In the wake of Congress’ decision to avoid the economic catastrophe its reckless behavior nearly invited, it is clear that the country faces not a debt crisis or a budget crisis, but a GOP crisis. The question is not whether we can solve our problems but whether we will solve our problems — and whether Republicans will continue to get in the way.
House Speaker John Boehner (right) and House Majority Leader Eric Cantor (middle) holding a press conference on health care earlier this year. Both Boehner and Cantor were central in the debt-ceiling negotiations that concluded earlier this week.
Most Americans have been led to believe that we face an imminent Greek-style debt crisis unless Congress acts immediately to cut spending and rein in deficits. This belief is wrong, and it is wrong in a way that has already invited unfortunate consequences.
What most Americans — or, for that matter, most members of Congress — don’t realize is that there is almost no deficit problem under current law. If Congress took a 25-year vacation, the debt-to-GDP ratio would remain roughly stable. Furthermore, Greek-style default is impossible in any country that, like the United States, maintains an independent monetary policy and can (unlike Greece) mitigate the impact of rapid fiscal adjustment.
So what’s the problem everyone keeps worrying about?
The problem is that Congress continues to modify current law in a way that increases the deficit. Three policies in particular exemplify this problem: the Bush tax cuts, the alternative minimum tax, and the Medicare sustainable growth rate formula.
The Bush tax cuts are straightforward: Over the last 10 years, no single policy has contributed to America’s debt more than the Bush tax cuts, and over the next 10 years, a full extension of them would increase the nation’s debt by $3.5 trillion. (By comparison, the most ambitious deficit-reduction deals considered in the recent debt-ceiling negotiations were in the ballpark of $4 trillion.)
The alternative minimum tax or AMT was originally passed to ensure that a few hundred super-wealthy individuals and families pay a fair share of taxes. But because the AMT affects more and more people every year (rather than just the super wealthy for whom it was originally intended), Congress is expected to “patch” the AMT to reduce its bite on the middle class. The resulting lost revenue will, of course, increase the deficit relative to current law.
On the spending side of the ledger, Congress continues to postpone scheduled cuts to Medicare reimbursement rates — a whopping 30 percent — dictated by the so-called sustainable growth rate formula passed in 1997. Since a cut in reimbursement rates of this magnitude would lead many health-care providers to drop Medicare beneficiaries, it amounts to a substantial benefit cut. Congress’ refusal to let the cut take full force costs the federal government $300 billion over 10 years.
Congress’ repeated interference with these (and other) policies — postponing tax increases and spending cuts — has led Ezra Klein of The Washington Post to quip that “we have a Congress problem, not a deficit problem.”
Klein is right that Congress, and by extension both of the parties that have alternately controlled it, are responsible for creating a deficit problem that doesn’t exist under current law. Democrats, for instance, have embraced permanent extension of most of the Bush tax cuts and have been reluctant to offer viable substitutes for the substantial lost revenue that would result.
However, if there is one thing we should have learned from the recent debt-ceiling charade, it’s that Democrats aren’t the problem. Republicans are the problem.
Rather than a Congress problem, as Klein dubs it, what we really have is a GOP problem. After all, it was President Obama, a Democrat, who offered a grand bargain that paired substantial spending cuts — including a huge concession on Medicare that would have raised the eligibility age from 65 to 67 — with modest tax increases. And it was a Republican House, eager to deny the president a political victory, that refused the deal — even though it could mean greater tax increases (worse policy from the GOP perspective) down the road.
But that’s not all. Those same Republicans created the very short-term fiscal crisis they had warned against by conflating the debt ceiling — a short-term issue that reflects tax-and-spend decisions already made by both parties — with the long-term challenge of enforcing fiscal discipline on a Congress that has repeatedly kicked the can down the road.
Let’s also not forget that many of the beltway Republicans now pointing their fingers at President Obama ignored the long-term fiscal trends (which are actually responsible for the upward drift of federal spending, rather than any Obama initiative) when one of their own occupied the Oval Office.
Well before Obama even began his run for president, the Congressional Budget Office warned that the retirement of the Baby Boomers and the rapid rise in health-care costs would lead to ever greater federal spending. But rather than tackle these long-term problems (or even try to address them), the Republicans who controlled Congress and the White House made these long-term trends even worse by passing budget-busting tax cuts, new entitlements, and off-budget war spending.
Now that a Democrat is faced with the difficult task of cleaning up this mess, Republicans have decided to define “the solution” as “whatever Obama doesn’t want” rather than whatever actually reduces the deficit. This intransigence has led Congress to pass a package that falls far short of the problem at hand and ignores the factors responsible for the medium-term deficit (constant tax cuts) and the long-term rise in spending (Medicare).
These inconvenient facts haven’t stopped some beltway Republicans from crowing about their success in putting deficits on the agenda and trying to take credit for any solution that comes about. At best, this makes Republicans look like the arsonist who warns people to get out of the building he set on fire — and then blocks every exit except one. At worst, it indicates just how disconnected from reality the party has really become.
Republicans like to claim that America can’t afford its entitlements. The truth is that America can’t afford Republicans like these.
What America can't afford is the Republican Party | PARTISANS