Friday, April 9, 2010

Partisan Deficit Reduction

Jonathan Chait today despairs of the possibility of serious deficit reduction:
In any case, it's worth keeping in mind that the entire conservative apparatus is already cranked up to insist that no tax hikes are acceptable in the pursuit of deficit reduction. I see no way around this problem unless and until the country actually begins to undergo a deficit-created economic calamity.
I think he's correct that "grand bargain" deficit reduction, involving tax increases, slashed entitlement spending, and receiving majority support from both parties in Congress, is very unlikely.  It worked during the George H.W. Bush administration, but the lesson Republicans took from that was never, ever, to support tax increases again -- and, moreover, that voters are indifferent to deficits. 

However, while grand bargain deficit reduction appears unlikely, partisan deficit reduction is not only easy to imagine -- it just happened!  Democrats obsessed with Republican opposition to taxes forget that the real long-term deficit problem is primarily about health care costs to the federal government, and while the ACA (I guess I'll join everyone in using that, although I'm open to better ideas) doesn't solve that problem, it does, CBO says, put a dent in it. 

Moreover, this isn't some sort of weird aberration.  The last time the Democrats had unified government, they also passed a major deficit reduction package.  In fact, the history of that one is a lot like the current situation.  In 1993-1994, Republicans claimed that the Clinton deficit reduction package would actually explode the deficit and ruin the economy.  Of course, the fact that conservatives were wrong in the 1990s doesn't mean that they're wrong this time...but the arguments are mostly the same, in that they mostly involve just asserting that there's no way that the ACA could possibly reduce the deficit (I agree with Chait, Ezra Klein, and others that the "doc fix" claim doesn't fly at all as a case against the CBO score). 

The truth of that matter is that for at least twenty years, and really more like thirty-five years, the Democrats are the party of fiscal responsibility and the Republicans are the party of deficits.  That's complicated a bit because Democrats also are the party of Keynesian economics, and therefore do believe in running deficits during recessions -- but that's not incompatible with fiscal responsibility.  It's especially true at the presidential level; Carter, Clinton, and Obama were all fiscal conservatives, while Reagan and George W. Bush were obviously not.  But it's increasingly true in Congress, as the Baker/Dole/Domenici wing of conservatives has been replaced by the Newt-inspired radicals.  We even have a nice break point, the defeat of the rule on the Bush/Wright deficit reduction package by the Newt rebels. 

The other thing that complicates things is that the rhetoric of deficit reduction has virtually nothing to do with behavior.  So not only do Republicans talk more about deficits than Democrats, but the Democrats who talk about deficits the most -- the Blue Dogs -- tend to be less fiscally conservative than mainstream liberals, with the latter supporting ACA and Clinton's deficit reduction package much more than did the moderates.

My guess?  If Obama is reelected with solid Democratic majorities in Congress, and the economy is reasonably strong, there's a good chance that there will be a deficit reduction plan similar in spirit to the 1993 and 1990 packages, and it will pass without any Republican support.  There's also a good chance of further deficit-reducing health care reform, including the deficit-reducing public option.  On the other hand, if Republicans win back Congress and the White House in 2012, I expect cosmetic spending cuts along with significant tax cuts, yielding larger deficits (and I wouldn't bet heavily on net spending cuts).  As I've said before, I'm not advocating one way or another on this -- I'm not a deficit hawk, myself.  But it seems clear to me that the path to deficit reduction for those who do care about it is Democratic control, rather than hoping for a grand bargain that in effect asks pro-deficit Republicans to surrender to anti-deficit Democrats.


  1. Partisan deficit reduction did just happen. And you're right to give credit to the only party that has acted on (not just talked about) reducing the deficit in the last 20 years. (You should be working for the DCCC instead of blogging!)

    But I think what's underlying Chait's point is the idea that partisan deficit reduction is highly unlikely to happen again in the near- to medium-term future ... merely because it will be decades before the Dems have 60 votes in the Senate again.

    So, yes, voters need to know that the way to reduce the deficit is to elect more Democrats ... but the Dems getting 60 Senate votes again anytime soon? That's just as unrealistic as hoping for the Snowe/Collins/Brown crowd to back tax hikes against pressure from their party.

  2. Ah, but most deficit reduction has happened through reconciliation. And the public option can be done through reconciliation, also.

  3. Um, the 1993 package did not bring fiscal accounts into order. It was the Gingrich Congress which insisted on a budget deficit reduction through spending restraint, aided by three cuts in capital gains taxes in Clinton's second term.

  4. I don't know enough to judge whether Grabski or Bernstein is right about the 1993 deficit reduction package. This is a perfect example of what's wrong with our current discourse on public policy: everyone has their own facts. Help, anyone?

  5. I do have a bit of a quibble with this. Remember, by Clinton's own estimates, the budget was not going to balance nearly as quick as it did. One of the reasons the budget went surplus during the Clinton years was due to the tech boom during the late 90's. That expanded the economy in a way not predicted in the federal budget, and resulted in more taxed income that generated the extra $$$ that pushed the budget into the black.

    And what was one action that really helped the tech boom along? The decision by the congress and the President not to tax the budding tech industry to death.

