As some deficit hawks turn dove, the new politics of debt are on display
By Jeanna Smialek and Catie Edmondson
Over the past four years, President Donald Trump and his allies in Congress have all but obliterated the Republican Party’s self-professed commitment to less spending and smaller deficits, pushing policies that have bloated the federal budget deficit to record levels.
Even before the pandemic ravaged the economy, the deficit — the gap between what the United States spends and what it receives in taxes and other revenue — had ballooned, driven by a $1.5 trillion tax cut and more generous government spending. Then Congress adopted two stimulus packages totaling more than $3 trillion, which will be financed with borrowed money. U.S. debt has grown so much that in 2020 it was projected to surpass the size of the entire annual economy for the first time since World War II.
That spending — which some see as largesse, but many characterize as, in part, a needed response to a dire crisis — has upended the politics of what was once a bipartisan concern, leaving Washington’s fiscal hawks in an increasingly lonely corner in the economic debate.
“Since I arrived in Congress in 2011, federal debt has almost doubled,” Sen. Ron Johnson, R-Wis., wrote in a recent opinion piece for USA Today, adding that the latest stimulus bill would push it over $29 trillion. “Unfortunately, few in Congress seem to care.”
The Republican embrace of deficit spending hit a wall with the party’s leadership this past week, as Sen. Mitch McConnell of Kentucky, the majority leader, rebuffed Trump’s demand to quickly increase the size of stimulus checks to $2,000 from $600. That decision drew scorn from some in his own party, with Sen. Josh Hawley of Missouri upbraiding Republicans for denying struggling workers additional relief.
“I hear a lot of talking about how we can’t afford it,” Hawley said on the Senate floor on Friday. “I do notice, however, that we seem to be able to afford all kinds of other stuff. We can afford to send lots of money to other governments. We can afford to send all kinds of tax breaks and bailouts to big corporations. But we can’t seem to find the money for relief for working people that the president and the House and the Senate all support.”
The split in the party offers a hint of the landscape that awaits President-elect Joe Biden, whose agenda will require Congress to agree to more spending. Biden is expected to push for another stimulus package once he takes office and has listed other priorities, including investments in infrastructure, health care and climate change, all of which require government money.
Come Jan. 20, Republican lawmakers are all but certain to cast themselves as the nation’s fiscal stewards and resurrect their deficit concerns to oppose policies backed by Democrats. For months, they have pointed to worries over government debt to argue against Democrats’ demands for a second trillion-dollar-plus stimulus package, ultimately aligning on a $900 billion bill.
They will be reviving those deficit concerns after a historic spending spree by a Republican president whose promises to help struggling farmers, manufacturers and workers have proved hugely popular with voters and reinforced a shift in thinking about the costs and benefits of federal deficits.
Just 47% of U.S. adults called the deficit “a very big problem” in a Pew Research Center survey conducted this summer, down from 55% in the fall of 2018, a decline that came even as the annual deficit had grown by trillions. And spending money is popular: Polls have found support for larger stimulus checks, and throughout the past year, the public has gotten behind generous government relief.
“The deficit argument is often put in theoretical, high-level terms,” said Ernie Tedeschi, a policy economist at Evercore ISI. “The effects of a spending policy are tangible.”
Some Republican lawmakers, especially those said to be considering presidential runs in 2024, have in recent months positioned themselves to pick up Trump’s baton in certain areas. Sen. Marco Rubio of Florida and Hawley both came out in favor of sending $2,000 stimulus checks to Americans, and Rubio championed a program that disbursed more than $500 billion in forgivable loans to small businesses affected by the pandemic.
There is also a theoretical basis to the political shift. Even before the pandemic, many economists had begun to rethink their long-held view that large public deficits and debt would bog down the economy by pushing up borrowing costs for businesses and sending consumer prices soaring. A decade of relatively low interest rates and steady economic growth had prompted many economists to suggest that the United States could, indeed, afford to run a budget deficit.
The cost of debt “is substantially smaller than the current consensus,” Olivier Blanchard, a senior fellow at the Peterson Institute for International Economics and the former chief economist at the International Monetary Fund, said at a closely watched lecture in January 2019. “The implication of this is that in the future, we should probably revisit the fiscal rules that we are using.”
That changing calculus was driven by the fact that interest rates across developed economies have dropped, thanks to long-run trends including populations that are aging and save more, increasing the supply of money available for lending.
