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GOP faces hard choices to keep its promises

Plan to slash deficit collides with pledge to reduce taxes

By Christopher Rowland
Globe Staff / November 7, 2010

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WASHINGTON — Newly empowered Republicans, energized by an antigovernment groundswell that helped them seize control of the House, are making pledges that thrill mainstream conservatives and Tea Partiers alike: They will slash deficits and cut government down to size.

“The cavalry is coming,’’ said Representative Jim Jordan, a leading House conservative from Ohio.

But there are obstacles aplenty that could confound the GOP’s charge to reduce spending.

The party’s top priorities include extending income tax cuts for the wealthy and repealing President Obama’s health insurance overhaul, two steps that would deepen future deficits. Incoming leaders’ most specific cuts are limited to around $100 billion in the first year — a start, say analysts, but not nearly enough to get the nation’s projected debts under control.

Politically, without a majority in the Senate, their leverage to win spending reductions will be limited to things like threatening government shutdowns, and refusing to raise the nation’s debt limit.

Such moves backfired on Republicans 16 years ago during the Newt Ging rich revolution. The incoming Republican speaker of the House, John Boehner of Ohio, has said government shutdowns will not be an option. But he has left open the idea of blocking an increase in the debt limit, which would have the effect of immediately requiring dramatic budget cuts to avoid further deficit spending. The next debt limit vote is expected in March or April.

Some analysts see the House’s options as limited to symbolic votes for spending cuts that will not be adopted by Democrats.

“You have to distinguish between the political theater of things and the things that have impact,’’ said Donald Marron, director of the tax policy center at the Urban Institute, a nonpartisan think tank in Washington.

There also is an economic case being made against quick spending cuts. Many analysts argue that reductions would damage the fragile recovery by stemming the flow of federal dollars into the economy. They urge adoption of budget cuts now, while delaying their start for one or two years, when the US economy would be in better condition to withstand the spending reduction.

“There is no question that we need to get our deficit under control, but this is not the time to do it,’’ said Nariman Behravesh, chief economist at IHS Global Insight, a research firm with headquarters in Lexington.

On another front, like the Democrats, the incoming GOP leadership has not yet endorsed any plan to rein in Social Security, Medicare, and Medicaid — the most expensive entitlement programs and the budget sections that most specialists believe pose the greatest deficit dangers.

Political will to curb those programs has been lacking in both parties, even though there appears to be growing consensus that benefits may have to be scaled back in some fashion.

Republicans and Democrats will have another opportunity to debate the volatile issue after Dec. 1, when a bipartisan deficit study panel backed by President Obama and mandated by Congress releases its report.

The 18-member panel of lawmakers and economic specialists has been weighing ideas like raising the retirement age for Social Security and changing Medicare and Medicaid programs to reduce costs.

Their highly anticipated report may make specific recommendations, or its members may be unable to reach any consensus and could just recommend more studies.

Federal debt held by the public — the result of accumulated annual deficits — was expected to be $9 trillion at the end of the last fiscal year, according to an August report by the Congressional Budget Office, a nonpartisan government agency. That is just above 60 percent of gross domestic product.

Many analysts and elected leaders have worried that as the debt-to-GDP ratio climbs higher, the costs of financing the debt could increase and global credit markets could begin losing faith in America’s ability to pay for it. Greece’s recent credit crisis was brought on by debt-to GDP ratios approaching or exceeding 100 percent.

“We are headed toward fiscal bankruptcy. It’s no longer an issue that is over the horizon. It is no more than five to seven years away,’’ said Judd Gregg of New Hampshire, the highest-ranking Republican on the Senate Budget Committee and a member of the deficit-review panel.

Asked whether he thought Republicans and Democrats could work together on the issue, Gregg said: “I don’t know the answer to that question. I don’t think anyone does. What is clear is that the American people have sent a message in the most definitive way I have ever seen that they want the deficit brought under control and they want the debt brought down.’’

Conservative Republicans today are haunted by the size of deficits run up during the administration of George W. Bush.