    Remember too, that Gingrich wanted to cut more from the budget than Clinton did, which resulted in the government shut-down. So the policies of both sides contributed to the surplus. Of course, Gingrich, one of the true fiscal conservatives, soon after got ousted by a cabal of social conservatives that included Matt Salmon and Tom Delay. Unfortunately, the Social wing of the party will always overtake the fiscal wing, and though the FC's are making the noise right now, I expect nothing different from this upcoming election if Republicans win. Fiscal policy will take a back seat to social issues. I would love for them to prove me wrong, but I know they won't.

  6. Dick, it's both. But everyone is so consumed with trying to claim credit, that the contributions from both sides are clouded in rhetoric and political posturing.

  7. There is a lot of rhetorical playing-around with labels going on here, all of which depend on the basic error of conflating a general absence of deficits with fiscal conservatism.

    First off, to call Reagan "fiscally liberal" on account of the deficits he permitted is a vast oversimplification. The Reagan presidency was preceded by more or less a lost decade economically speaking. Tax policy, interest rates, inflation, wage and price controls, over-regulation of industry, and other such government policies and economic factors were contributing to a deeply bad economic circumstance for the average American. Meanwhile, geopolitically, the US was confronting the failure of the policy of detente to contain Soviet ambition. President Reagan made a strategic calculation that the economic situation could be largely solved through temporarily high interest rates to combat inflation and permanently lower taxes and regulation to encourage economic expansion. Meanwhile by significantly raising military spending, he could force the Soviets into arms race they could not win. This policy was risky, and furthermore it was so contrary to the all the instincts of the then-Democratic congress, he simply could not achieve his goals of a repaired economy and a defeated Soviet Union while also slashing government spending, which would have been the only way to achieve balanced budgets under his policy. His policy was a success, however, and it did show that in that specific circumstance, running structural deficits would not necessarily prevent achievement of the goals he had established for his administration. And the policies Reagan established early in his presidency ultimately led to a nearly 9 year period of unbroken economic growth, plus an almost 30 year period without a historically significant recession.

    One could of course blame these policies for sowing the seeds of the current recession. But I think in all fairness one would then have to blame the Roosevelt-era economic policies for much of the economic problems America faced in the 1970s

    Furthermore, to call traditional "tax and spend" liberals fiscally conservative because they only agreed with deficits in times of national economic downturn is equally disingenuous. This would eventually mean that the most generous welfare state imaginable would be "fiscally conservative", so long as it taxed the population at confiscatory rates in order to achieve equivalence of receipts and expenditures. I think most Americans would agree that fiscal conservatism also relates in some way to the relative amount of GDP created by government vs. private enterprise.

    As a historical matter, it seems deficit hawks have been most satisfied under governments with mixed Republican Congress - Democratic Presidency. It is hard to talk in any very certain way about how the current Democratic party behaves in government with respect to deficits - they have only controlled both policy-making branches of government for 4 of the last 30 years.

    Finally, having a majority with less than 60 votes in the Senate shouldn't matter for the Democrats if they decide they want to tackle the deficit issue - it's a matter of budgets, and as we've all learned these past few months, budgets may be passed by the Senate under reconciliation rules. The 60-vote threshold is not pertinent.

  8. Grabski (and others),

    A quick google check didn't give me anything really worthwhile, although I'll link below to a convenient graph of deficits. My general sense of things is that both the Bush (1990) and Clinton (1993) plans made very significant dents in the deficit; that the Gingrich/Dole/Clinton compromise of 1995 had a smaller contribution (but did contribute), and that the stock market bubble had a significant contribution. The deficit, as the graph shows, was largely wiped out by FY 1997, before the extreme bubble in the stock market (and presumably before much of the 1995 deal had actually affected things, although I'm working from memory, there).

    A couple of other things about 1995. I don't think it's correct to call Newt a true fiscal conservative. It is true that the GOP pushed for faster deficit reduction in their showdown with Clinton, but it's also true that they insisted on tax cuts as part of guess is that Newt and the rest of the GOP would have acted like they did in 2001 had they not had Clinton to deal with. It's also worth mentioning that Newt was the leader in opposing the 1990 deficit-cutting deal. To me, that adds up to someone who was more an opportunist that a fiscal conservative, but I suppose there's evidence both ways. The other thing about 1995 is that the biggest success from that (IIRC) was paygo, which was eliminated by the GOP when they had the chance, and reinstated by the Dems. Again, that points to the Dems, not the GOP, as the party that prefers small deficits.

    Here's the link:

  9. Evan,

    "Fiscal conservative," if it means anything, means balancing budgets. Again, I'm not a deficit hawk, so I don't have any dog in this fight...but to say that Reagan chose other goals as a priority over small deficits is to say that he was not a fiscal conservative. That's not an "error" -- that's the meaning of the term. That's why, until 1980, Republicans were the party of tax hikes and Dems were the party of tax cuts, because Republicans back then really were fiscal conservatives. As I said, that was still partially true in the 1980s (with the Baker/Dole/Domenici Senate), but it's mostly gone now.

    As for the rest of it...well, I'm not going to fight a full war over Reagan's policies in comments, but I will mention that Reagan did, in fact, support significant spending cuts in 1981, although he also continued the Carter military buildup. Beyond's more than a little odd to give Reagan, who actually did preside over a terrible recession, credit for the lack of terrible recessions under the next several presidents, and even more odd to only pay attention to the Reagan tax cuts in 1981, and not the Reagan tax increases over the rest of his term.


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