Economy & Budget

Republicans are winning the fiscal fight

Can you name the president in the post-World War II era who presided over the largest five-year reduction in the burden of government spending, measured as a share of economic output?

Or how about the president who was in office when nominal federal spending shrank for two consecutive years and had no growth over a five-year period?

Here’s another question: Can you also name the president who signed a 10-year tax cut of nearly $4 trillion?

Last but not least, can you name the president who signed the law enabling an automatic 10-year budget cut of more than $1 trillion?

{mosads}No, we’re not talking about Ronald Reagan. The answer to all four questions is Barack Obama.

This is the great untold story of the Obama presidency. A president who wanted to “fundamentally transform” the country has completely failed to make America more like France. He didn’t even make us more like Germany.

This isn’t big news

Now let’s splash some cold water on GOPers who want to get all excited. Yes, federal spending has dropped from 24.4 percent of gross domestic product (GDP) in 2009 to 20.3 percent of GDP in 2014, but that still means the burden of government spending is higher than it was in 2008 (20.2 percent of GDP) and far higher than it was when Bill Clinton left office (17.6 percent of GDP). Similarly, it’s not a huge achievement to freeze spending for five years when the base year of 2009 featured both an explosion of Troubled Asset Relief Program (TARP) spending as well as lots of “stimulus” outlays.

Moreover, the $4 trillion tax cut was only a tax cut compared to a “baseline” which assumed all the 2001 and 2003 tax cuts would expire. What actually happened is that Obama was able to push the top income tax rate back up to where it was before the George W. Bush presidency. And he also increased the double taxation of dividends and capital gains. Finally, the sequester “cuts” also were against a baseline, so the real-world impact is simply to slow the growth of government.

This is big news

But even with all the aforementioned caveats, there’s been a remarkable shift in fiscal policy.

Many Democrats presumably can’t be happy that the lion’s share of the Bush tax cuts were made permanent. As a result, revenues are now projected to average only 18 percent of GDP over the next 10 years. That’s a smaller tax burden than we had throughout the Clinton years. And you can’t finance big government in the long run without a lot more revenue.

And they definitely can’t be happy that domestic discretionary spending is now below where it was during the Bush years, when measured as a share of GDP. And with sequester-enforced budget caps, it’s quite likely that number will drop even further.

Republicans, meanwhile, should be happy that all their fiscal battles have paid dividends. As a general rule, GOPers think that they lost the various shutdown fights, appropriations battles and debt limit showdowns. But short-term polling doesn’t matter nearly as much as the long-term policy results (not to mention the fact that voters just gave the GOP a landslide victory).

Perhaps even more important, looking forward, is that House Republicans for four consecutive years have approved budget resolutions that assume genuine reform of Medicare and Medicaid. And they’ve won their biggest majority since before World War II, so GOPers can feel reasonably confident that voters (perhaps sobered up by the fiscal disarray in Europe) understand the need to modernize these programs.

A turning point in 2017?

It’s unlikely that either party will alter the fiscal outlook over the next two years. At the risk of stating the obvious, any White House initiatives to expand the burden of government will get a chilly reception on Capitol Hill. But it’s equally true that Republicans have almost no chance of forcing additional spending restraint over a presidential veto.

But 2017 could be different, at least for Republicans. If they manage to win the White House and hold the Senate, then serious entitlement reform is genuinely possible. So not only will America have avoided becoming France or Germany during the Obama years, but the country would also be spared that fate in the 2020s and 2030s when tens of millions of baby boomers will be retired.

The best the Democrats can hope for, by contrast, is to block entitlement reforms by retaining the White House and/or retaking the Senate. But since it’s virtually impossible for them to get control of the House, there isn’t much opportunity to go on offense.

Actually, that last paragraph is wrong. The best that Democrats can hope for is that Republicans, instead of choosing a Reaganite, nominate and elect a president from the Nixon-Bush wing of the party. Many of the biggest expansions in the size and scope of the federal government have taken place with such Republicans in the White House.

But that’s a topic for another column.

Mitchell is a senior fellow at the Cato Institute.

Tags Barack Obama Bill Clinton Bush tax cuts Entitlement reform Government spending Medicaid Medicare sequester Tax cut
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