“We believe allowing the American people to keep more of their hard-earned money is not something that needs to be paid for.”
That was Tom Price, Chair of the House Budget Committee, speaking to Politico about the “tax extenders” deal, an enormous beast composed disproportionately of corporate giveaways.
I wrote a rundown yesterday of what might be in this very fluid deal; I advise you to read that for details. The total cost in the 10-year budget window, based on what we know now, would be as high as $889 billion, without offsets.
|One-year tax extenders||$45|
|Permanent tax extenders|
|Bonus depreciation (allows businesses to immediately deduct the cost of equipment purchases.)||$281|
|R&D tax credit||$182|
|Active financing (lets financial institutions defer taxes on income earned outside the U.S.)||$78|
|Section 179 expensing (A standard deduction on business equipment purchases, up to $25,000)||$77|
|Retail 15-year depreciation (Allows retail business improvements and construction to be deducted over a 15-year period rather than a 39-year period.)||$28|
|CFC look-through (allows corporations to move earnings to tax-haven shell companies without paying U.S. taxes)||$21|
|Permanent Earned Income Tax Credit and Child Tax Credit expansion||$150|
|Two-year delay in medical device tax||$5|
|Two-year delay in Cadillac tax||$15|
|Zadroga 9/11 responder bill||$7|
But the most important aspect of this could be Price’s quote above: confirmation that Republicans ignore deficit hawkery when the subject turns to something they like. When it suits them to give hundreds of billions of dollars to big business without paying for it, the often-articulated concerns about piles of debt for future generations go away.
And here’s the truth: They’re right. Deficits can deliver priorities that policymakers think make sense for the country. Republicans understand that; Democrats don’t. We shouldn’t privilege one kind of deficit spending over another, which Republican budget rules do right now. But we should be honest about the deficit and how it actually matters.
Republicans have long recognized how to use the deficit as a political tool. In the 1980s, Ronald Reagan ran up historic deficits, mostly through an unprecedented military buildup and tax cuts for the wealthy. The Clinton administration, egged on by the Gingrich-led Congress, ushered in fiscal responsibility, but George W. Bush again obliterated that, with another helping of a tax cut-and-military agenda that Republicans willingly supported.
When the Obama administration came in, the narrative switched again, with Republicans demanding fiscal probity, even amid a time of financial crisis and recession. And they got it: The Obama White House has boasted that, since 2009, the deficit has fallen at the fastest rate since the end of World War II.
These wild swings between profligacy and fiscal conservatism show that Republicans change their posture on deficits based on who would benefit from deficit spending. If it’s the military and the wealthy and corporations, they’re all for it. If ordinary people might get a boost, they reject it. That’s just an extension of their party platform.
Now in control of Congress, Republicans have decided to put this to the test. Earlier this year, they passed a fix to the way Medicare reimburses doctors, ending one messy annual budget game. But much of the “fix” was not paid for. The current tax extenders bill would be bigger than the 2009 stimulus package designed to pull the country out of recession. You can make the argument that, since tax extenders routinely pass every year anyway, making some permanent doesn’t really add to the deficit so much as it ends the budgetary fiction. But the Committee on a Responsible Federal Budget doesn’t see it that way, arguing that this opens up a host of potential new spending through the tax code.
Incidentally, none of the horrors predicted by Republicans when they are in their “fiscal responsibility” mode have come to pass in this new era of deficit expansion. Interest rates remain subdued. Private spending is not being “crowded out” by spending through the tax code. Inflation has not risen appreciably.
In fact, you can make an argument that the short-term deficit is too low. For months, financial industry leaders like JPMorgan Chase CEO Jamie Dimon have warned of a shortage of Treasury bonds, safe assets that investors flock to in the event of a crisis or heavy volatility. Some of that is due to the Treasury Department holding back Treasury notes because of uncertainty over the debt ceiling; now that the fears have passed, more government debt is being sold. But Dimon’s complaint is quite literally a plea for more debt to be rung up, at least to satisfy short-term demand.
With troubling indications of slower growth ahead, this need for deficit spending becomes more acute as an economic imperative. Under Modern Monetary Theory (MMT), federal deficits are a tool to encourage full employment through broad investments, and as long as inflation is under control — as it currently is — the deficits are sustainable.
The larger point here is that Republicans cast aside deficit concerns when they impede something they want. And Democrats, wrongly, don’t think that way. The past two Democratic presidents have preached from the gospel of fiscal responsibility and boasted about their exploits. Under Nancy Pelosi and Harry Reid, Congress instituted a “paygo” rule, forcing all spending to be paid for, making progressive priorities in social programs more difficult to achieve and allowing Republicans to demonize Democrats as the party of higher taxes.
Even Bernie Sanders, who earlier in the year paid lip service to paying more attention to a jobs or infrastructure deficit than the budget deficit, has spent his entire presidential campaign explaining how he’ll pay for his programs with taxes on the wealthy and corporations. He also routinely castigates George W. Bush for not paying for the war in Iraq, as if that’s the main reason it was a bad idea.
Sanders’ numbers don’t really add up — there’s not enough money to be gained from the wealthy to pay for everything he wants — and he ignores other clear benefits to progressive social spending. A single-payer health care program, which Sanders supports, would drastically reduce overall national health expenditures, saving money for individuals and businesses alike and increasing Americans’ overall welfare. Should the fact that it might raise the budget deficit take precedence over this?
Republicans may be choosy about when they stress fiscal conservatism. But at least they’re consistent about the direction they want for the country, refusing to be blocked by deficit fears. Democrats have allowed their message to be hamstrung by these issues. And now if Democrats agree to the tax extenders bill, they’ll be complicit in furthering Republicans’ long-term agenda.
When they took Congress, Republicans carved out an exemption to paygo rules that allows tax cuts to go forward without offsets. Why should only that type of spending — poorly targeted corporate tax breaks that do little for economic expansion — get such a privilege?
Democrats should push for worthwhile spending on infrastructure, health care or education — broad improvements to Americans’ quality of life — to get the same dispensation. But they are trapped by the deficit squeeze, in a way Republicans simply aren’t. One party is haunted by the deficit; the other uses it as part of their larger ideological project.