(Bloomberg Opinion) -- When Republicans passed the Tax Cuts and Jobs Act, they knew it was projected to add $1.5 trillion to budget deficits over the next 10 years. They did it anyway.
Many Democrats pointed out the hypocrisy of the GOP embracing budget deficits after purporting to decry them for so many years under President Barack Obama. Others warned that driving up the deficit was all part of a calculated plan to cut Social Security, Medicare and Medicaid.
How are the Republicans trying to carry out that plan? Basically, by creating the fiscal equivalent of the migrant caravan.
After voting for the tax legislation, Arkansas Republican Steve Womack, chairman of the House Budget Committee, sounded the fiscal alarm. “The time is now for Congress to step up and confront the biggest challenge to our society,” he said. “There is not a bigger enemy on the domestic side than the debt and deficits.”
It does no good to remind Republicans that their tax cuts added trillions to future debt and deficits (nor does it matter all that much). They’re not having any of that. As Senate Majority Leader Mitch McConnell explained to Bloomberg last month, “It’s disappointing, but it’s not a Republican problem.” Entitlements, he said, are “the real drivers of the debt,” and the only way to deal with the looming crisis is “to adjust those programs to the demographics of America in the future.”
Ratcheting up the threat level is national security adviser John Bolton, who recently warned that entitlements are pushing the debt to unsustainable levels, where we will ultimately face “a national security consequence.”
Yes, Republicans want us to believe that entitlements — like the caravan of Central Americans headed toward the U.S. — are a creeping threat to our national security.
In the case of the caravan, most Democrats vigorously rejected the narrative. They called it out for what it was — a political stunt designed to garner support for military action to defend the border from a manufactured threat. When Republicans make the case for cutting entitlements in the name of defending our nation from fiscal ruin, Democrats should respond with the same skepticism. The whole thing is a hoax.
The problem is that instead of countering the Republican narrative with unassailable facts, Democrats are helping to cement the idea that there is a fiscal caravan.
By telling voters that Republicans want to cut Social Security, Medicare and Medicaid to “pay for” their tax cuts, Democrats are unwittingly lending credibility to the idea that cutting entitlements is one way to escape a fiscal dilemma.
Here’s what they should be saying instead.
First, there is no long-run fiscal crisis — the Republicans are making it up. They rely on the Congressional Budget Office’s long-term budget outlook to create the caravan effect. By focusing on the blue line in the chart below, Republicans claim that programs like Social Security and Medicare have us on an unsustainable trajectory.
As Stephen Goss, the chief actuary of the Social Security Administration, has shown, the blue line assumes that the federal government will begin borrowing to cover shortfalls once the trust funds for Social Security and Medicare Part A are depleted. There’s just one problem — it can’t happen under current law.
Under the law, “because there is no borrowing authority, there is really a hard stop,” said Goss. That means that the blue line is really a red herring. According to Goss, the black line paints the more accurate fiscal trajectory.
Henry Aaron, senior fellow at the Brookings Institution, agrees:
If one excludes deficits in Social Security and Medicare Hospital Insurance that cannot occur under current law and established policy, the ratio of national debt to gross domestic product will fall, not rise, as CBO budget projections indicate. In other words, the claim that drastic cuts in government spending are necessary to avoid calamitous budget deficits is bogus.
The second fact Democrats should expose is even simpler and more powerful. To make it, all they have to do is repeat after Alan Greenspan.
The exchange, which took place in March 2005 at a House Budget Committee session, is a little wonky, so let me break it down. To try to get Greenspan, who was the Federal Reserve chairman at the time, to support privatizing Social Security, Republican Representative Paul Ryan begins by describing the program as insecure. Danger — caravan — ahead!
Instead of agreeing with Ryan’s premise, Greenspan (under oath) rejects it outright. Here’s the critical part of the exchange:
Paul Ryan: “Do you believe that personal retirement accounts can help us achieve solvency for the system and make those future retiree benefits more secure?”
Alan Greenspan: “Well, I wouldn’t say that pay-as-you-go benefits are insecure, in the sense that there’s nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The question is, how do you set up a system which assures that the real assets are created which those benefits are employed to purchase.”
Greenspan made two critical observations. First, he explained that keeping promises to future beneficiaries is entirely a matter of political will. Unlike a household, Congress can never run out of money.
That means Congress can always decide to make up any shortfall once the trust funds are exhausted. They just need to modify their own law to make it possible. So the blue line could become a reality, but it can’t lead to a debt crisis.
Second, Greenspan tried to get us to focus on a potentially legitimate risk — inflation. He knew that as baby boomers leave the workforce and move into retirement, they’re leaving behind fewer and fewer workers to produce the goods and services that all of us will want to consume in the years and decades ahead. The number of workers per retiree is expected to drop to 2:1 by 2035, from 3:1 in 2015.
Greenspan knows Congress can always meet its financial obligation to future retirees, but he’s concerned about what those benefit checks will be able to purchase. If tomorrow’s workers aren’t productive enough, then we could end up with an inflation problem as seniors compete with workers for a dwindling supply of real goods and services.
Democrats should be challenging Republicans to support the kinds of policies that will boost future productivity and ensure an adequate supply of labor — investments in education, infrastructure, R&D and immigration reform. To do that, they have to stop getting pulled into a blame game with Republicans over the cause of the so-called fiscal crisis. That caravan is a hoax.
In my next column, I’ll discuss an issue that really does amount to an entitlement program, the interest on the federal debt, even though no one looks at it that way. Pundits are panicking over these costs, too. Are their fears justified — or overblown?
To contact the author of this story: Stephanie Kelton at firstname.lastname@example.org
To contact the editor responsible for this story: Katy Roberts at email@example.com
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Stephanie Kelton is a professor of public policy and economics at Stony Brook University. She was the Democrats' chief economist on the staff of the U.S. Senate Budget Committee and an economic adviser to the 2016 presidential campaign of Senator Bernie Sanders.
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