No One Wants to Own Spending Cuts

No one really seems to want to cut spending. A bipartisan deal to lift sequestration, spending caps in other words, is soon coming to the halls of Congress. The 2011 Budget Control Act which is an attempt at reasonably significant cuts to government spending spread out over a decade, will soon be eroded and/or evaded as Republicans and Democrats in the House work out an agreement on spending bills. No one wants to own spending cuts it seems. And in part, voters share some of the blame. Because it’s way easier for the GOP to own tax cuts as an issue, and they do, than to own spending cuts. The inevitable result of this is further deficits and further increases to the national debt, which is merely the accumulation of past deficits plus interest.

So if a GOP presidential candidate emerges that captures the hearts and minds of voters and wins in 2016 - a very probable scenario given the width and depth of GOP contenders - then tax cuts are almost a certainty starting in 2017. But spending is another matter. Unless there is a fiscal conservative lurking among the GOP field of candidates. As in Eisenhower and his huge tax increases to pay for America's highways, as the Brookings Institute pointed out recently. The reality is that anyone from the GOP who steps into the oval office in January, 2017, will have to deal with the accumulated burden of the post-Great Recession era. In terms of debt and deficits and taxes. And any appeal to voters to share a WW II style obligation or an Eisenhower style obligation - war bonds or punitive tax rates - will just not cut it with voters.

Although one could argue that Quantitative Easing in its various incarnations, is a war bond imposed on voters, rather than offered to voters in an appeal to their patriotism, as was the case with war bonds. And the symbolic war that gave us QE was a desperate effort at avoiding a presumed collapse of the financial system - a battle not all voters view as life and death. Voters have long lost the tolerance and even respect once held for government as an institution itself. And there is ample evidence in how government does business to support that lack of respect. The problem is, voters still love spending in their home district. Or at least that's how Washington's polling sees it. And they are at least half-right on that. Will anyone in Congress, or in the next administration, actually hold to the Budget Control Act? Not likely at this point. So what is coming is tax cuts without accompanying spending cuts. And that just feeds debt markets rather than starving government spending. Until the world gets tired of holding US government promissory notes. So far, US Government Debt has been literally as good as gold or better. It's where everyone ran to in the 2008 meltdown. But nothing lasts eternally and when the long awaited flight from treasuries finally happens Congress will no have no choice but to cut spending as well, and in a hurry. Let's hope they start before that happens.

Posted by Keeley at May 1, 2015 6:28 PM
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