There is now no doubt that all of the GOP talk during the campaign about reducing the deficit was nothing more than a ploy to get elected and that Republicans have no plans to do anything but make the federal government’s red ink larger than it already is and would otherwise be.
The proof? Take a look at this outstanding report by Bob Greenstein and Jim Horney of The Center on Budget and Policy Priorities — two of the most respected federal budget analysts anywhere — published just before Christmas about how House Republicans are about to put in place new budget procedures that make it likely the deficit will be increased rather than decreased.
The first is a change in the pay-as-you-go rules that will no longer require proposed tax cuts to include offsets so that there’s no increase in the deficit. Under the new GOP rules, that would only apply to proposed increased in mandatory spending. In addition, proposed mandatory spending increases could only be offset with reductions in other mandatory spending. The previous PAYGO rule that allowed the offset to be either spending cuts or revenue increases would be eliminated.
The second change is that the reconciliation procedures in the congressional budget process would be changed so that they could be used to increase the deficit if the increase was the result of a tax cut (The House democratic leadership several years ago revised the reconciliation rules so that it could be used only to reduce the deficit).
Finally, as the CBPP report says, the new rules would allow a number of potentially huge deficit increasing policies to be adopted without offsets:
- Extending or making permanent the 2001 and 2003 Bush tax cuts (including the tax cuts for the highest-income taxpayers) and relief from the Alternative Minimum Tax;
- Extending or making permanent the hollowing out of the estate tax included in the just-enacted tax-cut compromise legislation; and
- Legislation to provide a major, costly new tax cut — a deduction equal to 20 percent of gross income for “small businesses,” which Republican lawmakers typically have defined very expansively so the term covers a vast swath of firms and wealthy individuals that do not resemble what most Americans think of as a “small business.”
In the wake of the GOP’s insistence in the lame duck session on the tax deal option that would increase the deficit the most, it has become obvious that all of the deficit reduction talk Republicans used during the 2010 election had nothing to do with what the party was really about or what it plans to do over the next two years.
Based on the record in the 10 weeks or so since the election, it seems clear that the GOP rhetoric about reducing the deficit will remain but that, instead of proposing things that will reduce it, Republican-proposed legislation will increase the deficit and federal borrowing substantially.
This should be of extreme interest to the bond market, which has already been influenced by the larger deficits of the tax deal.