Tax cuts? Nice, but how would Mitch McConnell pay for them?
Tax cuts: The GOP's McConnell wants to extend the Bush-era tax cuts, but he might have to shut down half the federal government to pay for them.
Senate Republican Leader Mitch McConnell (R-KY) wants to permanently extend all of the Bush-era tax cuts. He’s also rejected even modest efforts by President Obama to restrain the growth of Medicare. He is opposed to efforts by Defense Secretary Robert Gates to control future Pentagon spending. And he favors a constitutional amendment that would require a balanced budget. It all got me wondering: What would such a McConnell government look like?
Let’s give his constitutional amendment time to become law and use 2020 as a target year. The Congressional Budget Office projects a current law deficit of $685 billion in that year. Extending all of the 2001 and 2003 tax cuts would add another $500 billion, so let’s round to a 2020 deficit of $1.2 trillion.
CBO figures Pentagon spending in 2020 will be about $900 billion. Medicare will spend another $900 billion. Since I don’t imagine the senator would let the nation default on its debt, there goes another $900 billion or so (CBO figures current law interest payments of about $775 billion, plus another $100 billion on the debt run up by those ongoing tax cuts). Finally, the senator hasn’t said, but I’m assuming he'd protect programs such as military retirement and veterans benefits—that’s another $150 billion off the table. Thus, of total projected outlays of $5.5 trillion in 2020, McConnell would leave roughly $3 trillion unscathed.
Thus, to balance the budget McConnell would have to slash the rest of the federal government in half. If you are tea partier, that probably sounds pretty good. But let’s look at what that would mean.
The biggest remaining program is, of course, Social Security. It happens that projected Social Security spending in 2020 is almost exactly equal to the $1.2 trillion McConnell would need to balance his budget. But the vast bulk of that money would go to those who are already 60 or older and there are no serious proposals to make substantial reductions in benefits for those retired or close to it. The one change that might—slowing annual cost of living benefit increases —would reduce total payments by only about 4 percent by 2040. So there isn’t going to be much dough there, especially as soon as 2020.
What’s left? Well, McConnell would have to abolish all the rest of government to get to balance by 2020. Everything. No more national parks, no more Small Business Administration loans, no more export subsidies, no more NIH. No more Medicaid (one-third of its budget pays for long-term care for our parents and others with disabilities). No more child health or child nutrition programs. No more highway construction. No more homeland security. Oh, and no more Congress. No more nothin’.
We’re not talking about a temporary 1995-like government shut-down here. We are talking about a government that exists only to fund national defense, provide benefits to the already- or soon-to-be retired, and pay interest to the Chinese and our other lenders.
Of course, I've presented a simplifed story. If McConnell really tried to do something like he has described, his cuts probably would take place over several years, thus the one-year shock would be softened and 10-year interest costs would be somewhat lower. And, I'm sure anyone could quibble over a few tens of billions here and there. Still, the end-game would be roughly the same.
As my Tax Policy Center colleagues Rosanne Altshuler, Katie Lim, and Bob Williams have written, balancing the budget by raising taxes on high-income people alone is unrealistic. But as my little exercise shows, it is equally absurd to try to do it by only cutting spending, especially when you try to work within McConnell’s self-imposed constraints.
McConnell himself won’t say how he’d pay for these ongoing tax cuts. He does back a freeze in domestic discretionary spending—an idea that would leave him about 93 percent short of his balanced budget goal. As to the rest, he says he’ll await Obama’s deficit reduction commission that will report, conveniently enough, after the election.
I understand that with the tea partiers breathing down his neck, the Senate GOP leader thinks he can say nothing less than tax cuts uber alles. But I fear the rest of us will be saddled with the consequences of McConnell’s irresponsible pandering.
The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here.