Mitch McConnell, the Bush Tax Cuts, and the Future of Government

By :: September 16th, 2010

Senate Republican Leader Mitch McConnell (R-KY) wants to permanently extend all of the Bush-era tax cuts. He’s also rejected even modest efforts by President Obama to restrain the growth of Medicare. He is opposed to efforts by Defense Secretary Robert Gates to control future Pentagon spending. And he favors a constitutional amendment that would require a balanced budget. It all got me wondering: What would such a McConnell government look like?

Let’s give his constitutional amendment time to become law and use 2020 as a target year. The Congressional Budget Office projects a current law deficit of $685 billion in that year. Extending all of the 2001 and 2003 tax cuts would add another $500 billion, so let’s round to a 2020 deficit of $1.2 trillion.

CBO figures Pentagon spending in 2020 will be about $900 billion. Medicare will spend another $900 billion. Since I don’t imagine the senator would let the nation default on its debt, there goes another $900 billion or so (CBO figures current law interest payments of about $775 billion, plus another $100 billion on the debt run up by those ongoing tax cuts). Finally, the senator hasn’t said, but I’m assuming he'd protect programs such as military retirement and veterans benefits—that’s another $150 billion off the table. Thus, of total projected outlays of $5.5 trillion in 2020, McConnell would leave roughly $3 trillion unscathed.

Thus, to balance the budget McConnell would have to slash the rest of the federal government in half. If you are tea partier, that probably sounds pretty good. But let’s look at what that would mean.

The biggest remaining program is, of course, Social Security. It happens that projected Social Security spending in 2020 is almost exactly equal to the $1.2 trillion McConnell would need to balance his budget.  But the vast bulk of that money would go to those who are already 60 or older and there are no serious proposals to make substantial reductions in benefits for those retired or close to it. The one change that might—slowing annual cost of living benefit increases —would reduce total payments by only about 4 percent by 2040. So there isn’t going to be much dough there, especially as soon as 2020.

What’s left? Well, McConnell would have to abolish all the rest of government to get to balance by 2020. Everything. No more national parks, no more Small Business Administration loans, no more export subsidies, no more NIH. No more Medicaid (one-third of its budget pays for long-term care for our parents and others with disabilities). No more child health or child nutrition programs. No more highway construction. No more homeland security. Oh, and no more Congress. No more nothin’.

We’re not talking about a temporary 1995-like government shut-down here. We are talking about a government that exists only to fund national defense, provide benefits to the already- or soon-to-be retired, and pay interest to the Chinese and our other lenders.  

Of course, I've presented a simplifed story. If McConnell really tried to do something like he has described, his cuts probably would take place over several years, thus the one-year shock would be softened and 10-year interest costs would be somewhat lower. And, I'm sure anyone could quibble over a few tens of billions here and there. Still, the end-game would be roughly the same.      

As my Tax Policy Center colleagues Rosanne Altshuler, Katie Lim, and Bob Williams have written, balancing the budget by raising taxes on high-income people alone is unrealistic. But as my little exercise shows, it is equally absurd to try to do it by only cutting spending, especially when you try to work within McConnell’s self-imposed constraints.

McConnell himself won’t say how he’d pay for these ongoing tax cuts. He does back a freeze in domestic discretionary spending—an idea that would leave him about 93 percent short of his balanced budget goal. As to the rest, he says he’ll await Obama’s deficit reduction commission that will report, conveniently enough, after the election. 

I understand that with the tea partiers breathing down his neck, the Senate GOP leader thinks he can say nothing less than tax cuts uber alles. But I fear the rest of us will be saddled with the consequences of McConnell’s irresponsible pandering.     

     

11Comments

  1. Anonymous  ::  4:17 pm on September 17th, 2010:

    He's just waiting for David Koch's check to clear, then he can quietly let the tax cuts on the wealthy go through. More realistically, he knows he doesn't have the votes to save the tax cuts for the wealthy and when push comes to shove, he will let the tax cuts for the middle class go through. I suspect he is just going down swinging to please the base. The only other explanations are intellectual stubbornness (or stupidity – and I don't believe the latter) or bad staffing by true believers who can't add (I don't believe that either, as tempting as that would be).
    Of course, he helped us get into this mess, largely because he is locked into the no tax increases meme – even when he was governing. Boehner is locked into the same story, which is why I suspect their party will never be allowed to govern again (or at least should not be).
    If Mitt Romney were their standard bearer – rather than either Palin or Gingrich – I could be more sanguine about eventual Republican government avoiding a financial meltdown over “tax stubbornness” or simple incompetence. That is by no means assured, however.

  2. Anonymous  ::  6:44 pm on September 17th, 2010:

    “McConnell himself won’t say how he’d pay for these ongoing tax cuts.”
    Oh that's easy. Haven't you heard? The tax cuts will result in so much private sector innovation and growth that our GDP will magically EXPLODE and tax revenue will come flooding into the government at levels almost unimaginable.