Fueled by tax cuts, two wars, rapid health care inflation, and more, the projected Fiscal Year 2009 deficit when Obama assumed office was $1.1 trillion (and it grew to $1.4 trillion for that year, as the cost of the economic stimulus package began to take its bite).

Critics say the Bush administration’s approach to fiscal policy was summed up in a statement attributed by former Treasury Secretary Paul O’Neill to former Vice President Dick Cheney. Cheney said, according to O’Neill, that “deficits don’t matter.’’

“It was a very serious, serious error, because it was that kind of thinking that laid the foundation for this fiscal mess we are in now,’’ said Mark Zandi, chief economist at Moody’s Analytics, an economic research firm.

“We’re not the same Republican Party,’’ the expected new House majority leader, Eric Cantor of Virginia, told his Republican colleagues in a letter last week after the midterm victories, promising to “drain the swamp’’ in Washington.

But Republican leaders mostly have been vague about goals for spending cuts. There were few clues in the GOP’s campaign talking points, called “A Pledge to America.’’

More recently, House leaders have called for a reduction in nonmilitary discretionary spending to 2008 levels, which Boehner said last week will translate to a cut of about $100 billion a year. Discretionary spending pays for government programs outside of entitlement benefits such as Social Security, Medicare, and Medicaid, which are considered mandatory spending.

Republicans also want to extend income tax cuts for all Americans, including the wealthy. President Obama has proposed extending them just for low- and middle-income individuals and families earning up to $250,000 a year, although he has signaled a willingness to compromise since the midterm election last week. Including the wealthy in the income tax extension would cost an additional $700 billion over 10 years.

The GOP also wants to repeal the health care overhaul approved by Congress and Obama this year, a law that included $500 billion in cuts to Medicare and which the Congressional Budget Office said would reduce the deficit by $100 billion over the next 10 years. Repealing the law would put that $100 billion back into deficit estimates, unless the GOP cut somewhere else at the same time.

Representative Jordan, who is a leading candidate to head the Republican Study Committee, a large organization of conservative House members, said voters are demanding rapid action and deep cuts.

The Republican Study Committee produced a proposed budget in May 2010 that would dramatically cut discretionary spending and balance the budget by 2019, while including a permanent extension of all income tax cuts. A sampling from the document provides clues as to where conservatives see room for cuts:

Repeal unspent portions of the stimulus (savings, $289 billion over 10 years), repeal the expansion of the Children’s Health Insurance Program (savings, $74 billion over 10 years), eliminate subsidies for graduate student loans (savings, $18.8 billion over 10 years), and eliminate high-speed rail grants and Amtrak subsidies ($4 billion savings, annually). It also would eliminate funding for Planned Parenthood, tighten rules for distributing food stamps, and cut the federal travel budget in half.

“You have got to hold the line on spending,’’ said Jordan. “In my time in politics, I have never seen the American people so receptive to the tough-love measures that need to be taken to fix the country’s economy.’’

A thorny spot for Republicans has been defense spending. Their proposals have not included significant defense reductions, although discretionary defense spending has now climbed to nearly $850 billion a year and is on track to reach $1 trillion a year by 2020.

The new chairman of the House Budget Committee, Wisconsin Republican Paul Ryan, will be the chamber’s new point man on deficit reduction. Ryan, who did not return calls seeking comment, has proposed allowing Social Security recipients to put a portion of their benefits into private retirement accounts and he has proposed privatizing Medicare with a system of vouchers that beneficiaries could use to purchase insurance on the private market.

A liberal Democrat who serves on the Budget Committee with Ryan, Massachusetts Representative Jim McGovern, said he intends to fight many deep budget cuts that are sure to be presented in the committee.

“There are no new ideas here. If you look at the Ryan budget plan, they are the same old tired ideas that are trotted out again and again by Republicans,’’ he said. “This is not a road map to reduce the deficit. This is a road map to make poor people poorer and put more of a burden on middle-income families.’’

Christopher Rowland can be reached at crowland@globe.com.