Barbarians in the House

By ceding control to a group of radicals in the House of Representatives, Speaker Kevin McCarthy (R-CA) has set the stage for a dangerous standoff on raising the U.S. government’s debt ceiling.  McCarthy has allowed the lunatics to take over the asylum, and they can inflict a lot of damage on the U.S. economy.      

Why is the debt ceiling important? 

Since the U.S. government is running deficits, it needs to keep issuing debt so it can pay its current obligations.  Under an archaic law, Congress has to raise the debt ceiling on a regular basis, so the U.S. Treasury can issue more debt.  Otherwise, the government cannot honor its existing obligations, like paying for Social Security and Medicare benefits, salaries of government employees (including the armed forces), interest on the Federal debt, etc.   

Heading Toward a Cliff

The ultra-MAGA House Republicans have vowed not to raise the debt ceiling, in order to force the Biden administration to slash expenditures on Social Security and Medicare.  They have changed the House rules to make it very difficult to raise the debt ceiling or increase spending on those programs. 

But President Joe Biden and Democratic leaders in Congress have ruled out cutting Social Security or Medicare payments.  They are not bluffing. Democrats fervently support these programs, and they would alienate their followers if they cut them.

The U.S. Treasury is rapidly approaching the debt limit of about $31 trillion.  If the far-right Republicans carry out their threat, the government could run out of cash and default on its debt sometime this summer. That would wreak havoc on the U.S. economy…and harm tens of millions of Americans who depend on Federal benefit programs to buy food, pay rent and get medical care.   

This Time Is Different

Republicans have used the debt ceiling as leverage four times over the last 25 years, in their drive to reduce government spending and curb deficits.  Those episodes were damaging to the U.S. economy and ordinary Americans, but eventually Republicans backed down in the face of public outrage and meltdowns on Wall Street. 

Still, during one particularly prolonged standoff, in 2011, the Standard & Poor’s rating agency downgraded the United States from AAA. In that battle, Republicans forced President Barack Obama to accept steep budget cuts, which hobbled the economy and led to a very slow recovery from the financial crisis of 2008-2010.

The danger now is that the current crop of “deficit hawks” includes extremists who don’t care if the government cannot function and who don’t seem to worry about the real-world consequences of their actions.    

Far-right publicity hounds such as Rep. Matt Gaetz (R-FL) and Rep. Lauren Boebert (R-CO) demonstrated their cavalier approach when they paralyzed the House for days, as they refused to elect McCarthy as Speaker.  They are not interested in passing laws or changing policy.  For them, politics is all about performing for the cameras and social media and jazzing up their base (followed by urgent fund-raising appeals based on the latest “outrage”). 

The Deficit and National Debt Are Too High

When conservatives complain about the increase in our deficit and national debt, they have a valid point.  Both have shot up in recent years, and the current trajectory is not sustainable.  However, Republicans have a bad case of amnesia when it comes to Donald Trump’s role in these matters.  In addition, the Republicans focus only on cutting expenditures, not raising revenues.   

Deficits are nothing new, unfortunately. The Federal government has operated in the red for most of the last 30 years.  In a “normal” year like 2015, the deficit was about $450 billion.   

Reps. Matt Gaetz and Lauren Boebert/Getty Images

Donald Trump, the Deficit King

Deficits exploded under President Donald Trump, because of his $1.7 trillion in tax cuts as well as higher spending.  In 2018 the Congressional Budget Office (CBO) estimated that the Trump tax cuts would increase the deficit by $2 trillion over the next 11 years, or close to $200 billion annually.  By 2019, Trump’s last year before Covid, the deficit had doubled to almost $1 trillion.  

But despite the rising tide of red ink, Republicans cheerfully raised the debt ceiling each year, so the Trump Administration could issue more debt to fill its funding gap.  Under President Trump, the national debt rose by $3 trillion (16%) in just three years, before Covid struck.    

Covid Boosted Deficits

The deficit skyrocketed to even greater heights as President Trump, and then President Joe Biden, sought massive relief packages to help individuals and businesses cope with the Covid crisis.  Those programs helped the U.S. to avoid a sharp recession and a humanitarian crisis.  

