Liberty Expose: The Very Bad, No Good, Budget Deal

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Nearly ten years after the Republican-based Tea Party dominated the 2010 elections seeking to finally smash a system that perpetuates a cycle of overzealous spending, the age of fiscal conservatism is finally dead. Candidate after candidate in the Grand Ol’ Party argued that they would finally bring an end to America’s spending problem, but the most recent budget deal between US President Trump, Speaker of the House Nancy Pelosi and House Majority Leader Mitch McConnell proves otherwise. 

The deal that was negotiated between the White House and Congressional Leadership, if it passes, will increase spending by $320 billion USD -- all while the budget deficit inches ever closer to the $1 trillion mark per year. The beneficiaries of the increase in spending are the usual suspects -- both domestic and defense programs will see their budgets increased. Democrats won with more funding for the National Institutes of Health which has been a frequent target of Mr. Trump’s threats. Republicans won (sort of) with slashing $77.4 billion in spending and increases to border security (no wall funding included).

The increase in spending is not the only thing to come out of negotiations. The Budget Control Act of 2011 (BCA) established “strict spending caps, enforced with automatic spending cuts;” yet, what was once hailed as a significant victory for the Tea-Party dominated House GOP is now utterly toothless because these caps were repealed by the deal. The destruction of the BCA started two years after it first became law when Congress was working on the 2014 budget. Defense hawks in the GOP wanted more spending for the military, but to do this, they would have to agree to Democrats demands for more domestic spending

Under the Obama White House, this number would (and did) cause most conservatives to condemn such an egregious deal. It was exactly what they were elected to fight, and yet there will likely be very few who would dare speak out against the President. To do so would invoke the wrath of the RNC’s political machine, resulting in a nasty primary campaign in which party devotees accuse the incumbents of betraying the party. After Justin Amash came out in favor of impeaching the President, numerous pro-Trump candidates announced their candidacy to replace the now independent Representative from Michigan. 

On the other hand, Republicans and Democrats have little choice but to cobble together some form of budget deal. With the election season starting, neither side can afford to have a government shutdown unless they are willing to take the blame that may impact their chances of victory. Furthermore, there are sectors of the government that do need more funding. The situation at the border does demonstrate that Homeland Security is currently unable to handle the influx of people coming across the country’s southern border. Without the proper support, more immigrants will be forced to live in overfilled camps while waiting to be processed. 

But the consequences of the budget deal are very real. The deficit, which is “the difference between what the federal government spends and the revenue it takes in annually,” will result in a slow down of the economy as the Federal Reserve is forced to raise the interest rate, leaving wages stagnant and driving up the cost of living in the U.S. When the deficit increases, so too will the amount of debt the country owes as it has to borrow money from foreign governments to make up for this negative revenue. This cycle of increased deficit spending fueled by by borrowed money leaves us in a precarious situation.

Part of the problem is the Tax Cuts and Jobs Act of 2017 (TCJA) that Republicans pushed to give Trump and the party their first major policy achievement, akin to former President Obama’s Affordable Care Act and Stimulus Bill. Unfortunately, there were many issues with the tax bill that is contributing to the current situation surrounding the deficit and debt. Chief among these issues is the fact that the loss in tax revenue will make it harder to pay for the increase in spending. Republicans frequently touted that the TCJA would “pay for itself” as lower taxes would incentivize wage growth and would allow Americans to spend more, thus directing more revenue into government coffers. Data from the Congressional Budget Office (CBO) shows that the original projections showing an increase in total real revenue has not occurred, at least not yet. 

Another key part to the Republican strategy of reducing U.S. spending was to implement significant reform to the country’s welfare and entitlement which takes the lion’s share of federal government’s budget. During his tenure in the House of Representatives, former Speaker of the House Paul Ryan built his entire political career on restructuring the country’s entitlement system and replacing the ACA. Unfortunately, this proved to be an impossible task for Mr. Ryan as he was forced to deal with feuds between the uncompromising House Freedom Caucus and the party’s establishment, along with moderate Republicans in the Senate who voted against ending the Obama-era health care law. Without the massive cuts to spending and reform to the health care system, the TCJA will not be able to bring in enough revenue to afford the spending increases 

To combat the deficit, Republicans must recognize that not all taxes are evil. A value added tax (VAT) would go along way in securing revenue that has been previously been unavailable to the government. Indeed, this is what allows most European countries to afford their extensive programs. A VAT tax is a tax “that is imposed on the buyer all the way up the supply chain of a product from the initial purchase of raw materials through to the retail consumer of the product.” At it’s core, the VAT tax is much like a standard retail sales tax, but avoids many of the evasion issues that plagues the sales tax. Since the government would be gaining revenue at every level of the supply chain, it will be able to direct such funding to pay for programs. While a tax on consumption (such as the VAT tax) does raise concerns among Republicans that it would pave the way for bigger government, scholars argue that it would make for a more efficient tax model over the existing federal income tax structure as the latter “penalize[s] saving and investment” while a consumption tax applies to everyone, regardless of their income or savings. Yes, cost of living will go up; but in turn, the government could lower the income tax and make consumption taxes the main source of revenue.

For now, it appears that the era of fiscal conservatives leading the Republican party is indeed over. This death is not a surprise. After being the opposition for eight years, the GOP was used to being united around a single foe, President Obama’s spending spree and the disastrous rollout of the ACA. But in this timeframe, the Republicans did not work out its post-Obama era policy. Healthcare and tax reform divided all branches of the conservative movement, causing a paralysis that allowed the Democrats to regain control of the House. With all this said, there is no easy way to solve the budget crisis. It will either take drastic cuts to spending across the board which would require a strong Republican majority in 2020, or an increase in taxes on most Americans. It may not be popular among Americans (especially Republicans), but a VAT tax might be necessary to keep the U.S. deficit and debt under control.