In fact, the Fed cut interest rates to near zero as the pandemic took hold in March, and has made clear that it is unlikely to lift them anytime soon. The result is that it is historically cheap for the United States to borrow money.
And while running big deficits might have once stoked fears about inflation — as too many dollars chased too few goods — price gains have been too low for comfort for years. Add to that the emergency needs prompted by the pandemic, and even the Fed’s leader, who had long warned about the nation’s debt load, has said this is a reasonable time to spend money.
“As a general rule, it is important to be on a sustainable fiscal path,” the Fed chair, Jerome H. Powell, a Republican, said at a news conference last month. “From my way of thinking and many others’, the time to focus on that is when the economy is strong and when unemployment is low, and taxes are, you know, are pouring in.”
The political rethinking about the deficit — especially in times of economic weakness — is a stark change from earlier eras. In the 1990s, President Bill Clinton highlighted his success in cutting the deficit and creating a budget surplus as a political achievement for Democrats.
Concerns about excessive federal spending and the national debt also helped fuel the ascent of the Tea Party in the late 2000s, giving rise to a new breed of Republican who succeeded in ushering in austere spending caps that continued to bedevil lawmakers. But after 2014, Republicans have joined Democrats in waiving those caps, and a bipartisan, bicameral deal struck in 2019 ensures their expiration this year.
But even as some economists and politicians become more comfortable with high public debt levels, others warn that they could create vulnerabilities down the road. If interest rates increase, it could cost the government more to keep up with those payments each year — either leaving less for other types of spending or requiring Congress to pile on an ever-growing debt load to keep up.
Republicans have often worried out loud about the deficit while passing policies that will have the effect of expanding it. For instance, tax cuts that cleared Congress earlier in Trump’s administration were expected to increase the deficit by $1.9 trillion in the decade through 2028, based on a Congressional Budget Office analysis.
But the party has generally invoked fiscal responsibility to block bigger spending programs.
“Republicans are happy to run up the deficit to cut taxes, but not happy to run up the deficit to spend more,” said Michael Strain, the director of economic policy studies at the American Enterprise Institute.
That position was undercut somewhat this past week, as five Republican senators and 44 Republican members of the House backed a plan to send bigger stimulus checks to constituents. That included the two Republican senators locked in tight runoff races in Georgia, who ditched their long-held deficit concerns to back Trump’s call for $2,000 payments.
In August, one of the senators, David Perdue, told “PBS NewsHour” that he was opposed to direct payments, arguing that tax incentives were a more effective means of relief. On Tuesday, he threw his support behind the checks.
“I’m delighted to support the president in this $2,000,” Perdue said on the Fox News program “America’s Newsroom.”
Other Republicans have nodded to the fiscal impact of spending more money, but called for it anyway.
“I am concerned about the debt, but working families have been hurt badly by the pandemic,” Rubio wrote on Twitter.
Tedeschi said there was a chance that the Republican embrace of more spending could outlast Trump’s tenure.
“There is an element of the Republican Party that is going to have a different lens on debt than had been the case before Trump, even after Trump is gone,” he said. And as the pandemic drags on, even people who would oppose spending in normal times may see it as justified given the conditions. Many deficit hawks supported the $2.2 trillion relief package that passed in March when the need was especially obvious.
“What is unclear right now is how this shift in Republican thinking translates into longer-term policymaking,” Tedeschi added.
Based on recent events, that shift does not seem to be gaining traction with top Republican leaders.
McConnell, ignoring the concerns of those in his own party, blasted Democrats for trying to rush “borrowed money” out the door.
“Borrowing from our grandkids to do socialism for rich people is a terrible way to get help to families who actually need it,” McConnell said Thursday.
And Rep. Kevin Brady of Texas, the top Republican on the Ways and Means Committee and a self-identified fiscal hawk, condemned the push to increase the size of stimulus checks, arguing Monday that it would do little to stimulate the economy.
That line of thinking drew a quick rebuke from the top Democrat in the Senate, who said Republicans cared about the deficit only when it was politically convenient.
“By now, Republican objections over the debt and deficit are comical. They added nearly $2 trillion to the debt for a massive tax cut for corporations and the wealthy — and that was during a steady economy,” Sen. Chuck Schumer of New York, the minority leader, said Thursday.
“Just as a Democratic president is about to take office,” he added, “all of the sudden the deficit-scolds are back.”