ISIS, tax cuts, public trust. Race, immigration, the Empire State Building. Civil-service reform, North Korea, manufacturing. President Donald Trump’s State of the Union speech addressed a broad sweep of issues. But one central economic topic went notably missing: the country’s growing annual deficits and its increasing burden of debt.
The omission was a sign of the remarkable volte-face the Republican Party has taken on the country’s fiscal situation in just a few years. Republicans spent the early years of the recovery obsessed with the national debt, castigating Democrats for their supposed irresponsibility, warning about the dangers of the almighty bond market, and helping to construct complicated mechanisms to slash federal outlays. They are now spending what might very well be the late years of the recovery ignoring it, having passed a tax plan that will add more to the debt than President Obama’s stimulus package did and having forgotten their once-urgent plans to make cuts to Social Security and Medicare.
It might be nothing more than politics. Shaming the other guy for doing something, and then doing it oneself as soon as one gets into power: It is cynical, it is hypocritical, it is Washington. But it also reflects a profound change in policymakers’ understanding of deficits and debt. Maybe it is not that Republicans should be more obsessed with the debt now. Maybe it is that nobody in Washington should have been so obsessed with the deficit back then.
Back then, in this case, means 2010 through 2014, give or take. Congress passed a trillion-dollar stimulus to help wrest the country back from free fall, and the economy entered a sluggish recovery from the pain of the recession. Shortly after, Republicans started whipping up concern over the country’s fiscal situation, even as many economists from across the political spectrum argued that workers needed more help from deficit-financed stimulus. Democrats, in many cases, agreed with their colleagues across the aisle, expressing deep concern over the long-term fiscal situation. Next came a commission, endless budget negotiations, a tax increase, struggles with the debt ceiling, sequestration, a government shutdown.
More than anything else, there was obsession. Obsession with the idea that the bond market would punish the United States like it punished Greece, making the country’s debt burden unsustainable, and soon. Obsession with the idea of frivolous budgetary irresponsibility. “In this generation, a defining responsibility of government is to steer our nation clear of a debt crisis while there is still time,” Paul Ryan, now the speaker of the House, warned, adding that “President Obama has added more debt than any other president before him, and more than all the troubled governments of Europe combined.”
Sure, Republicans still cast themselves as the party of budgetary responsibility today. “We must impose firm caps on future debt, accelerate the repayment of the trillions we now owe in order to reaffirm our principles of responsible and limited government, and remove the burdens we are placing on future generations,” the party’s 2016 platform reads. And while President Trump has never been much of a budget hawk, he did campaign on a promise to not just reduce the annual deficit, but to balance the budget outright and “relatively quickly.”
But how things have changed. President Trump and congressional Republicans pushed through a package of tax cuts financed almost entirely through deficit spending—tax cuts that benefit corporations and the rich at the expense of the middle class and the working poor, no less. Absent any other budgetary changes, the legislation will add an estimated $1.8 trillion to the country’s debt over the next 10 years. It is likely that the country’s annual budget deficit will top $1 trillion next year, even if the unemployment rate remains low and the economy keeps growing.
With the tax cuts now law, Republicans are seeking to increase deficits even further. Gone are the promises to tackle entitlement reform, or to seek huge cuts from programs across the government. Instead, Republicans are pushing to shunt more money to military operations. “Around the world, we face rogue regimes, terrorist groups, and rivals like China and Russia that challenge our interests, our economy, and our values,” President Trump said, to rapturous applause, during Tuesday’s address. “For this reason, I am asking the Congress to end the dangerous defense sequester and fully fund our great military.” (Democrats are negotiating over the increase, and are pushing for more money for the opioid epidemic and disaster relief.)
The rhetoric has changed too, with Republicans no longer talking about the deficit and the debt in the heated, worried way they once did. During the 2016 GOP debates, the fiscal situation came up far less often than it did in 2012, and with far less urgency too. The Senate Budget Committee held no dedicated hearings on the debt, the deficit, fiscal stability, or balanced budgets in 2017, unlike in many years past. And, as a great FiveThirtyEight analysis has found, mentions of the deficit during congressional proceedings peaked at more than 8,000 in 2011 and fell to just more than 1,500 by 2015. For their part, administration officials refer to it infrequently, and often with little sense of outrage or concern. “The president is very much concerned about the rate of increase of the debt,” Steven Mnuchin, the Treasury secretary, said at a hearing of the Senate Banking Committee this week. “Over time, we need to figure out where we can have government savings to deal with the deficit.”
