GOP Congress' Budget Hits Reality Hard

Commentary by John R. Graham

Source: Real Clear Policy

The Congressional Budget Office's recent budget update revealed a dramatic deterioration in the federal government's finances. The cumulative deficit over the next ten years, through 2025, is now estimated to add up to $8.5 trillion. Just last August, the number was $7 trillion.

The CBO itself notes that "about half of the $1.5 trillion increase stems from the effects of laws enacted since August." In other words, this is the work of the 114th Congress, in which Republicans hold the majority in both chambers for the first time in the Obama presidency.

Republican apologists assert that Congress' powers to shrink the government are limited as long as President Obama is in office. This is true. So, let's see where Congress can go from here.

First, the increase in the deficit is almost entirely due to lower tax revenues, not increased spending. In this respect, the Republican-majority Congress has held the line. The federal government will spend about $48.9 trillion over the next ten years and take in about $40.4 trillion in revenues.

However, there is a lot of gimmickry written into the recent tax cuts — revenue will probably be even lower than the CBO's baseline scenario suggests. (Fortunately, the CBO also estimates alternative scenarios that include these more realistic prospects.) Many of the tax breaks last only one or two years, and as a result, they have little impact on the ten-year period. However, in reality, these tax breaks tend to be repeatedly extended.

For example, Congress imposed moratoria on three Obamacare taxes: an excise fee on health insurance, an excise tax on medical devices, and the so-called "Cadillac" tax on expensive employer-based health plans. According to the letter of the law, these three moratoria will add about $40 billion to the deficit. However, if these taxes are deferred through 2025, the cumulative deficit will grow another $239 billion.

So, the question is: Will the Republican-majority Congress follow its tax cuts with spending cuts? Last April, it signaled it would, via a budget resolution passed by both the House and the Senate. Congress had not passed a budget resolution in many years, so this was an important step.

The budget resolution does not actually control any spending. But the CBO has concluded that if the resolution's provisions were enacted as legislation, they would reduce the deficit by roughly $5 trillion through 2025 relative to the current-law baseline. Importantly, the fiscal improvement would come almost entirely from cutting spending.

The budget resolution itself was overshadowed by its focus on defining so-called "reconciliation" language for the repeal of Obamacare.

The result of that language was a bill passed in December that would have repealed Obamacare if the president had signed it. Republican leadership signaled this was a big win, even holding an "enrollment ceremony" at which Speaker Ryan signed the bill in quasi-presidential fashion.

CBO estimated that Obamacare repeal would reduce the deficit by roughly half a trillion dollars over the next ten years. Almost half that improvement is due to economic growth that would increase tax revenues. This would certainly be a positive development. However, even if it won the president's signature, the repeal of Obamacare would achieve less than 10 percent of the cumulative deficit reduction targeted in the budget resolution.

The Republican majority in Congress has shown it can cut taxes. Whether it can cut spending in line with its promises will have to wait until the next president takes office.