Real Fiscal Responsibility & Deficit Politics: Republicans


By Joe Campbell
December 9th, 2009


 
See Part 1: An Introduction here. Parts 3 and 4 discussing the Democratic approach and then lessons from this moment of “welfare scleroris/imperial overstretch” coming tomorrow and Friday.

Republicans have called themselves, and are once again trying to position themselves, as the party of fiscal responsibility. This is the pendulum swing of deficit politics in its second repetition – as Republicans run up massive deficits during their time in power and then attempt to pass off the blame for raising taxes or cutting programs onto the Democrats who succeed them in office.

The political challenge the Republicans face is intriguing. Their ideology holds the solution to the deficit is to shrink the size of the government. Yet the Republican base consists of corporate America, the military, and the elderly – the largest beneficiaries of current government spending. Given this, it’s not surprising that while in power Republicans have expanded rather than shrinking government. Bush expanded Medicare further than anyone since LBJ created it all while cutting taxes and engaging in two wars and allowing Congress to engorge itself with discretionary spending increases never before allowed. Bush was not an isolated example. Like his apparent role model, Ronald Reagan, he saw deficit spending as a way to win politically in the short term as you gave everyone what they wanted – and protected those interest groups who supported you – while in the long term the incredible irresponsibility would force government to shrink, and perhaps even discredit the idea of a competent or sustainable government program. In other words, deficits were the way to “starve the beast.”

Republicans did not jettison this approach along with Bush when they began to repudiate his legacy. John McCain – for all his talk of fiscal rectitude – offered more of the same in his campaign agenda. He proposed dramatic tax cuts without commensurate spending cuts (while masking this by proposing the elimination of pork barrel spending which represents a minuscule portion of the federal budget.) As an alternative to the stimulus, McCain and the Republicans attempted the same trick – attacking the plan for adding to the deficit with spending while proposing a plan that would add even more to the deficit through tax cuts (which the Congressional Budget Office determined was a less effective way to stimulate the economy.) For Republicans, increasing the deficit by cutting taxes is “fiscally responsible” – while increasing the deficit with spending is “generational theft.”

What’s tricky is how Republicans position themselves with regards to the looming fiscal crisis. The business conservatives who make up an influential portion of the Republican base tend to propose pragmatic but politically impossible solutions like cutting spending to the other core Republican constituencies – the elderly and the military, and sometimes, even the tax and other subsidies to big corporations. The other groups seem primarily concerned with ensuring that their own government dollars continuing to grow. The past two times a liberal has taken office following several terms of extreme fiscal irresponsibility by a Republican though, a semi-independent movement has sprung up, thus changing the political dynamics in the Republican party. This movement of citizens concerned about the size of government, of government debt, and especially of liberals being in charge of this government (which suddenly seems more intrusive now that it is in the control of those they don’t sympathize with) was incarnated in Ross Perot’s two presidential campaigns, the 1994 Republican Revolution, and today, the Tea Parties. In each instance, this movement has coalesced around an inchoate frustration with the way things are coupled with the remarkably fixed position of opposing everything the Democrats do, opposing tax increases, and supporting the reduction of the deficit. Though this logically must lead to cutting government programs, which programs will be cut always remains vague which works well enough until a Republican gets in power.

To balance and rally these constituencies while out of power – the anti-tax fiscal hawks, the elderly relying on government programs, the military reliant on government spending, and the corporations who profit from government favors – Republicans have adopted a framework whereby they condemn any new spending as “generational theft” while protecting the status quo. Within this framework, Republicans claim their protection of the status quo which is screwing over my generation is actually about protecting my generation. This language also comforts the elderly who don’t wish to see any reduction in their benefits. Under the Republican approach, the only elderly who will see a reduction in benefits under the Republican plan are the eventual elderly of the younger generations – as the government programs they are now paying for cease.

The challenge Obama has given to the Republicans though is to propose a solution to the looming fiscal crisis through health care reform. Republicans have responded by claiming that the plans will add to the deficit (contrary to the Congressional Budget Office) while at the same time they have been attacking any measures in the plan which might actually cut costs. For example, Senator Coburn has said, “If you’re a senior and you’re on Medicare, you better be afraid of this bill” – which is a difficult position to maintain while at the same time holding that any deficit spending today is “generational theft.” But it is of course, the only political answer they have.

