Stray Thoughts on the Deficit Politics

I’m giving a talk here at Johns Hopkins in 15 minutes, as part of a panel on The Deficit and American Politics. These are my notes–my very quickly and only moderately systematic thoughts on whether a deficit deal is actually possible in the near-term.

Deficit reduction is almost always a matter of the politics of blame avoidance. While deficit reduction as a general matter may be popular, the specific cuts or tax increases that it requires are rarely popular, and usually attract the ire of concentrated, mobilized groups. Those groups, and the diffuse populations whose benefits are cut or taxes are raised, will want to punish those responsible for damaging their settled expectations for government action. Consequently, deficit reduction almost always requires cutting what Douglas Arnold called the “traceability chain” between the actions of specific members of Congress and the impacts those actions have on citizens and groups.

The “American way” of doing so requires cross-party deals, which make it difficult for citizens to detect who was responsible for the actions they disliked. This is not only a characteristic American pattern, but also characterizes, for instance, the politics of pension reforms in most of the world—they generally turn out to be cross-party conspiracies against the voters. (I would also note that these same cross-party conspiracies can sometimes be seen in hot-button social issues where there is elite consensus against popular opinion, as with the abolition of the death penalty in the UK in the 1970s). I should note that the condition that are most propitious for cross-party deals is divided government, when each party has sufficient institutional control to protect itself against the risk of being “bait and switched.” We did not have that in the last Congress, but we will have it in the next.

The important—maybe, in a sense, the ONLY—questions in thinking through the politics of deficit reduction, are: a) whether the parties believe that deficit reduction is sufficiently important to engage in a cross-party conspiracy and; b) whether the parties are able to get sufficient space from their supporters to engage in it. I think there is reasonable evidence that the answer to (a) right now is yes, but in any case if it wasn’t there would be nothing left to talk about, so I’ll assume it for purposes of argument. So the real question is, can the parties get away with it, where their base is concerned?

One thing to note here is that the two American parties are not, in fact, parallel where the question of the autonomy of their elected politicians is concerned. The party base has significantly more leverage over elected officials in the Republican than the Democratic party. The chance of being successfully “primaried” if you are a Democrat is low, and in any case there is not the kind of organized, mass base that is capable of exercising discipline over those who carry the party label. So assuming that Democratic elected officials think that it is important to engage in a cross-party conspiracy for deficit reduction, they will generally be able to get away with it (even if it means imposing uncomfortable changes, up to a point, on their base). That, therefore, narrows the question to whether Republican elected officials believe they can get away with entering into negotiations

The first thing to say, before getting to the real final answer, is that there is a slight complication here that I did not hint at before. While Republicans might be willing to negotiate a deal on deficit reduction, they of course want that deal to include as much of what they want as possible, and as little of what the Democrats want. That means heavier on cuts in domestic discretionary spending, and relatively weak on increases to taxes and cuts to defense. Republicans might conclude that, while they could get a deal now, they might get an even better deal with a unified Republican Congress after 2012, negotiating with a Democratic president—and they’d probably be right. On the other hand, there is a perverse risk here—one advantage of cutting a deal now is that they an avoid generalized blame for the specific details of the proposal, blaming them on the Democrats. If they get a unified Congress in 2012 AND somehow win the presidency, then they’ll be stuck doing it all themselves, and won’t be able to share the blame. That is, divided government facilitates blame avoidance, and they might calculate that it would be better to get some of the ugly business out of the way now, when they can share the blame, than in 2013 when it will be all on them.

That gets us to the final question, which is, assuming that Republican elected officials want to cut a deal, do they believe that they could plausibly get away with it where their base is concerned? This is where I have severe skepticism. The Republicans, as I noted above, are a party under severe base constraints. Their base is mobilized, and thus capable of something like collective action if they believe their interests are being violated by their representatives. And most important, the Republican base is today characterized by intense, nearly paranoid mistrust of their politicians. They believe, perhaps not unreasonably, that the party is full of potential sell-outs, but the problem is that they don’t know with certainty who they are.

