Why Republicans Aren’t Serious About the Deficit
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The Fiscal Times
November 19, 2010

One of the most far-reaching political consequences of the recent fight over the Affordable Care Act is that it was the final step in the total transformation of the Republican Party into the party of Medicare. It’s why Republicans have zero credibility when they say they will reduce spending.

Historically, Republicans viewed Medicare as “socialized medicine,” as Ronald Reagan called it in 1961. They fought it tooth-and-nail in the 1960s and as recently as 1995 made a serious effort to slash spending for the program. The famous government shutdown in which Newt Gingrich and Bill Clinton went eyeball-to-eyeball (and Gingrich blinked) was mainly about a Republican plan to cut Medicare by $270 billion.

The lesson Republicans learned from the 1995-96 experience is if you can’t beat’em, join’em. Subsequently, little if anything has been heard from Republicans about cutting Medicare, even though it is one of the largest government programs and the one that is growing fastest and putting the greatest upward pressure on federal spending.

When Republicans finally got control of both houses of Congress and the White House for the first time since 1954 in the 2000 elections, they were giddy with excitement. Finally they had a president who would not veto their efforts to get spending under control and balance the budget, many rank-and-file Republicans thought.

But the bursting of the tech boom in early 2000 and the election of George W. Bush put an end to all that. The ensuing recession, the terrorist attacks on September 11, 2001, and Bush’s utter lack of principles spelled the death of fiscal responsibility in the Republican Party. Indeed, during the 2000 campaign, Bush and his principal budget adviser, economist John Cogan of Stanford, repeatedly insisted that the budget surpluses of the Clinton years — which had come about because of budget deals in 1990 and 1993 that were opposed by virtually every Republican — were a fiscal danger because Congress might possibly spend them. Better, Republicans said, that they should be completely dissipated through tax cuts as soon as possible.

True to their word, massive tax cuts were enacted in 2001, 2002 and 2003. Although there is little, if any, evidence that they stimulated growth — real gross domestic product, real investment and employment all grew far more slowly than they had following the 1990-91 recession — Republicans and their mouthpieces in the media kept insisting that their policies were working even as the $128 billion surplus Bush inherited in fiscal year 2001 became a $158 billion deficit in 2002, growing to $378 billion in 2003. The key reason for rising deficits was that revenues as a share of GDP fell from 20.6 percent in 2000 to 16.2 percent in 2003 — proof that tax cuts do not pay for themselves despite Republican dogma to the contrary.

Although Republicans pay lip-service to being the party of fiscal responsibility, they sharply increased spending even as they cut taxes willy-nilly, filling the tax code with one gimmicky tax credit after another until they had succeeded in raising the percentage of tax filers paying no income taxes at all from 23.1 percent in 2000 to 29.5 percent in 2003, according to the Tax Foundation . That figure has since grown to 45 percent, according to the Tax Policy Center. Spending rose from 18.2 percent of GDP in 2000 to 19.7 percent in 2003.

But in 2003, Republicans had a problem. Their policies weren’t popular and Bush looked like a one-termer. So they decided to buy the votes of the largest voting bloc in the country: the elderly. Seniors were concerned that Medicare was insufficiently generous — paying for all their hospitalization and doctors’ visits wasn’t enough; they also wanted the government to pay for all of their prescription drugs as well. Desperate to win re-election, Republicans decided to give them what they wanted, regardless of the cost.

The fact is that the Medicare system was already broke in 2003. According to the program’s actuaries, spending without the drug benefit was expected to shoot up from 2.6 percent of GDP in 2003 to 3.5 percent in 2020, 4.7 percent in 2030, 5.7 percent in 2040, 6.5 percent in 2040, 7.4 percent in 2050, and 8.5 percent in 2060.

The responsible thing to have done in 2003 would have been to reform Medicare, cut benefits and bend the cost curve so that costs wouldn’t continue to rise faster than growth of the economy. Instead, Republicans created an entirely new Medicare program, Part D, that pays for prescription drugs, and didn’t finance a penny of it with spending cuts or tax increases; it all went on the national credit card.

Bruce Bartlett’s columns focus on the intersection of politics and economics. The author of seven books, he worked in government for many years and was senior policy analyst in the Reagan White House.