Three Ways the GOP will Sabotage the Government and the Economy in 2015
As 2014 comes to a close, the American economy is finally starting to take off. The U.S. gross domestic product (GDP) surged by five percent in the third quarter, the best performance since 2003. Employers hired 321,000 more workers in November, marking the 57th consecutive month of private sector job gains. With unemployment down to 5.8 percent, long-stagnant wages are now showing signs of edging up. Plummeting gas prices and record stock prices are putting more money in Americans' pockets and bank accounts. Meanwhile, federal tax revenues have exceeded forecasts even as spending is flat (as it has been throughout the Obama presidency), resulting in shrinking deficits. It's no wonder consumer confidence is at its highest level in seven years.
But with Barack Obama's approval numbers on the upswing, the new Republican majorities in the House and Senate have a simple message for the president and his Democratic allies: Nice economy you have there; it would be a shame if anything happened to it.
That's right. With their toxic combination of bad budgeting, bad math and bad faith, Republicans are once again threatening to cripple the federal government and derail the American economy in 2015 in three different ways.
- Gutting the IRS
- Cooking the Books
- Holding the Debt Ceiling Hostage (Again)
Head below the fold to find out specifically how.
Gutting the IRS
The GOP's gangster approach to government starts, but certainly doesn't end, with gutting the budget of the Internal Revenue Service (IRS). As Politico reported, in the just complete "CRomnibus" spending bill, Congressional Republicans once again took an axe to their least favorite government agency:
Spending negotiators this week froze most agency budgets but reduced the IRS funds to $10.9 billion, a 3 percent cut over last year and $1.5 billion below the president's request. Appropriators bragged in a release that the level is even lower than the IRS's 2008 budget.
Those new cuts come atop more than a $1 billion reduction to the IRS budget since 2010, which has forced the tax-collecting agency to shed 13,000 employees while it serves an additional 7 million taxpayers, according to IRS Commissioner John Koskinen.
The results of this right-wing temper tantrum are as predictable as they are counterproductive. IRS customer service will continue its steady erosion. Even before the cuts, only 53 percent of taxpayers calling the agency for help were projected to even get through, while wait times were forecast to grow to 34 minutes. IRS Commissioner John Koskinen warned that the tax collector may have to resort to furloughs and shutdowns to balance its own books, painful steps which could delay taxpayers' refund checks. Meanwhile, the government's ability to prevent, detect and punish tax cheats, frauds and evaders will be further curtailed, with the result that the estimated $500 billion "tax gap" between what Americans owe Uncle Sam each year and what they actually pay will continue to grow.
As it turns out, the House GOP caucus was only delivering on RNC Chairman Reince Priebus' April promise that "we're done playing footsie here with the IRS" over its supposed scandals. But the real scandal is that Republicans and their conservative amen corner have for decades been doing something much worse to the IRS.
After their successful 1990s crusade to defang the Internal Revenue Service, the GOP is once again slashing its budget, demonizing its employees and even questioning the legitimacy of its mission. With its funding cut by Congress for five years in a row, the agency now has 10 percent fewer agents and officers than five years ago and fewer agents auditing returns than at any time since at least the 1980s. Even as congressional Republicans have blocked Obama administration efforts to end "inversions" that enable American corporations to move overseas to avoid paying taxes, the Government Accountability Office reported an epidemic of tax dodging by small businesses. The result is that the tax gap has mushroomed to an estimated $500 billion from $195 billion in 1998. To put that in context, that's roughly equal to the entire projected federal budget deficit for the past year.
By punishing the IRS for scandals that did not materialize and for simply doing its job in managing Obamacare tax credits and penalties, the GOP has opted for a "penny-wise, pound-foolish" policy of the worst kind. The IRS has repeatedly explained that each additional dollar added to its budget produces between 7 and 10 times more revenue for the United States Treasury. As Ezra Klein pointed out when House Republicans first slashed the IRS budget in 2011:
Converting dollar bills into $10 bills is an excellent way to pay off your credit card. Except, it seems, if you're a House Republican.
In the summer of 2013, then House Majority Leader Eric Cantor (R-VA) announced his party's intent to slash IRS by 25 percent, a move even Charles Krauthammer called "silly and small." (As IRS chief Koskinen warned Congress, "I have not figured out either philosophically or psychologically why nobody seems to care whether we collect the revenue or not.") Confessed tax cheat Michael Grimm (R-NY) is the perfect face of what Jonathan Cohn aptly labeled the "pro-deficits, pro-tax evasion" party.
