Free Market Fundamentalist Opinion

Republicans Won the Argument on Deficit Spending

Thanks to Republicans’ insistence on spending cuts, the deficit is shrinking.

Republicans in Congress are conditioning their support for next year’s spending plans not, as one might expected, on budget cuts, but on delaying President Barack Obama’s landmark health reforms. The reason? They’ve already won the argument on the deficit.

Lower deficit

The first year of Obama’s presidency saw a huge expansion in federal spending. His economic stimulus, “cash for clunkers”, unemployment insurance extensions and bailouts for banks and carmakers raised the deficit to $1.4 trillion, or just over 10 percent of gross domestic product.

By the end of this year, the shortfall will likely be closer to $600 billion, or 4 percent of GDP.

Federal spending has fallen 3.1 percent relative to economic output. It hit a postwar record of 26.5 percent in 2009. Earlier this year, the percentage was down to 23.5 percent — around the level when Bill Clinton took office.

Even in real terms, spending has dropped: from $3.9 trillion in early 2011 to $3.8 trillion this year.


The turnaround came when Republicans took back control of the House of Representatives in the 2010 midterm elections. They have since leveraged their support for budget deals and debt limit increases on austerity measures, which should reduce deficit spending to around $2 trillion through the rest of the decade.

In talks for next year’s budget, Democrats have even agreed to keep $85 billion worth of yearly spending cuts in place, which as recently as February the president warned would “hurt” the economy and “add hundreds of thousands of Americans to the unemployment rolls.” (They haven’t.)

Battle isn’t over

The battle isn’t over. Without either deeper spending cuts or more tax increases, the Congressional Budget Office forecasts that borrowing will be necessary almost every year between now and 2038, when the national debt would be larger than the United States’ annual economic output for the first time since World War II. (And that’s under the optimistic scenario.)

The next ten years alone, the debt is expected to grow $7 trillion — which is an increase of more than a third.

Entitlement programs, such as Medicaid, which finances health care for the poor, Medicare, which pays health care for seniors, and Social Security, America’s pension fund, are gradually becoming unaffordable, crowding out spending on defense, education and infrastructure — which are all more important to economic growth.

Democrats have ruled out scaling back these programs. Indeed, the president’s health reforms will expand Medicaid, which is supposed to cover millions more.

Republicans seem to recognize that deeper, longer-term spending reforms cannot be done from one chamber of Congress. They have won the argument on the deficit. Now they have to win the argument on entitlements if they are to retake the Senate next year and the presidency in 2016.