GOP’s Debt Cutting Pipe Dream

June 7th, 2011 at 12:20 am | 9 Comments |

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Words are like bullets; once fired they cannot be recalled.  As any range master will tell you, be careful of the ricochet.

One hundred and three House Republicans have sent a letter to House Speaker John Boehner and House Majority Leader Eric Cantor outlining the conditions under which they “might” vote to increase the federal debt ceiling.

These conditions are:

(1) cut spending immediately in order to cut the projected FY2012 deficit in half;

(2) enact statutory, enforceable spending caps that cut future spending down to 18 per cent of Gross Domestic Product;

(3) House and Senate passage of a Balanced Budget Amendment to the Constitution that includes a spending cap of 18 percent of GDP and “a high hurdle” for tax increases.

The letter, ram-rodded by Republican Study Committee Chairman Jim Jordan, contends that cutting the projected deficit in half in the coming fiscal year would require “only” spending cuts of $380 billion.

Signatories of the letter must make at least three assumptions.

First, the letter makes a nice press release for back home consumption, where very few voters will question the numbers.

Second, that when the right numbers emerge, the public will be sufficiently confused and stop paying attention.

Third, that when many of these signatories do vote for a debt ceiling increase, without the conditions they stipulate, all prior words on the subject will suddenly disappear from existence and voters will have forgotten what the 103 demanded.

We need to be clear here.  Congress will pass an increase in the federal debt ceiling.  It will do it with maximum confusion, unnecessary verbiage, and in such a manner that has the greatest possibility of spooking credit markets throughout the world.

Here’s a “green eyeshade” look at the letter.

The 103 signers believe that cutting next year’s deficit in half will require only $380 billion in cuts from projected spending, according to the Congressional Budget Office.  They are right only if they also endorse full expiration of most of the Bush tax cuts, expansion of the Alternative Minimum Tax (AMT), and full implementation of cuts to doctors who have Medicare patients.

Yet, in all likelihood, all 103 are on record urging full continuation of the Bush tax cuts, keeping the AMT from expanding, and making sure that the cuts to Medicare doctors don’t occur.  So those103 representatives have signed a letter that implicitly endorses what they have publicly repudiated, or they weren’t really paying attention to the little details of budgeting.  Those little details loom large.

So, what is the real number?  How much would it take to cut the FY2012 deficit in half, taking into account the very positions that the 103 have previously endorsed?

The CBO produces what it calls “an alternative baseline.”  This baseline incorporates an important matter—political reality.  Using this baseline, which assumes that politicians will continue the majority of the Bush tax cuts, will truncate the AMT’s reach, and will reject cutting doctors’ Medicare compensation, as well as other reasonable assumptions based on past behavior, the CBO gets this deficit number:  $1.12 trillion, or roughly 7.1% of anticipated GDP.  Now, half of $1.12 trillion is $556 billion, not the $386 the 103 say would achieve the goal of cutting the deficit in half.

Yes, this is getting boring.  Pure boredom with all these numbers accounts for why the public finds itself completely confused about the true federal budget situation.

But, hang with me for just a moment more. Here are the numbers for spending as a percentage of GDP.

Medicare and Medicaid = 5.0%

Social Security and related = 4.9%

Defense appropriations = 4.5%

Domestic appropriations = 4.2%

Other mandatory = 3.2%

Interest = 1.7%

That adds up to 23.5 percent of GDP.  The 103 letter signers want 18%.  So, they have a menu of where they could cut just by looking at the numbers above.

Medicare has already been poisoned politically and is unlikely to suffer much cutting over these next 18 months.  Social Security and related programs (disability insurance) have been declared out of bounds by both sides.  House Republicans leaders have expressed real concern about defense cuts while the nation is embroiled in three, undeclared conflicts.  The category “other mandatory” includes such things as veterans’ compensation and retirement, other federal retirement obligations, farm subsidies, and federal workers’ health benefits.

That leaves domestic appropriations as fair game in everybody’s view.  Do you see how easy this is?  Just eliminate all domestic appropriated accounts and you get down to about 19% of GDP.  Take a little here and a little there and you can get to 18% of GDP.

Of the 435 Members of the House, you can safely estimate that not 75 would vote for elimination of all domestic programs.

So, the debt increase is going to pass, spending as a percentage of GDP will be far above 18%, a balanced budget amendment to the Constitution remains very problematic, and the FY2012 deficit will be well above $1 trillion.

What about all those fine words in the letter to Speaker Boehner?  Sometime next fall, perhaps as early as late summer, many Republicans now in the House will find themselves confronted by 30 second ads outlining what kinds of cuts, and how many layoffs of workers, their 18% of GDP will yield in their districts.