Consequently, the base has been converging on litmus tests so extreme that only people who REALLY are not sell-outs would agree on them. The base has gravitated toward iron-clad commitments because of this worry of selling-out. That is, they are trying as much as they can to tie the hands of their elected officials—to make them “delegates” instead of representatives who are supposed to exercise some sort of discretion. And the leadership of the parties knows that—they can exercise discipline over their members, but only to enforce what the base already wants. The vote on TARP, I think, was the last time that the Republican leadership will have been able to make their members eat, in John Boehner’s terms, a “shit sandwich.”

A “shit sandwich” would almost inevitably be what members would have to eat if they entered into a deficit reduction deal. But my point is that Republican members would find it exceptionally difficult to cut a deal even if it was, by historical standards, extremely beneficial to them. Imagine that Boehner cut a deal with the White House for a plan that was 80% spending reductions, and 20% tax increases. Could he get his members to swallow it? I doubt it. The path of least political resistance for members is to vote no, and the leadership could not make them do it—what discipline they have operates in only one direction today (that is, discipline toward the right).

I think Boehner is aware of this and will not want to enter into negotiations that will lead to him being ultimately rebuked by his base. The likely scenario, therefore, is that Republicans will find some reason not to enter into negotiations with the Democrats (most likely the hope of getting a 100% spending cut solution as of 2013), and nothing will get done.

So that’s the negative scenario, which is what I’m good at. It is based on a more or less rational actor form of analysis. But we’re Johns Hopkins, so we can manage more than one form of analysis at a time. If one wanted to construct a feasible scenario for deficit reduction—by which I mean one that Republicans would be capable of signing off on—then one would have to concoct conditions under which they would be able to get away with agreeing to a tax increase. I think this is where the analysis stops being about rational actors and starts becoming semiotic—that is, about the meaning of signs. Here, the question is, what is the meaning of a “tax increase?” What would the actors involved in these interactions interpret as a tax increase?

The simplest, rational form of analysis would say that a tax increase is anything that raises government revenue on net over what it would have been in the absence of a change in policy. But I’m not sure that is exactly how the Republican base might see it. Consider the Bowles-Simpson proposal from yesterday. It raises taxes, on net, but it does so in the context of comprehensive tax reform. So tax rates actually go down, because the tax base is expanded (by eliminating deductions). What would the “meaning” of that policy act be? I think that would be up for grabs. It may be, however, that the success of deficit reduction rests entirely on the answer to that question, and in particular on what Republican elected officials believe the answer will be (which is not the same)—in essence, on elected officials beliefs about the potential beliefs of a large, non-hierarchically organized and still inchoate group.

Author: Steven M. Teles

Steven Teles is a Visiting Fellow at the Yale Center for the Study of American Politics. He is the author of Whose Welfare? AFDC and Elite Politics (University Press of Kansas), and co-editor of Ethnicity, Social Mobility and Public Policy (Cambridge). He is currently completing a book on the evolution of the conservative legal movement, co-editing a book on conservatism and American Political Development, and beginning a project on integrating political analysis into policy analysis. He has also written journal articles and book chapters on international free market think tanks, normative issues in policy analysis, pensions and affirmative action policy in Britain, US-China policy and federalism. He has taught at Brandeis, Boston University, Holy Cross, and Hamilton colleges, and been a research fellow at Harvard, Princeton and the University of London.

19 thoughts on “Stray Thoughts on the Deficit Politics”

  1. "If one wanted to construct a feasible scenario for deficit reduction—by which I mean one that Republicans would be capable of signing off on—then one would have to concoct conditions under which they would be able to get away with agreeing to a tax increase."

    Because balancing the budget by simply not increasing spending for three or four years is completely off the table?

    I think the position of the Republican base is that they've seen, too many times, supposed "trades" where only the part of the trade they didn't like got implemented. At this point, they'll demand that deficit reduction be entirely by means of spending cuts, (Actual cuts, not mere reductions in proposed increases.) or at the very minimum, a sustained policy of non-increases. If they agree to tax increases they'll be punished no matter what cuts in spending nominally accompany them, but they won't be punished for holding their ground.

