PHILADELPHIA—A nagging question has followed Republicans around this week as they promoted their emerging plans to join President Trump in cutting taxes, replacing the Affordable Care Act, and constructing a wall along the U.S.-Mexico border.
How are they going to pay for it all?
Everything that the new president and the new Congress are contemplating comes at a budgetary cost, whether in the form of direct federal spending or through the lost revenue of tax cuts. A border wall would cost $12 billion to $15 billion, according to Republicans, and potentially much more according to other estimates. Repealing Obamacare and the taxes that finance the law would shrink federal revenues by as much as $350 billion, according to an analysis by the Committee for a Responsible Federal Budget. Republicans also want to boost military spending by an untold sum, and Trump is insisting that GOP lawmakers invest another $1 trillion to rebuild American roads, bridges, and airports.
Yet while Republicans remain divided over the details of their legislative priorities, they are even further apart on how—or even whether—they’ll pay for them in full. The question has significant implications at a time when the budget deficit stands at $559 billion and for party leaders who routinely warn of a looming debt crisis and who criticized the Obama administration for profligate spending.
For Republicans, it’s also a familiar and highly sensitive political quandary. As young conservatives in the House, Paul Ryan and Mike Pence first rose to power by taking on their own party’s leadership over spending in the years after the Bush tax cuts, the Afghanistan and Iraq wars, and a new prescription-drug benefit led to an explosion in the deficit. “Reagan proved that deficits don’t matter,” former Vice President Dick Cheney famously told then-Treasury Secretary John O’Neill. It was a quote that came to symbolize an era that spending hawks now consider a squandered opportunity for the GOP. Now as House speaker and vice president, Ryan and Pence are responsible for uniting conservatives in Congress behind another GOP president for whom the debt and deficits are a decidedly lower priority.
On Thursday, Ryan was asked by a reporter if he could guarantee that if Republicans succeeded in passing their agenda through Congress, the deficit at the beginning of 2018 would be no higher than it is now. The speaker dodged.
“We are fiscal conservatives,” Ryan replied. “What that means is we believe government should not live beyond its means. We believe that hardworking taxpayers in this country deserve a break in this country. And that means Washington takes less money from them and we also spend less, here. That means we have to get our fiscal house in order to prevent a debt crisis in the future.”
He continued in that vein for several sentences, but nowhere in Ryan’s answer was there a commitment on the deficit.
The budget implications are complicating the GOP’s push across several issues. First up is the border wall, which Trump wants to build first before seeking some form of reimbursement from Mexico later. Republicans in the House want to use a border adjustment tax on imports to pay for it, but that provision would be part of a broader overhaul of the tax code that wouldn’t pass Congress for several more months, if ever. And border adjustment has generated significant opposition already among Republicans in the Senate—Lindsey Graham, most brutally—because of concerns it will drive up the cost of products for consumers.
Yet in the face of immense pressure from Trump, even the hardline House Freedom Caucus is open to giving him the money up front without a promise to pay for it. “The Freedom Caucus stands ready to work hand in glove with this new administration to make sure he has the tools necessary to fulfill the promises that he made on the campaign trail,” said Representative Mark Meadows of North Carolina, the group’s chairman. Even if the project is not offset with spending cuts, Meadows said, “I know that we’re committed to making sure that the funds and resources are there.”
On healthcare, Republicans are similarly divided over whether to repeal the Affordable Care Act’s taxes immediately or whether to keep them in place while they transition to a new system. A proposal from Senators Bill Cassidy of Louisiana and Susan Collins of Maine would maintain the taxes, which Cassidy said were necessary to fulfill Trump’s own promises on the issue. “President Trump says he wishes to cover all and take care of those with pre-existing conditions without mandates. For that, you need revenue,” Cassidy argued last week. Stripping away the taxes would increase the deficit, but conservatives have demanded that in order to fully repeal the law, they must go, too. “I don’t want Americans burdened under the Obamacare taxes any longer,” said Representative Kevin Brady of Texas, the chairman of the House Ways and Means Committee, one of the panels charged with writing the repeal bill.
Sometime this spring, Congress will also have to take difficult votes to lift the debt ceiling. Yet although Republicans demanded that spending cuts accompany debt-limit increases under former President Obama, they haven’t decided whether they’ll hold Trump to the same standard.
Most vexing for the GOP is a major infrastructure package, which Trump insisted be added to the party’s 2017 agenda. In theory, even spending hawks might support some spending on roads and bridges, which in the past has drawn bipartisan support. But the Trump administration’s push for $1 trillion is causing sticker shock for lawmakers already struggling to finance priorities they view as more important. “It’s about how we’re going to pay for it,” Representative Bill Huizenga of Michigan said, summarizing the view of many of his colleagues.
With most Republicans opposed on principle to tax increases, party leaders and the Trump administration are likely to propose steep spending cuts for domestic agencies to help offset increases for the Pentagon, the wall, and other priorities. But even with GOP majorities in the House and Senate, those reductions will be politically difficult to pass. For conservatives like Ryan, the key to eventually balancing the budget and bringing down the $19 trillion national debt is reform of the nation’s social safety-net programs, especially Medicare and Medicaid. Trump, however, repeatedly denounced the speaker’s plan and vowed not to cut them.
Asked about deficit concerns, several lawmakers pointed to the GOP’s plans for cutting taxes both for businesses and individuals, which they believe will spur GDP growth and expand economic activity, leading to new revenue that will flood into the federal treasury over the next decade. The economy grew at an annual pace of just 1.6 percent in 2016, according to a report released Friday by the Commerce Department. The Trump administration and congressional Republicans believe that cutting taxes and regulations could double that rate. “If we get up to 3 or 4 percent economic growth, there’s not going to be any deficits,” said Representative Devin Nunes of California, a member of the Ways and Means Committee. Then he stopped himself. “I mean, there will be deficits,” he clarified, but not what congressional budget scorekeepers have estimated.
Democrats and some economists have argued that Republicans rely on dubious methods to calculate the impact of their tax plans. Revenue from economic growth would not materialize overnight, and the immediate result of tax cuts would be an increase in the deficit.
In the meantime, budget hawks outside of Congress are already warning Republican leaders in Congress against a buy first, pay later policy on the border wall. “The first rule for getting out of a hole is to stop digging,” said Maya MacGuineas, the president of the Committee for a Responsible Federal Budget. “If we let these rules slide this time, who knows where that slippery slope might take us next as policymakers debate hundreds of billions of dollars of new spending on defense and infrastructure and trillions of dollars of potential revenue loss from tax cuts?”
If the last two decades of fiscal policy in both parties prove anything, it’s that spending money is easier for politicians than cutting. And as Republicans rush to capitalize on the momentum of a new president, they may decide once again that borrowing is preferable to waiting.