Meanwhile, as National Taxpayer Advocate Nina Olsen warned in November:
"Unless we are able to correct this, very bad things will happen to taxpayers."
Cooking the Books
Preventing Uncle Sam from collecting tax revenue is one sure way to starve the government and increase budget deficits. Another is to systematically overestimate how much revenue federal taxes will generate in the first place. And by all indications, that's precisely what the new GOP majority in Congress plans to do beginning in 2015.
That's the meaning of the GOP's twin decisions to demand so-called "dynamic scoring" of budget legislation and to replace the well-respected head of the nonpartisan Congressional Budget Office, Doug Elmendorf.
Over the years, Elmendorf has established a reputation as an even-handed, no-drama authority whose budget estimates have both helped and hurt (especially on the $10.10 minimum wage proposal) President Obama's agenda. It's precisely because of that credibility that some Republicans, notably including the American Enterprise Institute and Bush economists Gregory Mankiw and Douglas Holtz-Eakin, want the new GOP Congress to keep Doug Elmendorf on for another term at CBO.
But as the New York Times reported, Grover Norquist, the Heritage Foundation, the Wall Street Journal and others in the "tax cuts pay for themselves" crowd want to replace Elmendorf with a compliant GOP ideologue. While AEI's Michael R. Strain gushed "Doug Elmendorf has been so exceptional, he seems to be trying as hard as possible to give a fair, unbiased review of academic literature on all these issues":
Not so, say the most ardent conservatives, who want Mr. Elmendorf, a former Federal Reserve economist, replaced as soon as his term ends on Jan. 3. Grover G. Norquist, the small-government, low-tax activist at Americans for Tax Reform, has prominently laid out an indictment that includes putting a supposedly inaccurate price tag on the Affordable Care Act and Mr. Elmendorf's "failed Keynesian economic analysis."
Dan Holler, a spokesman for Heritage Action, the political arm of the Heritage Foundation, agreed. "It would be absurd for a Republican-controlled Congress to keep Elmendorf at the helm of the C.B.O," he said. "For a party looking to change the culture in Washington, this would be a good place to start."
Especially if the culture Republicans want to change is one of honesty and fidelity to the truth.
Now, Republicans painted a target on the CBO long ago. When the agency in 2011 concluded that repealing Obamacare would increase the national debt, Eric Cantor called it "budget gimmickry." Then the 2012 GOP presidential front-runner went even further, declaring "if you are serious about real health reform, you must abolish the Congressional Budget Office because it lies." But it is on the subject of tax cuts that CBO scorekeeping has burst the most Republican blood vessels.
Ever since Paul Ryan introduced his "Path to Prosperity" budget, the incoming House Ways and Means Committee Chairman has faced the same $6 trillion, 10-year hole. After simple math showed that his tax-cut windfall for the wealthy would add trillions to the national debt, Ryan among other conservatives decided to change the way the CBO does math.
As Lori Montgomery of the Washington Post explained last month, the man Charles Pierce calls the "zombie-eyed granny starver" plans to change the way the nonpartisan Congressional Budget Office calculates the impact of tax cuts:
Earlier this year, Camp released a tax reform draft that showed the enormous difficulty of achieving Ryan's goal of getting tax rates down to 25 percent.
Ryan has said it would be easier to hit that target if the Congressional Budget Office used a process called "dynamic scoring" to measure broad effects on the economy when judging tax legislation. While CBO already uses dynamic scoring on a limited basis, Ryan said Wednesday he will have additional recommendations in the new Congress "for making sure we take these things into consideration."
As the Center on Budget and Policy Priorities (CBPP) warned in response, "Budget and tax plans should not rely on 'dynamic scoring' because the estimates it produces are "highly uncertain and subject to manipulation." Which is precisely why Paul Ryan and his Republican allies want to change the way math itself works as soon as they control both chambers of Congress. And if they succeed, voodoo economics will become a feature, not a bug.
