Over the weekend, Lori Montgomery at the Washington Post wrote, GOP Moves Away From Entitlements and Toward Tax Reform in Budget Deal. In it, she explained that because seniors don’t like the idea of entitlement cuts, the Republicans are planning to focus on tax reform. And in the name of this tax reform (that mustn’t raise any new revenue), they will threaten to crash the economy with the Debt Ceiling.
You must remember the Debt Ceiling, because it is the only economic policy from the past few years that truly terrifies me. The federal government can only borrow money up to whatever debt amount—called the Debt Ceiling—that Congress has set. For the last 2 years, Republicans have been threatening to not raise the Debt Ceiling, and that will cause the federal government to default on its debt obligations. It’s kind of like an individual saying, “I know I ran up $1,000 on my credit card, but I don’t think my debt level should be above $100, so I’m not going to pay my bill.” Failing to raise the Debt Ceiling would not only greatly harm our economy, it would make any debt problems of the federal government far, far worse.
What I find so amazing about this is that the politicians who are threatening to crash the economy are exactly the same people who argue that if we don’t get our debt under control, we will become like Greece and be unable to borrow money at the low interest rates we have been able to borrow at for the last 4 years. This comparison to Greece is ridiculous, of course. There are a number of ways that we are distinctly not like Greece. But if we don’t raise the Debt Ceiling, we will default on our debts. That will cause interest rates on government debt to skyrocket. And that really will be an economic catastrophe.
The Republicans actually don’t care about that. This has never been about debt or economics or policy. It is about forcing the government to do their bidding even while they are a minority party. And from their perspective, it might work out very well. If they crashed the economy, there would be fewer tax revenues, so the deficit would go way up. But because we’d defaulted, the cost of borrowing would be much higher. There would be no recourse but to savage spending—especially on the poor and weak. Of course, it might also mean the end of the Republican Party as a major force in American politics, but I’m not sure conservatives think that far ahead.
But let’s assume that the Republicans don’t actually plan to force a debate. What is it that they are using this ultimate threat for? They want to cut marginal income tax rates and pay for them by closing loopholes. As we’ve seen before, that will necessarily be a regressive policy change because the big money is in the mortgage interest deduction. But even more than that, it is a way to stop the Democrats from raising taxes on the rich through the closure of loopholes that affect them. So if you’ve ever wondered why it is such a big deal to conservatives to do this kind of revenue neutral tax “reform,” there you have it: it is to protect the rich from future tax cuts and probably give them new tax cuts right away.
The best case scenario is that the Republicans are willing to risk crashing the economy in order to lower the taxes of the rich. The worst case scenario is that the Republicans think that crashing the economy would be a good thing. Take you pick. It makes the Republican Party a pernicious actor in our public policy.
It is also possible that crashing the economy would completely backfire against conservative desires. The situation could be so bad that the government had no recourse but to radically raise taxes.