Two months after passing a tax cut bill punching a $1.5 trillion hole in the federal budget, Congress passed a spending bill expanding that gap by another $320 billion, setting the stage for future rises in interest rates as government borrowing explodes. Given the continuing lack of fiscal discipline, volatility in a stock market is hardly surprising. This likely reflects concerns about the future economy rather than current conditions.
This back-to-back display of budgetary myopia is hardly unique. It’s just the latest in a series of decisions over nearly two decades by both parties building toward a day of fiscal reckoning for some future president, if not the current one. The failures all go back to — of all people — Monica Lewinsky.
The scandal of President Bill Clinton’s sexual relationship with the White House intern erupted in January 1998 just when Clinton and House Speaker Newt Gingrich were planning a bipartisan effort to tackle the biggest driver of future federal debt, burgeoning Social Security and Medicare costs. The partisan battle about impeaching Clinton destroyed chances for a historic alliance between the Democratic president and the Republican speaker that could have provided long-term budgetary stability.
Since then, every significant budgetary action or inaction by Presidents George W. Bush, Barack Obama and Donald Trump has made things worse. Last week, longtime deficit hawks barely blinked in ratifying the latest spending boost, largely because each side got a slice of the sausage: Republicans, for defense, Democrats, for domestic programs. Though President Trump’s new budget, issued Monday, promises better fiscal balance, it’s built on spending reductions Congress won’t pass and a level of economic growth that its decisions won’t create.
Here’s the discouraging rundown:
Squandering the surplus. The 1997 bipartisan budget pact and the late 1990s economic boom enabled President Bush to inherit the first balanced budget in three decades. Three subsequent decisions, followed by the 2008-09 economic recession, turned that projected surplus into a deepening deficit.
First, the tax cuts of 2001 and 2003 failed to meet forecasts they would more than pay for themselves. The 10-year expiration date was a false limit on future costs destined to be scrapped.
Second, Congress added prescription drug benefits to Medicare without taxes to pay for them. And third, Bush’s decision to invade Iraq and exempt the costs from the regular budget process meant that each spring Congress had little choice but to pass legislation to pay the billions in war costs the country had already spent.
When the economy descended into recession, the deficit was already expanding, reaching $459 billion in Bush’s last full year and nearly tripling to $1.4 trillion in the Bush-Obama transition year.
Failed deficit reduction efforts. Inheriting that recession, President Obama won approval from Congress for an $800 billion stimulus that, while derided by Republicans, helped turn the economy around. He named a bipartisan commission, headed by former Wyoming Republican Sen. Alan Simpson and former Democratic White House Chief of Staff Erskine Bowles, that proposed reducing the deficit by $4 trillion through $1 trillion in tax increases, $1.6 trillion in discretionary spending cuts, $800 billion by trimming future costs for Social Security, Medicare and other entitlements, and $600 billion in reduced interest costs.
Most panel senators supported the plan, most House members opposed it — Republicans cited proposed tax hikes. Obama never supported the findings. Approval would have required both presidential leadership and congressional acquiescence, but neither occurred.
In 2011, secret negotiations between Obama and House Speaker John Boehner collapsed, amid recriminations over who was responsible. The resulting impasse led to the 2011 deal limiting defense and domestic spending. That pact, a subsequent 2015 deal between Republican Speaker Paul Ryan and Washington Democratic Sen. Patty Murray and an improving economy lowered the projected deficit to $440 billion this year.
All spigots open. The economy had reached the sixth year of expansion, albeit with a modest growth rate, when Trump was elected, vowing to scrap defense spending limits and pass massive tax cuts to increase growth. Congress ignored proposals for sharp domestic cuts in his last budget. After the tax cut and spending deal, economists project a 2019 deficit of more than $1 trillion, though federal revenue is peaking.
But an economy nearing full employment will likely trigger Federal Reserve interest hikes, as could pressures from increased borrowing to fund the deficit. Sooner or later, the expansion will end, and deficits will soar even higher, possibly reaching $2 trillion annually, according to the Committee for a Responsible Federal Budget. Though Trump is proposing some cuts for Social Security disability and Medicare after-care programs, it’s unlikely the basic problem of future entitlement costs will be addressed, let alone solved, until severe future economic disruptions force action.
No wonder Wall Street is wary.
Carl P. Leubsdorf is the former Washington bureau chief of the Dallas Morning News. Readers may write to him via email at: firstname.lastname@example.org.