In September, Ryan promised the Wall Street group, the Financial Services Roundtable, "I'd like to improve our scorekeeping so it better reflects reality." By "improve our scorekeeping," Ryan means forcing the nonpartisan Congressional Budget Office (CBO) to change the way it forecasts (or "scores") the impact of tax and budget legislation. And by "better reflects reality," Paul Ryan means rigging the outcome so GOP tax-cutting bills don't appear to hemorrhage the red ink they inevitably must. As The Hill reported:
Ryan said if Republicans take control of the Senate, they will be able to calculate the price tag of legislation differently. Republicans have long pushed for the Congressional Budget Office to use "dynamic scoring" when calculating the costs of legislation. Currently, the CBO scores legislation using static scoring, which does not take into account how behavioral changes brought on by legislation could in turn alter how much a particular provision costs.
But Ryan and Republicans argue that adopting a new scoring method would make it easier to adopt revenue-neutral policies, and also paint a more accurate picture. If the GOP controlled Congress, they could change the calculation methods employed by the CBO.
"The scorekeeping we use is not correct," he said.
Ryan's crusade to magically whitewash red ink has been a Republican cause for decades. To one degree or another, pretty much every major Republican tax cut scheme from Reagan in 1980, Dole in 1996 and Bush in 2000 to Mitt Romney in 2012 and Paul Ryan's "Path to Prosperity" budget have claimed that the hemorrhage of revenue for the U.S. Treasury from their gargantuan tax cut windfalls for the gilded-class would be offset by "macroeconomic feedback," or bigger collections from a supposedly surging economy. Without resorting to the sleight of hand that is dynamic scoring, these GOP budgets invariably produce red ink as far as the eye can see. That's why House Republicans last proposed H.R. 3582 (the "Pro-Growth Budgeting Act") to require that the CBO estimates also use dynamic scoring to incorporate "supply-side assumptions about the growth-generating magic of tax cuts into official budget estimates, enabling conservatives to evade the deficit-boosting implications (and various congressional barriers that come along with them) of their pet proposals for reducing the tax burden of 'job creators.'"
Most analysts have encouraged the Congressional Budget Office and other forecasters to steer clear of dynamic scoring for two very compelling reasons. First, there's no consensus on how to model it, making the process ripe for manipulation and political chicanery. As former deputy assistant director for tax policy at the Congressional Budget Office and current fellow at the Tax Policy Center Roberton Williams warned:
"We really don't understand the science well enough to do it right. The assumption built into the model determines, in large part, what comes out of the model. There's going to be conflict unless there's some agreement on what ought to go in."
But it's not just that "there's a great deal of uncertainty" about "the right way to model things," as TPC's Donald Marron put it. There's also the matter of the historical record: for over 30 years, bogus conservative claims about the revenue-increasing effects of tax cuts have been proven cataclysmically wrong.
It's worth noting that current conservative economic propagandist and former McCain economic adviser Douglas Holtz-Eakin couldn't make the dynamic scoring alchemy work for the Bush administration, either:
In 2003, Doug Holtz-Eakin was appointed by Republicans to lead the CBO during the Bush years, and he came under intense pressure to use more dynamic analyses. But studies he commissioned found that dynamic scoring was devilishly complicated and wouldn't lead to drastically different estimates. As he explained in a 2011 hearing before the House Ways and Means Committee, "it is unlikely to change the bottom line very much over the budget window."
Despite the bitter experience of the Bush years, Mitt Romney made the same GOP shell game part of his tax plan in 2012. As Ezra Klein suggested in "The Dynamic Dodge in Romney's Budget," Mitt's scheme once again resurrected David Stockman's "magic asterisk":
As a matter of theory, stronger economic growth could make Romney's plan work...if Romney really could double or triple the pace of economic growth, it would be much easier to make his numbers add up...
The technical term for the secret sauce that Romney is using in his budget projections is "dynamic scoring." The idea is that tax cuts make the economy grow faster. They make people work harder. They persuade rich people to stop hiding money away. And thus they don't cost as much as a "static analysis" -- one that didn't take into account all these effects -- would suggest.
As it turns out, Romney's 20 percent tax cut plan was basically the same one Bob Dole ran on—and lost on—in 1996. And the architect of that debacle, former Reagan Treasury official Bruce Bartlett, has long since recanted his support for the "dynamic scoring" at the heart of virtually every Republican tax plan. As Bartlett put it in 2012:
As the budget deficit increasingly inhibits Republicans' tax-cutting, they are planning ahead for tax cuts that they will insist are costless because they will so massively increase growth. But for that approach to work, the C.B.O. and the Joint Committee on Taxation, Congress's official budget and tax estimators, need to be forced to play along...