  2. Where is the evidence that GOP politicians or voters actually care about the deficit? Did we hear anything from them about the deficit when they by and large controlled the government between 2001 and 2007? On the contrary, they greatly increased the deficit by beginning an unnecessary war in Iraq, cutting taxes mainly on the rich, and adding an unfunded new drug entitlement to Medicare.

    It seems more reasonable to assume their recent blathering about deficits and debt is just an opportunistic attack on the Democratic President who has had to increase the deficit to deal with the fallout from the financial crisis and resulting economic depression.

    Should the GOP regain control of the government in 2012 they will go back to implementing their true agenda: more deficit-busting upper class tax cuts and more wars.

  3. Perhaps someone should mention that Republicans and conservatives, for the most part, did not attack or denounce the proposals released yesterday, while Democrats and liberals did. Most Democrats oppose any deal that relies predominantly on spending cuts and not tax increases.

  4. Thomas, isn't it just as true that most Republicans oppose deals that rely primarily on tax increases? And wouldn't a large majority argue that cutting taxes will actually increase revenue anyway?

    As far as Democrats opposing the deficit commission proposals, I wouldn't say "most" Democrats. Certainly the base, but Obama does not generally govern to the base. These proposals certainly aren't.

  5. "Where is the evidence that GOP politicians or voters actually care about the deficit?"

    Republican TARP supporters losing primaries somehow slip your attention?

  6. Brett: I´ll bite. What on earth has TARP, which is working out revenue-neutral, have to do with the deficit? Were the Republicans tossed out by their base incapable of explaning the fact? IMHO, the outrage over TARP wasn´t (contra my general take) about a false perception of the deficit, but a perfectly accurate one that the bankers got their bailout free. There wasn´t even a symbolic grovel.

    Compare Louis XIV´s crushing of his financial wizard Nicolas Fouquet, let alone François I´s public execution of his treasurer Jacques de Semblançay. His deputy Gilles Berthelot, builder of the fairytale Loire chateau Azay-le-Rideau, fled for his life, allowing the king to pick up this gem for nothing.

  7. Republicans when Democrats are 'in charge': "Oh my GOD look at the debt! We need to do something now or those tax and spend Democrats will ruin tha nation."

    Republicans when the GOP is 'in charge': "Ronald Reagan taught us that deficits don't matter."

    GOP philosophy: The rich get the gain. Everybody else gets the pain. Make sure the Democrats get blamed for it.

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  9. Did we hear anything from them about the deficit when they by and large controlled the government between 2001 and 2007? On the contrary, they greatly increased the deficit by beginning an unnecessary war in Iraq, cutting taxes mainly on the rich, and adding an unfunded new drug entitlement to Medicare.

    It's discouraging to me how very few folks understand just how much more deficit spending went on with the last Bush budget and the first two Obama budgets than previously. Sure, the Iraq war cost. Maybe we'd have saved a few dollars if a democratic President confined us to trying to reform Afghanistan. But I have no reason to think that with Democrats in charge we'd have had a less expensive medicare drug plan.

    And all that overspending, the kind of stuff we've seen since the few years of balanced budgets slowly disappeared? It's utterly dwarfed by all the overspending related to the economic collapse of 2007. Most sensible folks aren't interpreting recent election results as an expression of trust in Republicans. Instead, they understand it's an expression of despair at recent overspending that has lead to giving the GOP a last chance to perform in a fashion that resembles their stated ideals.

    One under-regarded possible development is that a lack of action by congress over the coming months could lead to noticeable growth in the number of viable independent candidacies for congress. That is, the inaction forecast here could lead to a wave that tosses out incumbents from both parties and installs independents who have rejected both parties and state a willingness to do the people's business.

    Not talking about a revolution, just a marginal evolution away from 2 party dominance. How many independent senators and reps would be needed to change the congressional landscape and math enough to make a difference? I think 5 or 10 senators and 15-30 reps would do it.

  10. Yet another discussion on deficit reduction that ignores history, because after all, history would make it clear that Republicans are incapable of purposely reducing the deficit.

