The details of Congress’s first major spending bills negotiated under Speaker Paul Ryan are out, and if early reports are any indication, establishment Republicans have won big. Although Republicans didn’t gain any ground on defunding Planned Parenthood, denying Syrian immigrants access to our country’s refugee program, or loosening our nation’s campaign finance rules, Republicans still won a much larger and much more consequential victory. They proved, yet again, that Republicans can spend as much money as they want, as long as they do it through the tax code. And Democrats, despite the fact that it dooms their long term spending priorities, won’t put up much of a fight.
To clarify, there were two major pieces of legislation being advanced this week. One was the $1.1 trillion “fund the government” bill that basically pays to keep the lights on for a little less than a year. The second was a smaller, but much more consequential, $680 billion over ten years ($830 billion with interest taken into account) series of corporate, business and individual tax breaks, ranging from a permanent extension of the research and development tax credit, to loopholes that allow multinational companies to defer taxes, to delays in the tax provisions of Obamacare. The Committee for a Responsible Federal Budget put out an easy-to-understand summary that can be found here.
In substance, the tax break portion of the deal looks reasonably bipartisan. Republicans get roughly $500 billion in tax spending that goes mainly to their corporate and business interests, while Democrats get around $200 billion focused on college tuition, clean energy and Obamacare. The deal clearly favors Republicans in raw numbers, but hey, voters gave them control of Congress, and many Democrats have businesses in their districts that will greatly benefit from these tax breaks.
But there’s one wrinkle to this deal that signals just how much Democrats have lost the greater battle on how government spends its sizable but limited resources — essentially none of the $680 billion is “paid for.” That is to say, there are no cuts in spending elsewhere or increases in taxes to make up for the hole in the budget these tax breaks create. That entire $680 billion just gets thrown onto the budget deficit, and ultimately, onto our nation’s debt. Absent outsized economic growth in the future, future Congresses will have to raise taxes or cut other spending to pay back this debt.
Even if you think that deficit-financed tax spending is a good idea (or as Republicans would argue, that this is all just people’s money staying in their pockets rather than going to the government), it’s not hard to see the double standard taking place here. When Hillary Clinton proposes $350 billion over ten years to eliminate tuition at public universities, there is a real and valuable debate about how to pay for it. Should we build five fewer F-35 jet fighters? Or, as Hillary Clinton proposed, roll back tax breaks that primarily benefit the rich? Or are these investments so vital and have such a major return on investment down the road, we should we sell bonds to finance them, like how every state does with most highways and new public college buildings?
This is how public budgeting is supposed to work. But for Republican-inspired tax spending, there is no such conversation. As House Budget Committee Chairman Tom Price put it, “We believe allowing the American people to keep more of their hard- earned money is not something that needs to be paid for.” Quibble with the logic all you want, but Republicans from Ronald Reagan to George W. Bush have seen things the same way. Their tax cuts and spending were almost always financed with debt.
The counterweight to all of this budgetary nonsense should be an impassioned Democratic minority. Some congressional Democrats have tried to fight back this time around, with Sen. Tammy Baldwin of Wisconsin leading a charge to pay for business tax breaks by closing other loopholes that primarily benefit hedge fund managers and CEOs. Minority House Leader Nancy Pelosi has opposed the tax extender package, but her leadership team is letting House Democrats vote for the bill. President Obama, on the other end of the spectrum, has indicated he will support the tax break package even without offsets.
All of this adds up to one largely undeniable observation: a Democratic minority that doesn’t unite behind making tax breaks “be paid for” will result in a future Democratic majority with far fewer resources to spend on its priorities. By allowing Republicans to spend all they want through the tax code, Democrats are effectively saying nominal government spending must abide by a different set of rules. The resulting incentive structure massively favors Republican priorities (spend on the rich) over Democratic ones (spend on the middle and working class). Worst of all, that $100 billion that is going to ease tax burdens on multinational corporations can no longer be used to fund Democratic priorities like universal pre-K.
Thanks to this deal, Republicans can now balk on any Democratic spending in the future. They can stall and filibuster for years on end, and then when they’re in power, do all the spending they want. Plus, racking up major deficits under Republican Congressional rule allows them to claim “we’re broke” when voters demand Democratic policies that benefit the middle class over business interests. It’s win-win for Republicans.
