Why Republicans Aren’t Serious About the Deficit

Why Republicans Aren’t Serious About the Deficit

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.

I’ll skip over the deplorable way Republicans lied about the estimated cost of Medicare Part D or the strong-arm tactics they used to ram it into law on November 22, 2003. (Among other things, they held the vote open for three hours — an unprecedented event in American political history.) I detailed these facts in a Forbes column last year.

Let’s skip ahead to see the budgetary consequences. According to the latest actuaries’ report, Medicare Part D will cost taxpayers — beneficiaries pay virtually nothing — $62 billion this year. This figure is expected to rise sharply in coming years to $150 billion in 2019. By 2030, Part D alone will cost taxpayers 1 percent of GDP. In present value terms, Medicare Part D adds almost $16 trillion to our national indebtedness. (That’s how much would need to be in a trust fund today to pay all the benefits that have been promised over and above the trivial premiums paid by beneficiaries.) That is why former U.S. Comptroller General David Walker has called the unfunded prescription drug benefit “the most fiscally irresponsible piece of legislation since the 1960s.”

The payoff was immediate, however. According to CNN, Bush increased his percentage of the over age-60 vote by 7 percentage points in 2004 over 2000, winning 54 percent of that age group’s votes. Unfortunately, the elderly didn’t stay bought. In the 2006 congressional elections, they voted for the Democrats by a 50 percent to 48 percent margin, which contributed heavily to the Democratic takeover of Congress.

From this experience, Republicans learned a critical lesson: there is great political benefit in pandering to the elderly. But you can’t just buy their votes once; they have to be bought again and again every election cycle.

Consequently, when Barack Obama began a debate on extending health insurance to the uninsured — based almost entirely on Republican ideas, such as those implemented in Massachusetts by Republican Gov. Mitt Romney — Republicans heavily attacked the cuts in Medicare that largely covered the cost. On October 24, 2009, the chairman of the Republican National Committee, Michael Steele, published an article in the Washington Post declaring total opposition to any cuts in Medicare. During the 2010 elections, Republicans ran advertisements  throughout the country denouncing Democratic cuts in Medicare and pledging to protect the program at all cost.

Republicans were richly rewarded for their pandering. The elderly voted Republican in the 2010 congressional elections in large numbers. According to CNN, Republicans got 59 percent of the over-65 vote, with Democrats getting just 38 percent. According to political analysts, support from seniors was the main reason for big Republican gains this year.

The question now is what happens in the future. Prodded by their new-found allies in the Tea Party movement, Republicans may have no choice but to make a serious assault on federal spending. There’s a limit to how far they can go by banning earmarks — which doesn’t actually save any money; it just changes the allocation of spending. At some point they must address Medicare if they are serious about cutting federal spending. But then they risk throwing away all the hard-earned support they gained by adding trillions of dollars to the public debt with their unfunded Medicare Part D expansion.

Somehow or other, I think Republicans will find a way to delude themselves that their irresponsible expansion of Medicare isn’t a prime reason for our nation’s massive debt problem. Hanging on to political power is far more important to them than fiscal responsibility. A key test of whether the Tea Partiers mean what they say about cutting federal spending, or whether they are just blowing smoke, will be what they do on Medicare. If they have any guts, they’ll make repeal of Medicare Part D their first order of business.