Deficit? What Deficit?
Whatever one may think about the merits of the Republican tax bill that was signed into law today, one thing is clear: the tax bill will blow an enormous hole in our annual deficits and our national debt. While there is considerable disagreement about the extent to which the tax bill will unleash growth and innovation in the economy and thereby ameliorate its cost, there is near unanimity among mainstream economists in both parties that any new economic growth as a result of the tax bill will still create massive revenue losses for the federal government. Mainstream economists project 10-year deficit increases somewhere between $516 billion on the low (growth optimistic) side and $1.78 trillion on the high (growth pessimistic) side. In many respects, both the tax bill and the deficits it will exacerbate casts the absurdity of Congressional accounting and the Congressional budget process in high relief. The budget process, which was established during the Nixon Administration as a tool to create transparency and fiscal discipline, has become a near comical tool to create obfuscation and fiscal irresponsibility.
Whether one leans left or right, deficits do matter. The more money the government borrows, the less money is available in the economy for private sector investment. Over time, as the national debt grows as a percent of GDP, payments on the national debt crowd out other government investment in things like infrastructure, defense, education, and research, while also creating pressure to cut back on the social safety net, including Social Security and Medicare benefits. We now have schizophrenic majorities in the Congress that are deficit deniers while they are cutting taxes and increasing budgets, and deficit fanatics when it comes times to raise the debt ceiling and allow the Treasury Department to issue the debt that results from their irresponsible spending and tax cuts.
Over the last several weeks, while his caucus of supposed "deficit hawks" lined up one-by-one behind a tax bill that can only be described as fiscally irresponsible, Senate Majority Leader McConnell has reminded me at times of Captain Renault from Casablanca:
"I am shocked - shocked - to find that gambling is going on in here... I'm making out the report now. We haven't quite decided whether he committed suicide or died trying to escape. Oh, please, monsieur. It is a little game we play. They put it on the bill, I tear up the bill. It is very convenient..."
The House and Senate leadership are now at cross purposes as to the next priority for Congressional action. Sen McConnell is committed to move quickly on a one trillion-dollar package of infrastructure spending (badly needed investment that nevertheless will further exacerbate the deficit), and Speaker Ryan has committed his caucus to "entitlement reform," which Democrats will quickly paint as an attack on Medicare, Medicaid, food stamps, and welfare spending.
In the meantime, the Treasury Department will need to issue new debt for additional off-budget spending, such as the anticipated $81 billion supplemental budget for disaster relief. Treasury now expects to breach the debt ceiling in early spring, which will almost certainly lead to another fiscal showdown, as Congress pretends that the growing debt is not the direct result of their (in)actions.