This is why the playbook in this latest battle should have been, “just say no to spending through the tax code.” As congressional Republicans showed in previous battles, Democrats wouldn’t face any political price for filibustering or stalling by demanding offsets. It’s an ugly process, and I suppose you could make the argument that it is precisely this kind of behavior that makes people hate Congress in the first place, but there are ways to be open to compromise without losing the larger battles. There’s nothing wrong with saying that things like highways and infrastructure don’t need to be offset under the right circumstances, while tax breaks for multinational corporations almost always need to be paid for. Just like how going into debt to buy a new home is very different than going into debt to buy a new convertible, the important thing is to recognize which investments pay off in the long-term. That’s what an enlightened Democratic strategy that doesn’t surrender on deficits would be intellectually based off.
What would this strategy look like in practice? First off, Democrats would start calling these tax breaks what — on a budgetary level — they fundamentally are: tax spending. Calling a tax break “spending” may feel like linguistic cheating, but the investors who buy government debt couldn’t care less about the distinction. A $100 billion hole in the budget is the same whether it comes from government spending or less revenue. What matters is the return on investment, and in terms of political messaging, it is vital to assert your definition of the problem and let the opposition try to undo it.
Second, when faced with a mammoth Republican spending bill, pick a number and demand it hit that number. For example, when it looks like Speaker Ryan wants a bill that costs $700 billion over 10 years, Democratic leadership should demand that it fall under $400 billion. Again, this may sound childish and endanger Democratic priorities, but past Congressional negotiations have shown that “anchors” have real power with little cost. Just look at the path Obama’s stimulus bill took. Obama’s economic team calculated that it would take $1.8 trillion in stimulus to make up the lost economic output from the crisis. However, economic adviser Larry Summers thought that $1.8 trillion was ridiculous and told Obama to push for something closer to $800 billion, never mind that the American people had just seen trillions more in their wealth evaporate in just a few months. With expectations set at the $800 billion number, the proposal moved through Congress and ended up at $787 billion. The $700 billion price tag for the 2008 bank bailouts was largely arrived at in the same arbitrary way.
As for fears that making big Democratic demands would endanger your own goodies, again, history suggests you can have it both ways, at least when you’re in the minority. Just look at the expiration of the Bush tax cuts at the end of 2012. Democrats had all the leverage possible: if Congress did absolutely nothing, tax rates would revert back to their higher, Bill Clinton-era numbers. This was a perfect time to undo the Bush tax cuts and pass the Obama tax cuts, where rates for the middle class could be lowered and rates for the wealthy raised. To some degree this is what happened, but thanks to shrewd negotiations, Republicans preserved their beloved lowered capital gains and estate taxes, which overwhelmingly benefitted the rich. Republicans had zero leverage and still did very well for themselves. Even if you think Republicans would never be this generous were the roles reversed, fears of “going over the cliff” ensure that the minority gets a lot of what it wants.
Third and last, Democrats should use their allies to hit Republicans in the media while still maintaining good relations in negotiations. When Paul Ryan and Nancy Pelosi sit down with their teams to hammer out a deal, everyone benefits when the knives are put away and cooler heads prevail. But when Paul Ryan insists on lifting the oil export ban as a part of the deal, that’s when Team Pelosi needs to activate her environmentalist base. The repeal of the oil export ban should have been a rare political lose-lose for Republicans: not only will lifting the ban incentivize more drilling and result in more greenhouse gas emissions, but with more oil leaving North America, Americans will see higher gas prices at the pump. The phrase “higher gas prices” being used by every Democrat in the caucus would have gotten the repeal stripped from the bill, or at the very least, would have increased Democratic leverage on other offending items in the bill. All of this could be done without endangering the clean energy subsidies included in the final bill, as Obama would have vetoed any bill without their inclusion.
All of this is to say that Democrats can and ought to do better. Here in the present day, Obama and congressional Democrats deserve some kudos for making sure all the most offensive riders were stripped out of the final package. But the larger battle over government spending is being dominated by Republicans.
When the next Democratic speaker wants to spend $350 billion over ten years to make public colleges tuition-free for undergraduates, the system will turn in knots to make it seem like we’re broke and can’t afford it. But when Speaker Ryan wants $350 billion to help multinational corporations lower their tax burdens, the system will clear the runway as quickly as possible for these vital and necessary investments.
We know Republicans will always find this arrangement suitable. It’s up to Democrats to make Republican attempts to spend through the tax code just as messy and consequential as everything else Congress does.
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