So what happened? How did the same Republicans who balked at a stimulus to get the country out of a recession rubber-stamp a bigger stimulus to fuel the best economy since the 1990s? How are the same Republicans who helped to construct an automatic mechanism to slash spending now lifting caps, spending more, and leaving entitlement programs untouched?
I asked both Democratic and Republican aides those questions, and got mostly shrugs. In some sense, President Trump is just doing what Presidents George W. Bush and Ronald Reagan did before him, aided by Republicans in Congress. Both swore to balance the budget or to bring down the debt. Both signed legislation that increased deficits instead, primarily through tax cuts and increased military spending.
Many Democrats, for their part, now believe that Republicans exploited their sincere concern over the long-term fiscal situation to score short-term political points—with some Democrats privately vowing not to worry about paying for things once they are back in power. “Republicans never really cared about the budget deficit. It was always a political tactic. With their own tax cut, they said, ‘Go ahead and finance it with massive deficit spending,’” Jared Bernstein, an Obama economic adviser, told me. Democrats struggled to ensure everything they did was paid for, while, Bernstein argues, “Republican fiscal irresponsibility has enabled them to provide all kinds of goodies to their donor base.”
But Washington’s understanding of the economic situation has changed, too, as Bernstein admits. It now seems clear that the degree of deficit panic whipped up in the post-crisis years overestimated the risk of a bond-market reaction, overstated the risk of the government crowding out private investment, and underestimated the capacity of the United States government to run deficits and build up debts—as well as overestimating how much voters ever really cared about the deficit. “If you go around yelling about pressure on interest rates and public borrowing crowding out private, you don’t have a lot to point to in terms of data,” Bernstein told me. “You have virtually nothing in terms of data. That’s not just here. That’s in Japan, other advanced economies as well.”
The risk that the country would not be able to fight a future recession due to its heavy debt burden might have been overinterpreted, as well. “It’s something the left has invented because they lost the tax war,” Doug Holtz-Eakin, the former director of the Congressional Budget Office and a Republican economic analyst, told me. The country has room to expand its budget deficits even now, he said. “If we were in a position where additional tax cuts or spending would be beneficial in a rapid way to help a falling economy, markets would reward, not punish, you for that.”
Plus, broad segments of the public seem uninterested in punishing even archconservative politicians who increase the debt, despite the promises of the Tea Party. Indeed, the many seem not to care much about the debt at all, now that Washington has stopped talking about it. The share of Americans who say that they see the deficit as a top priority has fallen to 48 percent today from 72 percent in 2013, according to a survey by the Pew Research Center. Corporate executives used to travel to Washington to express their concern over the country’s fiscal future. But on the tax legislation, they mostly remained mum. “Voters, frankly, after these huge deficits, are saying, ‘Well, how much do deficits really matter?'” Rick Santorum, the former Republican presidential candidate, told the Associated Press last September. “We’re not Greece yet, right?”
Of course, the country’s true budget hawks remain unmoved—and continue to push for putting the country on a different fiscal path. “High debt is a drag on the economy, and the more positive effects of the tax bill will eventually be overtaken by historic red ink. The president also did not address the ongoing need to address our nation’s largest entitlements, which need to be strengthened,” Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, said in a statement after President Trump’s address. “We sincerely hope President Trump and Congress lay out a plan soon to put it on a downward and sustainable path. An excellent first step would be to agree to stop making it worse.”
But for now, nobody from either side of the aisle seems to want to listen. “The thing I can’t say for sure but I wonder about is what happens when we hit $1 trillion in annual deficits,” Holtz-Eakin told me. “When it happened back in 2010, people flipped out.” Given how Washington’s shouts about the debt have fast become whispers, that seems unlikely.