  3. Anonymous  ::  7:52 pm on September 17th, 2010:

    You have to really not be paying attention, or be supplied with a ridiculous amount of cognitive dissonance to not know everything that's in this post already. The tea partiers, Republican party, hell, even the Democratic party – none of them are truly serious about doing what needs to be done to return to something close to fiscal sanity. Democrats won't touch entitlement spending (or defense spending, apparently) and Republicans won't touch Defense, taxes (except to cut 'em), or Medicare/Medicaid (which are now just as much Republican holy grails as Dems). Since “compromise” is a completely foreign concept to the way our current govt works, I have less and less faith that ANYTHING will happen.
    I do think we're lucky that Obama is in office – of any politician I can think of today, he may be the most rationale to try and get something done (the only adult in the classroom, it seems)… but since the entire deck is stacked against him…

  4. Anonymous  ::  3:17 pm on September 20th, 2010:

    The debate is not to “cut taxes”. We are discussing an INCREASE on the current established tax rate in the middle of a poorly performing economy. Using the logic depicted by several of the posts, we would need to “pay for” not increasing the tax rates above the pre-Bush levels as well. Extending that logic, shouldn't we just increase the rax rate on “the rich” to 50%, 60%, or whatever the govt needs? At what tax rate has “the rich” made their “fair” contribution? The writer depicts entitlement expenditures are the primary source of our fiscal problems, and clearly reductions there are not popular. However we can implement entitlement reduction plans now or be forced to later.

  5. Anonymous  ::  3:58 pm on September 20th, 2010:

    Excessive government spending should not be a reason to condone more taxes. This article essentially says that because we have a government that has a spending problem, we the people need to fork out the dollars. Whatever happened to fiscal responsibility? Every citizen regardless of wealth pays the price when taxes are increased. There is a better way of taxation and it's called the FairTax. Visit us at http://www.fairtaxforum.com to unplug yourself from this oppressive taxation paradigm.

  6. Anonymous  ::  5:05 pm on September 20th, 2010:

    I love the one sided view here. How much more will the government have to spend when the “rich” figure out that their NET income will drop from these tax increases and they figure out that to make sure they maintain their current NET income that they have to make more. And to make more they have to reduce expenses. And the biggest variable expense is usually labor-they eliminate jobs. The “rich” will not take home less. They will figure out how to fix that. And in many cases it will result in less jobs in the other income levels and more expenses for the government. I know Obama has an Ivy league education so surely he knows these things don't happen in a vaccuum. So raising taxes and make no mistake, eiminating a tax reduction is a tax increase, during a recession will extend the suffering of the lower income brackets. The rich are rih because they figured out “how to get theirs” and this politcal solution hurts the working poor and middle class-not the rich. They will “get theirs”.

  7. Anonymous  ::  6:31 pm on September 20th, 2010:

    Actually, since the wages of others are deductible, they are more likely to expand in order to make up the difference – as they did under Pres. Bubba Clinton (who also cashed in on the peace dividend).
    I look askance at any analysis of the hiring and firing patterns of the rich who do not first face the question that wages paid to others are deductible. Since they can't, one can only assume that they are parroting another “Big Lie” that people often state but which has no basis in reality.

  8. Anonymous  ::  6:38 pm on September 20th, 2010:

    Defense Spending is the only real place that can be cut safely – as there really are no external enemies that justify the Pentagon R&D budget. Afghanistan is best left to allowing the Afghani tribes to bolster their own civil society, possibly with the aid of neighboring states. Let Iran protect Baluchistan, Pakistan deal with Pashtunistan, Tajikistan protect the Tajik north and Uzbekistan the Uzbeki north. Korea is a backwater which the South Koreans could likely handle on their own – although current garrisoning certainly does not require the current defense budget. While R&D industrial base is important, it would be better to shift that base to space exploration and away from the Pentagon, which should be cut back (especially at the General Officer and 0-6 levels) and frozen hard.
    It's time for the Ron Paul wing of the TEA Party to make its pressence known on the defense debate – which is likely the real reason McConnell tried to fight off Rand – as McConnell is in bed with the neocons.

  9. Anonymous  ::  11:48 pm on September 20th, 2010:

    The hiring of additional work force for the tax write off is a factless argument. All expenses are deductable so you don't spend in a business for tax write offs. As you are taxed on profits and there are only three ways to increase profits: Sell more goods, sell your goods for a higher price, or cut expenses. Anything else is a form of one of those three. Spending more to reduce profits does decress your tax burden but so does shutting down your business. The tax argument is usually made by someone that has never run a business. Tax incentives to add new employees can help as long as the business can sell the additional goods or services at an exceptable margin. But with consumers not spending as much that is not an option for many.

  10. Anonymous  ::  8:13 pm on October 9th, 2010:

    An important item in the tax debate that is not getting enough attention is the definition “wealthy” or “rich” that is thrown around. Many in Washington define it as someone making over $200,000 per year. If you live in a high cost of living place, however, that amount is very far from wealthy, especially if you have young kids and a family to support. While that amount might be considered a lot of income in certain areas around the US, that is simply not enough of an income for a family in New York, Boston, San Francisco and other high cost of living areas to be considered rich.

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