As pandemic-related spending wound down, the deficit dropped sharply in 2022, to $1.4 trillion from over $3 trillion.  That’s good progress, but a far cry from the $400 billion-ish deficits of the “before times”. 

The ratio of Federal debt to gross national product has risen to about 100% because of the deficits.   Eventually, that level of debt will depress economic growth.  But slashing core safety-net programs is not the best or the only way to address this issue. 

Republicans Have Gone Bonkers On Taxes

Republicans’ solutions for reducing the deficit are impractical, because they look at only one side of the equation: government expenditures. They refuse to consider any reasonable attempts to raise tax revenues. In fact, some House Republicans want to eliminate all Federal income taxes.  They will vote soon on the “Fair Tax Act”, which would abolish the Internal Revenue Service. 

This lunacy is not limited to a fringe group of backbenchers. The first bill that the Republican leadership introduced in January would defund an $80 billion appropriation for the IRS that Congress passed last year.  The funds would let the IRS modernize its technology and hire 87,000 staffers, so it could improve its customer service and increase audits, which have fallen sharply.   

Addressing A $7 Trillion Tax Gap

The Biden Administration has said that the IRS overhaul is needed to narrow a $7 trillion tax gap over the next 10 years.  These are payments that individuals and companies owe but will not be collected. That’s because the IRS’ resources have been stretched so thin, due to repeated budget cuts.  

If the IRS recovered just 25% of the tax gap, the government would gain $1.7 trillion in revenues over 10 years.  That seems like a good return on an $80 billion investment, and it would certainly help to reduce the deficit.  Conversely, the CBO estimated that depriving the IRS of the $80 billion would increase the deficit by $114 billion each year. 

But Republicans don’t care. Instead, as Speaker McCarthy introduced the bill to repeal the IRS funding, he thundered, “We believe that the government should work for the people, not go after them!”   

But why shouldn’t the IRS go after Americans who don’t pay their taxes?  And how can the government work for the people if it cannot collect taxes?

Furthermore, the Biden Administration has said that the IRS will not increase its audits of taxpayers earning less than $400,000.  After all, most Americans pay their taxes automatically, through salary deductions.  Instead, the $80 billion will help the IRS to pursue wealthy individuals who use dubious schemes to avoid paying their fair share.  Because of its budget constraints, the IRS audits 80% fewer millionaires than it did 10 years ago. 

Perhaps that is the oppressed group that the Republicans are protecting?    

Fighting Social Security…After 90 Years

It’s amazing that many Republicans in Congress still have not accepted the idea of Social Security, which was created 90 years ago, or Medicare, which was launched 60 years ago.  These politicians are still fighting against the New Deal and the Great Society.  It’s particularly astounding because these programs are very popular with voters, including most Republicans.  

Social Security and Medicare do consume huge chunks of the Federal budget.  Social Security costs $1.2 trillion (21% of Federal expenditures) and Medicare’s share is about $730 billion (12%).   One can understand why deficit hawks fantasize about slashing these programs.  There are huge potential “savings” in cutting them. 

Crucial Safety Nets

But here’s the rub:  Social Security and Medicare are popular because they are universal programs that help Americans of all classes and colors to live comfortably in their old age.  Before these programs were created, many older Americans lived in poverty, and they did not have much access to health care.   

Furthermore, many retirees depend on Social Security for most of their income.  Social Security also supports millions of disabled Americans and their dependent children. 

Here are a few key figures to show the scale of these programs:

·      66 million Americans receive Social Security payments

·      47 million of them are retired

·      21% of married couples, and 45% of single retirees, rely on Social Security for over 90% of their income

·      80 million Americans are covered by Medicare 

Republicans talk about eliminating “waste” from these programs.  But the average Social Security payment is about $19,000 a year.  For retirees who depend on Social Security for most of their income, how are they supposed to tighten their belts? 

The Solution:  More Revenue

Here’s a modest proposal for Republicans who really want to cut the deficit:  

·      Roll back the Trump tax cuts

·      Keep the $80 billion funding for the IRS

Based on the CBO’s figures, these two measures would reduce the annual deficit by over $300 billion...or more than 20%.   

For a true deficit hawk, this should be a no-brainer, right? 

The Wall Street Democrat