With The GOP’s Plans For Tax Cuts 2.0, Hope For Fiscal Responsibility Dwindles
As the race toward the 2018 midterm election heats up, House Republicans are formulating another tax cut bill, according to a Reuters report from July 16.
House Tax Committee Chairman Kevin Brady says his panel and the Trump administration are considering making the recent individual tax cut permanent. Currently, the controversial $1.1 trillion tax cuts expire in 2025.
Rep. Brady expects the House to vote on the measure in September, before the November 6 elections. If that happens, it is likely tax cuts will be a political rallying cry among Republicans up for reelection. Focusing on tax cuts could unify a right-wing voter base currently divided over President Donald Trump’s controversial immigration and foreign policy strategies.
But Republican voters should not be duped. Lower tax rates do not translate to fiscal responsibility, and in fact, recent Republican fiscal policy is far more Keynesian than conservative. Truly conservative voters will be left behind if the GOP does not change course.
Shortly after he won his first term less than 10 years ago, President Obama passed an $825 billion fiscal stimulus package. Obama claimed this expansionary fiscal policy was necessary to kickstart the economy after the Great Recession, but Republicans pushed against the bill.
For GOP members, such deficit financing was merely a “sugar high” and undermined all efforts to balance the budget and bring down the United States’ then-record debt. Lest Republicans forget, the Obama stimulus package included $275 billion in tax cuts and other forms of relief.
Obama’s fiscal policy was the classic Keynesian fiscal approach that has characterized Democratic fiscal policy since President Franklin D. Roosevelt’s unprecedented Depression-era spending.
During economic downturns, according to the Keynesian philosophy, governments should cut taxes and spend beyond their revenues to drive aggregate consumption and restore public confidence in the economy. The anti-Obama Republicans drew upon the anti-Keynesian economic philosophy of Friedrich Hayek, who advocated for fiscal austerity and argued that government intervention can prolong economic crises.
It doesn’t take an economist to realize that current GOP fiscal policy is closer to progressive Keynesianism than conservative Hayekianism. Republicans recently passed a $1.3 trillion spending bill, which will help inflate the deficit to over a trillion dollars by next year.
Aside from the deficits in Obama’s first term, this year’s deficit is the highest ever. Contributing to the skyrocketing deficit is hundreds of billions of dollars in increased non-defense federal spending, a political move hardly any GOP members would have endorsed just a few years ago.
When budget deficits soared in the past, the reasons were usually reactionary. FDR passed his first stimulus bill in an attempt to end the Great Depression. George W. Bush ended an era of balanced budgets only after the 9/11 attacks. Obama tried to halt one of the most severe recessions in American history with his stimulus bill.
President Trump, on the other hand, inherited a healthy economy; in the last 45 years, only George W. Bush began a presidency with a stronger economy.
Consistent Keynesian economists dictate times of prosperity call for fiscal austerity so the government can afford a stimulus when the economic tides turn. Incumbent Republicans had no economically sound reason to pass their stimulus. The only available gains are political — if Republican voters also forget about their value for fiscal responsibility.
Expansionary fiscal policy is happening in the most unlikely of circumstances: under a Republican president, a Republican Senate, a Republican House and during a period of robust economic growth. If Americans can let the deficit grow now, it is difficult to imagine fiscal responsibility being a political talking point anytime soon.
As economist and economic historian Robert Higgs found, national governments rarely recede back to their original size after an expansionary period.
Indeed, Democrats indicate they are unlikely to become the fiscally responsible party. “After the tax cut,” says Senator Brian Schatz of Hawaii, “there’s almost no enthusiasm for worrying about how to pay for new proposals.”
But fiscal irresponsibility can’t continue forever. Several government programs, including Medicare and Social Security, are in deep holes of unfunded liabilities. At current rates, the programs will have to start reneging on promised returns to taxpayers in the next 10 or 15 years.
John Maynard Keynes, after whom the economic philosophy is named, famously noted that “in the long run, we are all dead.” This quip has been used to justify short-term economic intervention and not wait for markets to “correct themselves.” Keynes was incorrect, however. We are not all dead in the long run. If we do not pay for what we spend, another generation will.
Using other people’s money to pay for short-term political gains is a moral hazard. Voters of both parties — but perhaps especially GOP voters — must hold our national leaders accountable and demand that Republicans start practicing what they preach.
John Kristof is a Research Fellow at the Sagamore Institute and an economic policy writer with Young Voices. Follow John on Twitter.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.