Is 2018 the year that Americans finally learn to love the deficit? It has all the makings for such a phenomenon, at least for one year.
The deficit is soaring again, but what is there not to like about it? Taxes have just been cut — precipitously for business and the rich, modestly for many others (for several years) — and the economy continues its historic eight-year expansion.
Federal budget deficits have had seasonal defenders but no real admirers except for followers of Keynesian economics during bad times. Thomas Jefferson deplored them, and you can’t quarrel with Thomas Jefferson, unless you explore too many of his ideas and prejudices. H. Ross Perot ran a decent one-note campaign for president by promising to end deficits and save the country from impending collapse.
What makes 2018 the optimal year for deficits and the normally despised national debt is that the Republican Party has called a truce on them. You won’t be hearing Republican rants about deficits for a while for the simple reason that the party now owns them. We have had these interludes before — the 12 years of Ronald Reagan and Bush I and the eight years of Bush II — when the deficits soared owing to tax cuts and spending increases. But they ceased to be a talking point. Democrats never lamented deficits much and, sure enough, deficits moderated or even shrank under modern Democratic presidents. It went to zero for four years under Bill Clinton.
George W. Bush handed Barack Obama a deficit of $1.5 trillion and a sharply contracting economy. By 2015, Obama had whittled it to $438 billion, but two years of defense-spending increases pushed it back up to $666 billion in the year that ended Oct. 1.
The tax cut signed by the president at Christmastime was supposed to add $1.5 trillion to the already projected deficit increases over the next 10 years. It actually will add far more than that. Congress had to keep the estimated deficit hike at $1.5 trillion to pass it legally and they did it in the timeless way Congress always does it, with smoke and mirrors. Except those for corporations and some others, the tax cuts begin to expire well before 10 years, and the unspoken tax increases in the out years shrink the official deficit projection.
The Republicans had to take some other steps to protect the political advantages of cutting taxes. Ordinary people and not just the rich must realize advantages from the tax cuts long before the elections, so withholding changes were pushed up to February and big corporations were urged to announce raises for workers or price cuts. Governor Hutchinson joined the face-saving by urging his utility regulators to see if they could get the utilities to use some of their new profits to announce lower rates.
Right before passing the tax cut, congressional Republicans realized a huge political peril. Elderly and disabled Medicare constituents, who vote in big numbers, were going to get big reductions in their benefits, totaling $25 billion, immediately, owing to congressional pay-as-you-go rules that were adopted to force deficits down. The cuts were to be automatic if the tax law increased the deficit beyond a certain point, so before sending it to the president they hastily amended the bill to waive the rule for 2018.
They remembered having succeeded in making Obamacare initially unpopular partly by claiming that it was going to slash grandma’s Medicare benefits. (It didn’t; it expanded them. It called for lowering pay to providers, not beneficiaries.) Polls showed that Obamacare was extremely unpopular with the elderly in Arkansas, the group that should have been happiest with it. They weren’t going to run that risk with the tax cut.
Trump had been a fan of deficits, saying early in his campaign that he didn’t worry about deficits because if the national debt got dangerously high he would declare bankruptcy as he did in his private businesses. He had a small point. Defaulting on the debt would simply mean that U.S. taxpayers would shift the cost of government to that share of the taxpayers who own most of the national debt. Trump presumably doesn’t own government bonds.
The Republican plan, as expressed often by House Speaker Paul Ryan, is to get rid of the deficits by slashing Medicare, Medicaid and Social Security. Ryan said in December that Congress would start doing it this year. He said he had talked Trump into reneging on his pledge not to cut Social Security or Medicare.
But Senate Majority Leader Mitch McConnell has far better political instincts than Ryan or Trump. He said the other day that Medicare and Social Security would NOT be on the block — not before the fall elections.
So we have a year to love deficits. Let’s make the most of it, and while we’re at it, raise a toast to the national debt.