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Establishment Republicans Can No Longer Claim to Be Fiscal Conservatives

February 13, 2018 in Economics

By Ryan Bourne

Ryan Bourne

So much for US Republicans starving the government beast.

When the party’s major tax reform package passed in December,
Democrats worried that projections for a $1 trillion debt increase
over a decade would be used by Republicans to justify spending cuts
and reforms to old-age entitlements.

Instead, with a looming government shutdown, Republican and
Democrat leaders last week conspired to pass a budget-cap busting
spending package. This increased outlays by around $300bn over two
years — a rise that no doubt will become the new baseline

People decry a lack of bipartisanship in the US, but Congress
has shown that when you get a cross-party consensus, taxpayers

Under these plans, military spending would be raised by $80bn in
2018, and then $85bn in 2019. At Republicans’ request, the US
will have added around one-and-a-half times the UK defence budget
to its military spending its year.

Not only is the long-term
outlook unsustainable with untouchable entitlement growth, but the
country is now running up huge debts even in a strong and growing

And now we know what “working across the aisle”
really means — chucking money your opponents’ way.
Democrats pushed for matching increases in non-defence spending,
and eventually settled for an extra $63bn in 2018 and $68bn in
2019. This cross-party spending spree will result in a budget
deficit that Jeremy Corbyn would be proud of.

According to the Congressional Budget Office, the US was already
projected to run a deficit of 4.7 per cent in 2019 after the tax
cuts, up from 2.9 per cent in 2017.

Given reasonable economic assumptions, we are looking at the US
federal government now running deficits in excess of 5.6 per cent
of GDP, and then increasing further. All this comes, of course,
after a long period of sustained growth and with unemployment at a
16-year low of just 4.1 per cent.

This makes no economic sense from any school of thought.

In Keynesian terms, now is the time to fix the roof while the
sun is shining. Certainly, the deficit should be restrained to
levels necessary to get the debt-to-GDP ratio back on a downward

With monetary policy tightening, unemployment low, and most
forecasters estimating that the US is already growing above
potential, there is no case for any kind of “fiscal
stimulus” today.

It is utterly irresponsible from a pure public finance
perspective too.

The country’s burgeoning entitlement spending, which is
driven by an ageing population, means debt is forecast to increase
exponentially from here to the future absent reform to those

Even before the recent tax and spending changes, the
Congressional Budget Office thought debt held by the public would
rise from …read more

Source: OP-EDS

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