The GOP’s biggest legislative achievement since President Donald Trump took office was a massive tax cut that congressional scorekeepers expect will add more than $1 trillion to deficits over the next decade, even when accounting for faster economic growth.
Adding to that, the Republican-controlled House and Senate just passed a massive $1.3 trillion bill to fund most of the government’s daily operations. The agreement—which included more money for the military that Republicans wanted in addition to more money for domestic programs that Democrats wanted—was grudgingly accepted by Trump, who vowed he “will never sign another bill like this again.”
Congress’s appetite for more spending and tax cuts is adding to annual budget shortfalls. But the biggest contributor to U.S. deficits and debt—mandatory spending for entitlement programs such as Social Security, Medicare, Medicaid and other income assistance programs—has no politically palatable remedy. Those cost $2.5 trillion in 2017 and are projected to almost double over the next decade to $4.3 trillion, as the U.S. population ages and health-care costs rise.
Their first stab at it, according to Ryan, was taken in December with the tax cut package. He publicly questioned projections of the law’s impact on the deficit and argued that boosting the economy with lower tax rates and fewer regulations must be the first step of any debt solution. That’s a central part of the Republican campaign strategy for November’s congressional elections.
The second step is to cut expenditures, he has said, including an overhaul of the entitlement programs funded by mandatory spending.
“The name of the game in debt and deficits is entitlements,” Ryan told reporters last week.
The tax cut and higher defense spending pushed by Republicans in this Congress, coupled with more funds for programs dear to Democrats, are digging the country into a deeper fiscal hole, according to Marc Goldwein, head of policy at the Committee for a Responsible Federal Budget.
“By virtue of the fact that we’ve cut taxes so much and increased discretionary spending so much, we’ve now made it that much harder to fix, even if we deal with mandatory spending,” Goldwein said.
There is little political incentive for tackling entitlements, especially in an election year. The programs are broadly popular, and the deficit doesn’t register as a top concern for voters in polls. What’s more, Trump, a Republican president with a populist agenda, promised to balance the budget without cutting Social Security and Medicare, the two biggest pieces of mandatory spending.
Mandatory offsets in 2017 totaled $253 billion. Payroll taxes, which primarily fund Social Security and Medicare, raised $1.2 trillion.
Mandatory spending already takes up more than half of federal non-interest spending. That share is projected to grow to two thirds by 2047, according to the Congressional Budget Office.
About 80 percent of mandatory spending goes to Social Security, Medicare and Medicaid. Paul Ryan says cuts to Medicaid proposed in the GOP’s attempt to repeal and replace the Affordable Care Act last year represented “the biggest entitlement reform bill ever considered in a Congress.” That bill failed in the Senate. Republican leaders now say any overhaul of entitlement programs will have to be bipartisan.
In the absence of political consensus to address the biggest drivers of the debt, Ryan says Republicans this year will focus on “welfare to work” to get people off the federal dole and into the workforce. The goal is to tap the potential of people “on the sidelines” of the labor market, Ryan says, and any cost savings would be small because resources would be redirected into job training programs.
The most immediate target for the GOP is the Supplemental Nutrition Assistance Program included in the Farm Bill that expires in September. The Trump administration proposed cutting the number of people eligible for the nation’s biggest food-aid program and replacing some cash benefits with boxes of food. Republicans proposed expanding work requirements for some recipients.
Democrats on the Agriculture Committee criticized both proposals. SNAP cost $70 billion in 2017, a fraction of the $2.5 trillion in mandatory spending last year.
“It bothers me when I hear programs like SNAP derided or belittled and characterized as wasteful or basically helping people who are lazy or don’t want to work,” McGovern said. Republicans, he said, “don’t talk about the people behind the program, the people who are benefiting from the program, they just talk about how we are spending so much money.”
Almost three quarters of non-elderly adult SNAP participants who weren’t disabled in 2012 were working or were between jobs, according to a recent study from the Center on Budget and Policy Priorities, a liberal-leaning group in Washington. About one quarter were unable to work for reasons such as chronic illness, family responsibilities or school, the study found.
Encouraging work is broadly popular, according to Ryan Alexander, head of Taxpayers for Common Sense, a nonpartisan budget watchdog, but it has to be done in a way that doesn’t strip benefits from those who need assistance and can’t comply with new rules.
“It’s a truly universal sentiment that we should reward work and figure out policies that encourage people to work,” Alexander said. “But I don’t think that that will have a significant impact on the deficit.”
When conservatives stepped up their criticism of the budget process and debt limit last year, some House Republicans formed a working group led by Doug Collins, a Republican from Georgia. One of their recommendations was to overhaul the entire budget process, including possibly giving Congress more control over mandatory costs.
“We’ve got to get everybody to understand that you can do some of these things and it’s okay,” Collins said of broader entitlement reform. “Welfare to work gives us that first batch to say it’s okay to start moving some of these things.”
The debate has economic consequences. To cover the government’s costs during eras of budget deficits, the Treasury Department has to increase auctions of bills, notes and bonds. The increased supply of Treasuries puts upward pressure on market interest rates that raise borrowing costs on a wide range of borrowing, such as credit cards, auto loans and variable mortgages.
The $15.4 trillion of U.S. debt held by the public was projected to reach 150 percent of gross domestic product by 2047, up from 77 percent now, mostly due to entitlements and higher interest rates on a larger debt, according to the Congressional Budget Office. That estimate was before the GOP tax cut was enacted. The next CBO projection, which will include the impact of the tax cuts, is set to be published on April 9.
Debts “of Our Own Making”
Federal debt held by the public as a percentage of gross domestic product
The CBO projects the federal debt will be 1.5 times the size of U.S. GDP by 2047.
Debt piled up to the country’s highest levels during World War II.
Trump has repeatedly blamed his predecessor, former President Barack Obama, for an increase in the debt during his tenure. But by 2016, Obama’s last year in office, the deficit had declined to $585 billion from post-recession highs. By 2019 under current law, the federal government will be adding trillion-dollar deficits each year under Trump, according to the CRFB.
“This will be the first time we’ve had deficits like that of our own making,” Goldwein said. “Not driven by a war, not driven by a recession, just driven by policymakers that are unwilling to pay for the things that they want.”
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