The Republicans – for short term political expediency – are creating an interesting political dynamic (and an impossible situation for the country.) They are telling the elderly that any spending that adds to the deficit is stealing from their grandchildren and children – while telling them to be afraid of any cuts to the programs they like. Meanwhile, as they filibuster any attempts to alleviate the situation, they inculcate the belief among the younger generation that the government cannot do anything right – pointing to the approaching fiscal disaster as proof. The hope must be that if they are correct that this disaster cannot be averted, their obstruction of any attempt to avoid it will be forgiven, especially if the disaster itself discredits the government, thus bringing the younger generation ideologically closer to the Republican position.

Thus is the logic of deficit politics and starve-the-beast governance.

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5 Responses to “Real Fiscal Responsibility & Deficit Politics: Republicans”

  1. John Rose Says:

    Wow! 10/10! I’ve never seen a more complete repudiation of the Republicans’ current fiscal positioning.

  2. Joe Campbell Says:

    @John Rose – Thanks!

  3. thunderbolt Says:

    You criticized Republicans by saying “He proposed dramatic tax cuts without commensurate spending cuts …”

    The theory is tax cuts increase revenue by fostering profitability of businesses, thereby mitigating the need to cut spending. Admittedly Bush and his cronies were profligate spenders.

    Obama and his team of spenders make Bush’s team look like pikers. They ought to consider tax cuts too, as a means of promoting job growth. BO’s proposed health-care spending will squeeze businesses. As a small business man, I’ll definitely not be hiring in the face of looming tax increases.

  4. Joe Campbell Says:

    @thunderbolt –

    You’re referring to the Laffer curve I presume. And you’re right – that is/was the theory. It has certainly proved to be true sometimes. But cutting taxes beyond a certain percent is guaranteed to reduce tax revenues, even under this system. (http://en.wikipedia.org/wiki/File:Laffer-Curve.svg) And in many other ways, it has proven to be erroneous as a basis for policy. As its creator himself has said: “The Laffer Curve should not be the reason you raise or lower taxes.”

    According to a Time magazine piece interviewing former Bush administration officials:

    Virtually every economics Ph.D. who has worked in a prominent role in the Bush Administration acknowledges that the tax cuts enacted during the past six years have not paid for themselves–and were never intended to.

    Attempts to identify the tipping point of the Laffer curve are not conclusive, but the number I’ve seen is that maximal tax revenue comes in with tax rates of 65%, with increasing it above or reducing it below this level resulting in lower tax revenue.

    On your other points:

    Obama and his team of spenders make Bush’s team look like pikers.

    This is simply not the case. This graph is from the Cato Institute – a free market, libertarian think tank that has strenuously opposed Bush’s as well as Obama’s expansions of government: http://danieljmitchell.wordpress.com/files/2009/11/bush-obama-2009-outlays.jpg

    As the author writes in the blog post accompanying that graph:

    Let’s use an analogy. Obama’s FY2009 performance is like a relief pitcher who enters a game in the fourth inning trailing 19-0 and allows another run to score. The extra run is nothing to cheer about, of course, but fans should be far more angry with the starting pitcher.

    As to this:

    They ought to consider tax cuts too, as a means of promoting job growth.

    The largest component of Obama’s $787 billion stimulus package was tax cuts: http://en.wikipedia.org/wiki/File:Investmentbubble.jpg

    You could argue for more tax cuts – but the nonpartisan Congressional Budget Office – which Republicans have often relied upon against Obama – studied whether tax cuts or spending dollars were a more effective stimulus, and found that spending was. http://2parse.com/?p=2053

    As to your final point:

    BO’s proposed health-care spending will squeeze businesses. As a small business man, I’ll definitely not be hiring in the face of looming tax increases.

    You’re facing looming tax increases most of all because of the massive deficits we are running as a result of Republican policies. The increase in taxes you would need to pay to pay for the current health care proposals is minimal. The final figure isn’t set – but we’re looking at something like $70 billion a year – in a $3.5 trillion budget. The Pentagon considers it a slap to the face if their budget doesn’t increase at least that much every year – while this would be a fixed commitment – rather than an escalating one.

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