Trillion-dollar deficits as far as the eye can see, and hardly a voice of caution to be heard
In the old days, a decade or so ago, Democrats would have assailed Donald Trump’s failure on federal deficits; instead of eliminating it, as promised, the deficit has doubled to a trillion dollars as far as the eye can see.
Republicans would be in full fury over the spending schemes of Democratic presidential candidates; even the mainstream moderates propose huge increases for health care, education and the social safety net for the disadvantaged.
Yet deficits, as a political issue, are dead.
The political impact always was exaggerated, but out-of-control deficits were a staple of opposition rhetoric. There invariably was some budget-balancing blue-ribbon group, the most famous being the Simpson-Bowles Commission.
For Democrats, the pressing urgency of unmet needs in health care, education, infrastructure and the social safety net far outweigh any rising debt. They favor tax hikes, mainly on the rich, to reverse the huge 2017 Republican tax cuts, but there’s less premium on the green eyeshade test of paying for all spending initiatives.
Most Republicans strongly want to keep those tax cuts — the only significant achievement of three years of party rule — and have little interest in tackling politically popular entitlements. In the years the Republican Party controlled both houses of Congress and the White House, it focused only on gutting the Affordable Care Act.
This has become the Trump Party, which overshadows the old Republican battle lines between budget balancers and tax cutters. This Republican executive is a tax cutter and budget buster.
As well as the politics, Democrats have a strong policy basis for their position. Early this year, the two most prominent Democratic economists — former Treasury Secretary Larry Summers and Jason Furman, chairman of the Council of Economic Advisers, both under Barack Obama — wrote an influential article citing structural declines in interest rates. This means that “policymakers should reconsider the traditional fiscal approach that has often wrong-headedly limited worthwhile investments in such areas as education, health care and infrastructure,” they said.
“Politicians and policymakers should focus on urgent social programs, not deficits,” they advised.
They don’t go as far as the Modern Monetary Theorists who basically argue the sky is the limit on debt unless inflation takes off. Instead, Summers and Furman claim a key is that the federal debt — as a percentage of the economy — stays at a relatively stable 3 percent to 4 percent, where it has been for the past five years.
The Republican deficits hawks, most recently former House Speaker Paul Ryan, have been rendered obsolete, as least as long it’s the party of Trump.
Even back in the 1970s, however, some Republicans embraced what supply-side propagandist Jude Wanniski called the “Two-Santa Theory” — namely, to counter Democrats’ support for popular spending programs, Republicans should favor huge tax cuts without concern for the deficit. (Ronald Reagan once joked he didn’t worry about the deficit, as it was “big enough to take care of itself.”)
Moreover, the Republican cries about the evils of big deficits have been more rhetorical than real, although the general perception of Democrats as more fiscally profligate is a canard.
Under Reagan and George H.W. Bush, the federal budget deficit doubled. The deficit was $255 billion when Bill Clinton came into office; at the end of his term, there were four straight small surpluses. (This along with the surplus at the end of Lyndon Johnson’s presidency are the only ones in the last 60 years.)
The deficit also soared under George W. Bush, especially at the end of his term, with the economic crisis.
Obama inherited a massive $1.4 trillion shortfall and in eight years cut it by 60 percent.
The shortfall has doubled under Trump.
As a percentage of the economy, however, it has risen from 3 percent in the final Obama year to a bit more than 4 percent now.
Even Washington’s most stalwart and consistent fiscal hawk, Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, acknowledges the budget deficit isn’t a top policy concern right now “as low interest rates buy us some time.”
However, she cautions that the fiscal situation “is the worst it has been since just after World War II,” adding, “No one knows when the tipping point is or what it looks like, but those are questions we shouldn’t want to find the answers to.”
Albert R. Hunt is the former executive editor of Bloomberg News. He previously served as reporter, bureau chief and Washington editor for the Wall Street Journal. For almost a quarter-century he wrote a column on politics for The Wall Street Journal, then the International New York Times and Bloomberg View. Follow him on Twitter @alhuntdc.