of) national debt “topped $20 trillion.”  It is that we got here because we are “already piling up more and more debt” and deficits are increasing.  Does it matter that the nation’s income rose by almost a trillion dollars in the year that the deficit rose by $80 billion?  Apparently not.

The Dangers of Using Anti-Deficit Talk to Defeat the Republicans’ Tax Plans

Democrats are, of course, in the minority in both houses of Congress, while Donald Trump tweets away in the White House.  Can we blame the Democrats if they use even the most dangerous tactics to try to thwart the Republicans’ regressive tax and spending plans?

Oregon’s Earl Blumenauer, one of the most progressive members of the House, recently tried to make a point by proposing a rule that “would roll back the Republican plan after two years if promised economic growth does not materialize and the federal budget deficit continues to expand.”  Blumenauer argued, “[t]here’s no excuse for us going down that path of escalating debt.”

And here is where things become especially difficult, because there actually is a good debt-based argument against the Republicans’ tax fantasies.  There is a downside to increasing the debt for the wrong reason.  Borrowing money is a good idea when we spend it on useful and productive things, but it is a bad idea when we spend borrowed funds on harmful and wasteful things.

Putting trillions of dollars on a conveyer belt from the Treasury to the richest of the rich and the corporations that they control is high on the list of those harmful and wasteful things.  Republicans’ trickle-down claims have no credibility at all, and it is utterly immoral to increase the debt in order to make the comfortable even more comfortable.

There are two problems, however.  First, although people need to understand that this plan to increase the national debt is a bad idea, the public (including journalists who should know better) is already primed to believe that deficits are bad in all contexts.  Saying that the Republicans’ tax plan should be defeated because it increases the debt is thus inevitably going to reinforce that incorrect preconceived notion.

With that in mind, it is notable that the people who view themselves as “principled” conservatives are not invoking fears about the deficit in anything resembling a nuanced way.  A commentator at a right-wing think tank, for example, offered this critique of the Republicans’ tax bill:

“All the usual reasons to be concerned about so much new debt apply. Over time, the debt would slow economic growth and reduce wages, undoing the good done by encouraging investment in the first place. In addition, $2 trillion in additional debt makes it harder for the government to respond to a recession, and possibly even increases the likelihood of a fiscal crisis.”

The “usual reasons” to fear debt include all of the standard talking points that Republicans used in opposition to productive borrowing during the Obama and Clinton years.  And as Paul Krugman has recently warned, the Republicans will surely revert to anti-deficit demagoguery as soon as they pass their tax bill.

Which brings us to the second problem.  Republicans have already proved Krugman more than right, not even waiting to pass their tax bill before arguing that they must cut Medicare and Social Security.

An article in Wednesday’s New York Times notes that an obscure budgeting rule could force automatic cuts to Medicare if the tax cut passes.  In response, House Speaker Paul Ryan issued his usual bromides: “You cannot get the national debt under control, you cannot get that deficit under control, if you don’t do both—grow the economy, cut spending.”

Ryan wrongly believes, of course, that tax cuts do not increase deficits because of their supposed growth-inducing effects, but again, that is the stuff of trickle-down fantasies.

The same Times article then quotes Kevin Brady, the Republican chair of the House’s tax committee, saying that he and his colleagues will soon get to work on “welfare reform and tackling the entitlements.”  Given how little the federal government spends on what remains of “welfare,” one can only conclude that Brady is trying to rebrand all people who collect benefits from the federal government as the new welfare queens.

The fact is that those “entitlements” are not programs for poor people.  They are Social Security, Medicare, and Medicaid.  Even the latter program, which is usually thought of as an anti-poverty program, actually is (among other things) a lifeline for middle-class seniors who have spent down their life savings while living in assisted living facilities and nursing homes.

In other words, the Republicans are not even trying to hide the ball anymore.  On taxes, they are going “full Orwell,” saying that cutting taxes is an anti-deficit measure, but then saying that–even if they were somehow right and deficits declined–they still plan to use any remaining deficits or debt to justify an assault on the middle class.

And whether or not their supply-side miracle fails to materialize and deficits and debt go up, they will eagerly point to people like Blumenauer and others who either piously decried deficits or (as I think was the case with Blumenauer himself) tried to cleverly shame the Republicans with their hypocrisy.

Lacking any shame, the Republicans will not care.  The more they hear Democrats and others agreeing that deficits are bad, bad, bad, the happier they will be.  Trying to defeat a bad idea with a dangerous argument will simply play into Republicans’ hands.