    Let's remember, if you are old enough, the last Tea Party movement. Ok, so it was symbolized by Ross Perot, but Ross Perot, like the Tea Party, defeated electable Republicans and elected Democrats almost certain to lose. The Tea Party defeated HW Bush who dared reduce the deficit in 89 and 90, after running on "read my lips…".

    Bill Clinton won with 43% of the popular vote, I think, with the Tea Party of the day attacking the deficit – Ross Perot with his charts and graphs and lengthy lectures on the debt as part of his campaign. Clinton spent a month doing what the deficit commission has spent almost a year doing. His first major speech said so, and stated there was no option but spending cuts and tax hikes.

    Then Clinton, his team (many have been advising Obama), worked with the Democratic Congress, and hammered out a budget bill. As I recall, no Republicans voted for the final budget, passed under budget reconciliation. That dealt with the short term deficit. Then Clinton moved onto the long term budget buster, health care. He was shot down.

    In 94, Republicans backed by the Tea Party reacted to the deficit reduction efforts by winning both houses of Congress, and then spent the rest of the Clinton years trying to restore the deficit increases. When the budget balanced, Republicans claimed they were responsible, failing to mention the many Clinton vetoes or threats that blocked their efforts to increase the deficit.

    And why can I confidently state it was Clinton who balanced the budget? Look at what happened when about the only change in government Jan 2001 was Clinton replaced by Bush – by 2001, constrained by the PAYGO rule, the first buget buster was passed in June 2001. Once PAYGO expired, passing the 2003 budget buster was easier. But at least six other bills were signed by Bush that cut taxes. Bush is the only president I can find who never hiked a tax. HW was defeated for hiking taxes. Bruce Bartlet credits Reagan with several of the largest tax hikes in history – Reagan significantly hiked the payroll tax and reformed Social Security in 83, hiked the gas tax, and other income tax hikes. (Indexing kicked in in 85, so the automatic bracket creep tax hikes were ended, ending the days of tax cuts that didn't cut taxes.)

    So, Clinton, after being elected by the rage of the Tea Party in 92, seriously addressed the deficit and debt, with zero Republican support.

    Then, when Clinton was gone, Republicans reversed all the deficit reduction of 8 years of Clinton in just over 2 years. Then the deficit reductions of HW, and also Reagan from 82 on.

    So, Clinton had no impact on the long term budget deficit or debt because nothing survived the Republican budget busting.

    Obama in his book lays out the problem just as Clinton did, in more detail as it is a book, but it is the same message and strategy. The difference is Obama placed health care deficit reduction first. Let's be clear, government spending on health care can be cut only if the cuts apply to everyone – right now, Medicare is part of the Republican's most important voting block's benefits and can not be cut on its own. Only when everyone is covered and its impossible politically to fail to cut costs by rationing care to one group (denying care to the sick and poor, for example) and then have them come into the system as indigent at far higher costs, can the health care system be reformed to be as cost effective as three dozen other nations with near universal coverage.

    Insurers will not let Republicans repeal in 2013 even if Republican control it all. So, Republicans will only increase the entitlement, but that will quickly result in cost cutting by systematic changes to the system.

    Obama has zero reason to drive deficit reduction, but instead must put the Republicans in charge. If Obama were to drive in, the economy will still be bad in 2012 and he will be blamed for the tax hikes and defeated, and the Republicans will immediately cut taxes and run up the deficit.

  11. "And why can I confidently state it was Clinton who balanced the budget?"

    Because you're a bit gullible, and have been taken in by fraudulent government accounting? The national debt went up every single year of the Clinton administration. Debts do not increase if you have balanced budget. Ergo, we did not have a balanced budget.

    The last time we had a balanced budget was back in the 1950's.

    Now, I will grant you that, for a few years, in the context of a stock market bubble and open political warfare between the legislative and executive branches, the deficit got rather small for a while, before surging again. But "balanced"? Nope, did not happen. And we should not falsify history by pretending it did.

  12. The reason why even this somewhat "pessimistic" on its face post is wildly – wildly – optimstic is that it assumes that even a 100% spending cut plan would be acceptable to the Republican base. It would not be. Any 100% spending reduction plan – heck, any 50% plan – would necessarily cut programs which are cherished by the Republican base.

