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Senate Democrats Absurdly Blame Entire Budget Deficit on “Republican Policies” in New Report

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Senate Democrats Absurdly Blame Entire Budget Deficit on “Republican Policies” in New Report

October 19, 2018

This week, the Democrats on the Senate Budget Committee released a ludicrous taxpayer-funded “study” that attempts to prove that the entire budget deficit is the fault of Republicans. The report uses a hyper partisan methodology that essentially rigs the results.

The study’s argument is as follows: Since 2000, defense spending has risen $205 billion above inflation, and tax cuts have shaved $546 billion from annual tax revenues. Add in $183 billion in resulting interest costs, and you get a $935 billion annual tab that exceeds the current $779 billion budget deficit. Therefore, in the study’s words, “Republican policies caused the 2018 budget deficit.”

But the facts present a different picture. During the same period, non-defense discretionary spending also rose by $208 billion above inflation, and entitlement spending jumped by a staggering $1,206 billion above inflation. Adding in interest costs brings this tab well past $1.5 trillion.

But the report excludes those latter spending increases from its budget deficit calculations. Why? Apparently because Democrats support those programs. Only the costs of “Republican policies” count when adding up the budget deficit.

Pick any part of the budget that is collectively larger than the $779 billion budget deficit, and it can be identified as the sole “cause” of the budget deficit.

Anyone can play this game. It’s true that had Republicans never initiated tax cuts over the past 40 years, today’s budget would likely be in surplus. It’s also true that had Democrats never led the creation and expansion of Medicare, Medicaid, and other social programs, today’s budget would be in surplus. Pick any part of the budget that is collectively larger than the $779 billion budget deficit, and it can be identified as the sole “cause” of the budget deficit.

Which is why such an approach is not a serious methodological framework.

Typically, when economists and policymakers measure what is causing the deficit, they examine long-term spending and tax changes as a percentage of the Gross Domestic Product (GDP). Since 2000, CBO data shows that federal spending has risen by 3.0 percent of GDP, as follows:

·      Entitlement spending rose by 3.3 percent of GDP;

·      Defense discretionary spending rose by 0.2 percent of GDP;

·      Non-defense discretionary spending rose by 0.2 percent of GDP; and

·      Net interest costs fell by 0.7 percent of GDP (due to low interest rates).

Yet the report’s deficit diagnosis counts only the defense spending—and it measures spending growth not as a percentage of GDP, but against a series of inconsistent and baffling baselines.

The position of the Senate Democrats—as explained by one of the report’s authors on Twitter—is that only spending above the CBO budget baseline counts as contributing to budget deficits. So even if the budget baseline shows that entitlement spending – left to grow on autopilot – would soar by 3.3 percent of GDP between 2000 and 2018, that spending is deemed “free” simply because it grew automatically with only occasional Congressional renewals. This makes no sense. If entitlement spending rises, then so does the budget deficit (except in the rare occurrence where there is an equal taxing mechanism). Whether or not the spending growth occurred automatically within the baseline, or was initiated by Congressional legislation, is irrelevant to that mathematical fact.

Actually, Senate Democrats go even further than their own stated standard. Since 2000, Congress has actively created several new entitlement programs and expanded existing ones. This has pushed entitlement spending above the CBO baseline levels. Yet these new entitlements are excluded from their deficit calculations as well.

So if new entitlement costs totaling 3.3 percent of GDP did not contribute to the budget deficit, then what did? Apparently, the deficit was instead caused in part by the Republican refusal to cut defense spending down to European levels in order to accommodate these swelling entitlement costs.

Yes, defense spending rose by just 0.2 percent of GDP since 2000. But Senate Democrats assert that that defense spending should have been cut by 0.8 percent of GDP instead. Therefore, defense spending ended up a full 1.0 percent of GDP above their preferred outcome – and is thus classified in the report as adding 1.0 percent of GDP to the deficit. By that twisted logic, if Democrats refuse a Republican request to slash taxes by $5 trillion, that means Democrats just raised taxes by $5 trillion.

The report’s authors defend the baseline assumption of a 0.8 percent decline in defense spending by once again asserting that it reflects the CBO budget baseline, and thus serves as the anchor from which to measure the effect on the budget deficit. Setting aside the aforementioned illogic of that approach, the CBO baseline rules would not show a 0.8 percent decline in defense spending over this period. The CBO long-term baseline projects that defense spending can decline as a percentage of GDP for only ten years – usually by about 0.4 percent of GDP – and then level off. Senate Democrats created a fictional baseline whereby defense spending continues falling for all 18 years, by 0.8 percent of GDP. That gimmick allowed them to portray the actual 0.2 percent of GDP spending increase as a relative spending spree.

