Push back on budget deficits

Right after the 2016 elections, I observed that the combination of Donald Trump’s rise and continuing GOP strength across the landscape of American politics had yielded three distinct Republican parties: a populist and personality-driven White House party, a more traditionally conservative but often ineffective Capitol Hill party, and a grassroots party of results-oriented governors, legislators, and other politicians and policymakers who have amassed an impressive record of conservative reform at the state and local levels, including right here in North Carolina.

I think this remains a useful model for interpreting the political and policy developments of the past two years.

When the White House and Capitol Hill parties have been in alignment, on such issues as tax reform and judicial appointments, the result has been conservative victories. And to the extent Washington Republicans have either stayed out of the way or actively cooperated with the grassroots, states have moved forward — on welfare reform for example. On the other hand, when the various factions have been out of alignment, on such issues as trade and foreign policy, the results have alternated between calamity and chaos.

There is one big exception to my model: federal spending. Unfortunately, all three Republican factions appear to agree that the issue isn’t particularly important.

Tax reform was enacted without significant budget savings to offset the fiscal impact. Neither Congress nor the administration has proposed a serious budget to bring expenditures in line with projected revenues. Irresponsibly, President Trump has said that reforming entitlements, which constitute most of federal spending, is off the table. Also irresponsibly, Congressional Republicans haven’t really argued the point. For their part, Republican governors and legislators have irresponsibly chosen not to push Washington on fiscal restraint but instead to seek and spend more borrowed federal money — on Medicaid, education, roads, and other programs.

This is all foolishness. It is bad governance and even worse politics. Remember the Tea Party rallies of 2009 and 2010? Protesters were outraged about annual federal deficits approaching and then exceeding $1 trillion a year. They properly blamed presidents and lawmakers of both parties.

Just a few days ago, the Trump administration released its mid-year budget adjustments. The federal deficit is now expected to reach $890 billion, or 4.4 percent of gross domestic product, by the end of the 2018 fiscal year. Next year, the deficit will rise to $1.085 trillion, or 5.1 percent of GDP, and then stay above the trillion-dollar mark for at least two more years.

Recent spending increases and tax cuts help to explain the short-term trend, but the truth is that Washington’s finances would be in shambles without them. Social Security, Medicare, Medicaid, and other entitlements were growing faster than the revenue needed to finance them even before the 2017 tax cuts.

Long-term forecasts of rapidly declining deficits as a share of GDP are unrealistic. They assume no significant economic downturn, and that vague promises of future (but not current) spending restraint will actually be kept. Congress and the Trump administration need to take concrete steps now to bring the federal budget into balance within years, not decades.

You’ve heard that before, I’ll wager, but given my usual focus on state rather than federal affairs, I’ll add this less-familiar observation: state politicians have a critical role to play in addressing the issue. Did you know that federal funds make up nearly a third of North Carolina’s total state budget? In other states, the proportion is larger than that.

State policymakers should resist the urge to treat “Washington” as a cash machine. It has no money to spit out unless it first taxes us or borrows against future tax hikes. Rather than playing along with fiscal delusions, state leaders should pledge to support some kind of structural constraint on federal deficits, such as a balanced-budget amendment, and in the meantime learn to say no to offers of “free” federal money — which includes, yes, the idea of expanding Medicaid in its current form.

It’s time the grassroots party picked a fight.

John Hood (@JohnHoodNC) is chairman of the John Locke Foundation and appears on “NC SPIN,” broadcast statewide Fridays at 7:30p and Sundays at 12:30p on UNC-TV.

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