Outside the Beltway

Republican Budget Hawks Have A Donald Trump Problem

Budget hawks in the GOP face a showdown with Donald Trump's spending ambitions this year that will likely decide whether we'll ever get spending under control.

Doug Mataconis · Wednesday, February 22, 2017 · 19 comments

President Trump’s first real showdown on Capitol Hill appears to be imminent, as budget hawks on Capitol Hill wake up to the realization that he doesn’t really seem to care how his various campaign promises are paid for:

President Donald Trump wants to rebuild the nation’s roads and bridges, boost military spending, slash taxes and build a “great wall.” But Republicans on Capitol Hill have one question for him: How the heck will we pay for all of this?

GOP lawmakers are fretting that Trump’s spending requests, due out in a month or so, will blow a gaping hole in the federal budget — ballooning the debt and undermining the party’s doctrine of fiscal discipline.

Trump has signaled he’s serious about a $1 trillion infrastructure plan, as he promised on the campaign trail. He also wants Republicans to approve extra spending this spring to build a wall along the U.S. southern border and beef up the military — the combined price tag of which could reach $50 billion, insiders say. And that’s to say nothing of tax cuts, which the president’s team has suggested need not necessarily be paid for.

Trump, meanwhile, has made clear he has little interest in tackling the biggest drivers of the national debt: entitlements. Republicans have been yearning to overhaul Medicare and Social Security for decades.

Even without Trump’s pricey wish list, the nonpartisan Congressional Budget Office estimates the $19.9 trillion debt will grow by a further $9.4 trillion over the next decade if nothing changes.

“I don’t think you can do infrastructure, raise defense spending, do a tax cut, keep Medicare, Medicaid and Social Security just as they are, and balance the budget. It’s just not possible,” said Rep. Tom Cole (R-Okla.), a senior member of the House Budget Committee. “Sooner or later, they’re going to come to grips with it because the numbers force you to.”

Trump’s staunchest allies in Congress counter that the president deserves some leeway to get something tangible done on jobs.

“If there is a temporary increase in the deficit to get our economy growing, I think my fellow Republican members are willing to look at the long game,” said Rep. Chris Collins (R-N.Y.), a Trump loyalist. “A growing economy and growing our way to success and financial stability is what we want to see.”

The contrasting views foreshadow a clash between adherents to Trump’s big-spending populism and classic small-government conservatives. Republican lawmakers have to choose between embracing Trump’s expensive agenda — or pushing back and risking his wrath.

Hill GOP insiders on both sides of the Capitol told Politico the fiscal 2018 budget will easily be one of the toughest votes Congress takes this year. That’s especially true in the House, where the conference for years has rallied around budgets that balance in 10 years — the gold standard for whether a fiscal blueprint is “conservative enough.” Now, many Republicans worry they won’t get there because of Trump’s unorthodox views on spending.

“It was already going to be a herculean task in making the numbers work over a 10-year time frame; when you begin to add in transportation, walls, tax cuts, it becomes an impossible task,” said Rep. Mark Sanford (R-S.C.). “We’re at the cusp of moving in the wrong direction. … It’s a problem.”

Meanwhile, some Republicans on the House Budget Committee are floating the idea of changing the standard of “success” for a budget. Budget vice chairman Todd Rokita (R-Ind.) has been speaking to members about ditching the 10-year-balance metric for one that focuses on a debt-to-GDP ratio. Supporters of the idea say it would paint a more accurate measure of the nation’s long-term fiscal situation anyway, as savings from entitlement reforms aren’t often realized until the second decade and beyond — not in the 10-year budget window.

“The challenge to balance is going to be more difficult than ever. That’s all I have to say,” Rokita said outside the House floor last week when asked about his proposed standard.

Spokesman William Allison said in a statement that Budget Chairwoman Diane Black (R-Tenn.) is “committed to working towards a balanced budget.”

The White House in the next two months will send Congress two major requests for money: a military spending bill that would take effect immediately upon passage, and a budget for next fiscal year. The latter will be a particularly tough lift because it traditionally includes a projection of government spending and debt over the next few decades.

Republicans are crossing their fingers that any requests for new spending will be offset with cuts. If not, the House Budget Committee will have to craft legislation to raise spending caps that have been in place for years. That could face stiff opposition from conservatives.

“We would have several people opposed to” lifting the caps, said Freedom Caucus Member Raúl Labrador (R-Idaho). “I am a fiscal conservative, and the biggest issue we’re facing in America right now is our debt. As Republicans, we better be consistent on this or we’re going to lose our base.”

Outside conservative groups would also revolt if Republicans did away with the spending limits. Tim Phillips, who leads the Koch brothers-backed Americans for Prosperity, said “discretionary spending has grown far too rapidly. We have to put a hard cap on growth, and if Republicans are going to be true to their rhetoric, they will agree to a hard cap on spending.”