    The base wants to cut "bad" spending, but likes social security, defense, and medicare, as well as a few lesser programs. You can't come close to balancing the budget without cutting those programs deeply.

    Oh, sure, there are a few true fiscal conservatives out there who would welcome such cuts. They probably represent less than 25% of the Republican base, though. Heck, on medicare alone the Republicans have become MORE adverse to cuts than the Dems, because retirees are an increasingly large part of their base. On defense, despite some encouraging (though small) signs, any Repbublican who supported such cuts would be demagogued & defeated.

  13. Steven,

    What evidence do you have to back up your assertion that Republicans WANT to reduce the deficit? I truly believe the Republicans are who they have been for the past three decades: They talk about reducing the deficit to get elected – then when elected, ramp the deficit more aggressively than Democrats and blatantly lie about their actions to the gullible public. Still waiting for those WMD's in Iraq, by the way.

    Theorizing is all well and good, but this thread begins with the assumption of a willingness to ACT by Republicans that they have simply not shown in my lifetime. I'll believe it when I see it.

    If anything, Steven, this "deficit reduction" will be nothing more than an increase of the Bush tax cuts for the upper class, with an added increase on taxes for the middle class. Note that we could substitute "class warfare" for "deficit reduction" in the last sentence and still be correct.

  14. Brett:

    The national debt went up, slightly, under Clinton in current dollars. In inflation-adjusted 2000 dollars, it went down from $5,750 bn in 1999 to $5,628bn in 2000. Source Wikipedia, citing US government budgets. Before you say that's cheating, how do you think debt burdens are reduced absolutely except by inflation and (more or less) balanced budgets like Clinton's? Even Lord Liverpool's reactionary Tory government in Britain after the Napoleonic wars, facing a debt-to-GDP ratio now calculated at 290%, eventually gave up on the attempt to reduce the national debt absolutely by a sinking fund. Balanced budgets and economic growth gradually brought the ratio down.

    Anyway the important indicator for sustainability is the relative burden, the debt-to-GDP ratio, which fell steadily throughout Clinton's terms from 66.1% to 56.4%. The relative debt burden depends on the primary budget surplus or deficit, excluding debt interest, not the gross one. Run a primary surplus (deficit), and the debt will mathematically increase by less (more) than the rate of interest paid on it. The real rate of interest in equilibrium is close to the growth rate, so the debt-to-GDP ration will decline (increase). The surplus Clinton ran was the primary one. The Clinton economic policy was run by professionals, and this was exactly what they wanted. SFIK it's what they said at the time.

    There were quite a few things wrong with Clinton – Rwanda sticks in my gullet – but imprudent budgeting wasn't one of them.

  15. @ Brett:

    In fiscal 2000, total federal revenues were $2,025,198 million and total federal expenses were $1,788,957 million, resulting in a surplus of $236,241 million.

    Now, you can argue that this is not the most meaningful way to measure the surplus or deficit. For example, Social Security was running a surplus so that it would have money to pay the baby boomers when they retired. Since that surplus is already allocated towards future spending, it is a different beast than a surplus in the general fund. As another example, the Post Office was set up to be a separate business operating at break even over the long term. It is not clear that it makes sense to included year to year fluctuations in the Post Office's business in the budget figures. For reasons like these, Congress has declared certain programs to be "off budget". Excluding those programs, we have $1,544,614 million revenues and 1,458,192 expenses, which reduces the surplus to $86,422 million.

    Another approach is to include all programs, but adjust for changes in trust fund balances. The Social Security trust fund is the big one, but there are lots of others. In fiscal 2000, the total balance of all trust funds increased by $234,612 million. Since there are plans to spend this money some time in the future, it makes sense to subtract it from the surplus. This leaves us with a surplus of $1,629 million, which is effectively zero relative to the size of the federal budget.

    In short, there are various ways to define the federal surplus/deficit, and the simplest definition (total revenues minus total expenses) isn't necessarily the best one. You are entitled to argue in favor of a definition which shows a deficit rather than a surplus for 2000, but labeling alternative definitions "accounting fraud" doesn't help your case.

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