Watch out for the ricochet.

Recent Posts by Steve Bell



9 Comments so far ↓

  • Raskolnik

    I think a lot of them are expecting the Rapture before any ricochet hits.

  • SteveThompson

    When the outstanding liabilities (debt) of the entitlement programs including Medicare, Medicaid and Social Security are considered, they could add up to $120 trillion to the total, resulting in a debt-to-GDP ratio of 900 percent. This is the issue that government must deal with immediately.

    Here is an article discussing this looming fiscal nightmare:

    http://viableopposition.blogspot.com/2011/04/hidden-american-100-trillion-debt.html

  • ottovbvs

    The other day someone let slip that the Republican leadership were running tutorials on public finance so it’s obvious that many house members don’t even understand these numbers. The notion that you could lock the country into expenditures of 18% of GDP regardless of circumstances like wars and depressions is childish in the extreme. This letter is ample evidence if any were needed of the total unreality of many Republican congressmen. In fact Boehner himself as numerous journalists and economists pointed out after his speech to the NY economic club about a month ago is functionally illiterate when it comes to economics.

  • indy

    The other day someone let slip that the Republican leadership were running tutorials on public finance

    Perhaps first they need some improved reading skills, including comprehension, and remedial math. Then they can move on to common sense. Then, maybe, public finance tutorials might help.

    It’s typical that they implicitly promote expiration of the Bush tax cuts. Somewhat like, I suppose, passing a budget that implicitly calls for a debt ceiling hike, then not doing it. Because that is what would happen here too.

  • Frumplestiltskin

    ouch Steven. nicely done.

    SteveThompson, you do know that is completely bogus. If I make $50,000 and buy a house, after downpayment it being $300,000 with a 30 year mortgage, you don’t go saying I am insolvent because my debt to asset ratio seems so out of whack. In all likelihood my salary will increase over time and provided I keep making those payments it can all be paid off in time.

    How many years does that 120 trillion cover? Based on historic averages of population growth and productivity growth the US economy can easily handle the debt load, provided we do not continue to add to the debt at the rate we are. But in the midst of a huge recession this is what happens, if we revert to normal growth rates we will be fine.

  • Graychin

    We can hope that many of these GOP freshmen will be returning to the private sector in 2013.

    One of the largest factors in the deficit (second to the Bush tax cuts) is the economic downturn of 2007-2008. To close the revenue/spending gap, put some people to work.

    Where are the jobs, Mr. Boehner? Where are the jobs BILLS, Mr. Boehner?

  • greg_barton

    Yeah, Frumplestiltskin, I get tired of seeing that same canard over and over. Have these people never bought a house or a car? Actually, the funny thing is, the approach to debt they advocate is closer to Sharia law than anything else.

  • valkayec

    I downloaded and read the letter yesterday. It’s the biggest piece of crap I’ve seen in a long time and shows exactly how economically illiterate the House GOP is.

    I just finished watching Bernanke speaking to a bunch of bankers, during which he said that there’s little more than the Fed can do to boost the economy. He said we need fiscal policy to reinvigorate the economy, preferably with more stimulus. He added that immediate deficit reduction can wait until the economy gets moving again as long as a long term plan is in place. Of course, that kind of long range thinking is anathema to DC politicians who think in no more than 2 year election cycles.

    Last night I read over the typology definitions at Pew. (http://people-press.org/2011/05/04/beyond-red-vs-blue-the-political-typology/) The definition of Staunch Conservatives fits the new House GOP. They are, by definition, the furthest to the right any group can go and believe their views are so completely correct that they have no desire or willingness to compromise. Thus, working with them to accomplish goals the whole country could support becomes more than an ordeal. Moreover, they believe so completely in their own views that they are willing to go to drastic lengths – such as blowing up the economy – in order to attain their demands.

    Playing nice with these congress members doesn’t work. Their ideology has to be called out, publicized to the general public, so they will be defeated in the next election. They’re like the old fashioned Birchers that Buckley disdained.

  • forkboy1965

    Hey… let’s make this simple.

    The GOP want to slash spending. Fine. Let’s agree to it. But since they don’t see any downside to such cuts I’ll let them keep the Bush tax cuts if the GOP is willing to cut services, etc. for their districts only.

    Let’s place the complete burden of cuts in spending into GOP districts, etc. Their constituents shouldn’t complain since they voted for this party. Let them take the brunt of things and when we on the Left see how it all works out so well for everyone I’m certain we’ll jump on the bandwagon as well.

    Problem solved.