Trump also wants to slash taxes, which could reduce the amount of annual cash flowing to the Treasury. Republicans are concerned because they have few specifics on what kind of tax plan Trump wants and some administration officials have floated the idea of not paying for tax reductions. House Speaker Paul Ryan’s tax plan would be “revenue-neutral,” or not add to the deficit, but no one knows for sure what the final deal negotiated by Trump and congressional Republicans will look like.

Former Senate Majority Leader Trent Lott, a lobbyist who worked closely with Trump’s transition team, said many of his corporate clients are lining up to oppose one of the biggest “pay-fors” put forward by Ryan: a new tax on imports, which the speaker estimates would generate $1 trillion.

“The border adjustment tax is giving my clients serious heartburn. A lot of American companies, the poultry industry, the automobile industry, many others are worried about that,” Lott said.

Republicans expect their leaders to argue that any spending, whether through appropriations or tax cuts, would ultimately pay for themselves by growing the economy by record amounts. Still, they’re not sure if that will get them to a balanced budget.

The tension between what Trump has been proposing since the start of his campaign and the policies that the budget hawks want to pursue have long been apparent, of course. At no point during his campaign did Trump pay anything but lip service to the idea that the costs of his proposals on everything from increased infrastructure and military spending to massive tax cuts for corporations and individuals would need to be offset by spending cuts or tax increases elsewhere in order to prevent the massive increase in deficits that pretty much every fiscal analyst who has looked at his plans has projected would come from his plans. In addition to the $9 trillion increase in the national debt that Congressional sources are talking about, there have been projections that Trump’s spending plans could increase the debt burden by as much as $15 to $20 trillion over the course of a decade, more than doubling the levels at which it stands today. Indeed, Trump barely mentioned the national debt or Federal Budget Deficit during the entirety of his campaign, and those who have pushed for his ideas have asserted that economic growth alone would generate enough additional tax revenue to offset increases in the national debt. In order for that to happen, though, we would have to see sustained economic growth exceed four percent per year for an extended period of time. For a whole host of reasons, including the fact that several standard economic statistics, most especially including the Unemployment Rate, suggest quite strongly that we’re about at the maximum for economic growth for the current economic recovery. If we miss those targets, or even worse the economy goes into even a brief recession, the consequences for tax revenues and the Federal Budget will be disastrous. Add to this the fact that it’s abundantly clear that Trump’s tax cuts won’t “pay for themselves” the way he and his supporters are claiming, and the inevitability of a showdown between the budget hawks and Trump seems to be inevitable.

None of this is really surprising, of course. There has always been a question of just how serious Republicans and conservatives are when it comes to controlling and cutting spending when they run up against a choice between doing that and putting forward their favored programs in areas such as tax reform, entitlement reform, and military spending. For every insistence that these measures must be “paid for,” there were dozens of people on the right who wanted to push forward and others who insisted that economic growth alone would be sufficient to prevent the out of control deficit spending that many of their proposals would result in. That’s why the same Republicans that were preaching fiscal restraint during the George W. Bush Administration were also authorizing programs ranging from the completely unfunded Medicare Part D to the wars in Iraq and Afghanistan at the same time they were cutting taxes and taking no steps to ensure that the spending increases were being offset by revenue increases.

As Jazz Shaw notes in a discussion about this at Hot Air over the weekend, this means that this year could end up being the last stand for budget hawks for some time to come:

The president has a lot he wants to accomplish, much of it laudable, but Congress will need to assume the role of taskmaster and insist that all of these plans be paid for. Returning to the tax cut idea, this is a necessary and important component of the overall plan. Lower taxes for both consumers and employers stimulate the economy and drive the growth which is required for long-term sustainability. But at the same time, tax cuts eat away at the available pool of resources required to achieve the basic functions of government. “Starving the beast” sounds great on paper as long as you remember that if you do it for too long the beast eventually dies.

This means more of the “tough medicine” I’ve mentioned here before. Discretionary spending is simply not a deep enough well to draw from and our current needs for the military mean that defense spending can’t sustain serious reductions without dangerous global consequences. What does this mean? It means that Congress is going to have to tackle the question of changes to entitlement programs. Nobody wants to hear that and the president himself has made populist statements about not touching these programs. Sadly, that’s simply not within the realm of reality anymore.

Selling the public on this is going to be a daunting task and it may very well cost Republicans heavily in the midterm elections. But you need to ask yourself if this is indeed the hill worth dying on. If you truly believe in fiscal conservatism and grasp the danger the nation faces when our debts reach the point of crippling us then the answer is yes.

The odds that the GOP will be willing to step on the entitlement reform ‘third rail’ before another round of midterms is fairly thin, though. It certainly won’t happen in 2018 when members of the House and Senate have re-election on their minds, so that means that this year may be the best and only chance that budget hawks have of getting a handle on both the budget process and spending over the long term. If they fail, which seems a far more likely outcome than success to be honest, and Trump is able to get the majority of his spending ideas implemented, then the odds of real reform for this first term of the Trump Administration, and indeed the foreseeable future, will likely have gone out the window.