By the way, the CBO budget baseline for defense spending is not intended to guide America’s defense policy. It is nothing more than a placeholder formula that assumes this spending will grow by the inflation rate for the first decade, and then accelerate to match the growth of the economy thereafter. And the Senate Democrats’ target of a 0.8 percent of GDP decline between 2000 and 2018 is even more absurd considering that: A) defense spending in 2000 was already at its lowest share of the GDP since the 1930s, and B) these additional cuts, down to nearly European levels, would have begun almost immediately following the 9/11 attacks.

Furthermore, the Senate Democrats once again apply totally different baseline rules to categories of spending they do and do not support. Both defense and non-defense discretionary spending grew by 0.2 percent of GDP between 2000 and 2018—and the CBO is required by law to measure both spending categories with the exact same baseline rules. Yet, in the Democrats’ report, defense spending is counted as contributing 1.0 percent of GDP to the deficit, and the non-defense discretionary spending is completely excluded from their deficit calculations.

There is no intellectually honest argument for this double standard. The only standard seems to be that conservative policies count toward deficit calculations but liberal policies do not.

Senate Democrats are on firmer ground classifying tax cuts as deficit-raisers. Although it is worth noting that without any tax relief, real bracket creep would have pushed tax revenues (as a share of GDP) to the highest sustained level in American history. Some (not all) of the tax cuts merely cancelled out this real bracket creep and kept effective tax rates steady.

But overall, it is dishonest to assert that a 0.2 percent of GDP defense increase is driving the deficit, but 3.5 percent of GDP in new spending for entitlements and non-defense discretionary spending is not.

The report’s problems go beyond measurement. It also blames Republicans for the costs of bipartisan and even Democratic legislation.

For example, the effort to paint all defense spending as purely “Republican policy” strains credulity. The authorization of military force after the 9/11 attacks—including the war in Afghanistan—received the vote of nearly every Congressional Democrat. The war in Iraq also initially received significant Democrat support. The Iraq surge received crucial funding support from the House Democratic majority in 2007 and 2008, and the later Afghanistan surge was designed by President Obama. Categorizing all post-9/11 defense spending as Republican policy would surprise Senate Democrats like Tim Kaine, who is currently running television ads taking credit for much of it.

Today’s budget deficit is driven by entitlement spending decisions made long ago, and tax and discretionary spending decisions made more recently

Similarly, nearly all post-2000 tax relief is classified in the report as a “Republican policy.” This includes low-income expansions of the earned income tax credit (EITC) and the child credit strongly endorsed by Democrats. It includes middle-class tax cut extensions aggressively backed by President Obama. It includes patches to the Alternative Minimum Tax, which enjoyed strong bipartisan support since the 1990s. Finally, the report inexplicably includes as “Republican policy” certain tax provisions enacted almost unanimously by Democrats as part of the large 2009 stimulus bill.

The report also misleads on small details. It states that: “President George W. Bush came into office promising that his proposed tax cuts would, according to the Heritage Foundation, effectively pay off the national debt by 2011.” Yet the Democrats’ Senate Budget Committee report provides no source documenting that President Bush promised any such thing, and the Heritage Foundation report in question never asserted that the tax cuts would pay for themselves. Rather, it pointed out that the massive $5.6 trillion ten-year surplus projected by the CBO would be large enough to leave room for a $1.1 trillion tax cut and still pay off the national debt. Heritage’s assessment of the tax cuts was largely correct; it was the CBO’s $5.6 trillion baseline surplus projection that proved disastrously wrong.

Similarly, the report asserts that the 2017 tax cuts “are projected to add $1.9 trillion to the debt over 11 years, and provide more than 83 percent of their benefits to the top 1 percent.” A normal reading of this sentence suggests that, over the aforementioned 11 years, 83 percent of the tax cuts’ benefits will go to the top one percent. Yet the source the Democrats cite to bolster their claim clearly shows that less than 30 percent of the benefits will go to the top one percent over that 11-year period. The 83 percent figure applies to only one year (2027), when the bulk of the policy is not even in effect. The Democrats admit in the endnotes that the figure is for 2027 only, yet choose to omit that crucial clarification in the body of the paper that will be seen by more readers.

Altogether, these errors, omissions, double-standards, and methodological shortcomings suggest an openly partisan agenda. Today’s budget deficit is driven by entitlement spending decisions made long ago, and tax and discretionary spending decisions made more recently. Both Republicans and Democrats deserve a healthy share of the blame for the deficit, and taxpayers deserve an even-handed diagnosis of the policies driving the red ink.

Brian Riedl is a senior fellow at the Manhattan Institute and a member of E21. Follow him on twitter here.

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