My concern is that the Republican effort is just a smokescreen to incorporate phony-baloney factors into revenue estimates to justify unlimited tax cutting...In other words, it is an issue of credibility. Republicans don't really care about accurate revenue estimates; they just want them to show that tax cuts pay for themselves, so they can pass more of them without constraint.
Constraints, that is, like the facts, the truth and the unchangeable principles of basic math. That's why Paul Ryan wants to rename the new math he and his GOP friends demand the Congressional Budget Office use:
"He also noted that he prefers the term 'reality-based scoring' over 'dynamic scoring.'"
Holding the Debt Ceiling Hostage (Again)
If the past 35 years have confirmed the inconvenient truth that Republicans' tax cuts have produced red ink as far as the eye can see, reality has another well-known liberal bias as well. Refusing to raise the debt ceiling, as both parties routinely did until 2011, will trigger a U.S. sovereign default and with it a global economic cataclysm.
You don't have to take my word for it. Just ask Republican leaders like Rep. Paul Ryan (R-WI), Senator Lindsey Graham (R-SC) and House Speaker John Boehner. In 2011, Ryan acknowledged that "you can't not raise the debt ceiling." Graham warned "the consequences for the entire global economy" resulting from a first-ever American default "would be catastrophic." Four years ago, Speaker-elect John Boehner issued this dire assessment if Congress did not increase Uncle Sam's borrowing authority to pay bills the federal government had already incurred:
"That would be a financial disaster, not only for our country but for the worldwide economy. Remember, the American people on Election Day said, 'we want to cut spending and we want to create jobs.' And you can't create jobs if you default on the federal debt."
Nevertheless, four years after Boehner's warning and 42 months after Standard & Poor's lowered America's credit rating in the Tea Party Downgrade of 2011, incoming House Budget Committee Chairman Tom Price (R-GA) promised to once again hold the debt ceiling hostage. As The Hill reported two weeks ago:
Rep. Tom Price (R-Ga.) on Friday said it would be "wise" for Republicans to follow a rule next year that would require any hike to the debt ceiling to be matched by equivalent spending cuts.
Known as the Boehner Rule, it would require Congress to impose "dollar-for-dollar" cuts to offset any hike to the debt ceiling. The practice was established by Speaker John Boehner (R-Ohio) and used for much of 2011 after Republicans won House majority.
"I think it was wise, we kind of fell away from that," Price said. "Anything that gets us further in the direction of true reform to save and strengthen your Medicare Medicaid and Social Security is a wise thing for the country but it also helps us from a debt and deficit standing."
Price dismissed the suggestion that reviving the rule would prompt a showdown with President Obama.
"Having these crises moments, I prefer to think about as pinch-points to get good policy," Price said.
Unfortunately for the American people, virtually every other sentient creature has different view. As MSNBC's Steve Benen summed up this once-and-future extortion scheme:
As Price sees it, the GOP-led Congress will tell the Obama administration, "We'll cooperate, but only if you slash public investments. If not, we'll default on our debts, crash the economy, and destroy the full faith and credit of the United States."
Chairman Price's blackmail threat doesn't just fly in the face of Mitch McConnell's promise that "there will be no government shutdown or default on the national debt." Price's debt-ceiling is all the more irresponsible given the steep reduction in federal budget deficits that even Boehner admitted means "we have no immediate debt crisis" and nondefense discretionary spending as a percentage of the U.S. economy is already down to levels not seen since the 1950s. Worse still, even threatening default, as the experience from the summer of 2011 showed, costs the government money and undermines economic growth.
The GOP's unprecedented debt ceiling brinksmanship which began four years ago didn't just cost the Treasury billions of dollars in higher borrowing costs. American consumer confidence nose-dived during standoff in the summer of 2011:
Why has the job market cooled so much? An important factor, many economists say, is that signals from government lately have been hurting rather than helping confidence. The protracted talks over the nation's debt ceiling this summer appeared to dampen the spirits of consumers and businesses alike.
On that point, S&P left little doubt in pointing the finger at the kamikaze conservatives in Congress:
A Standard & Poor's director said for the first time Thursday that one reason the United States lost its triple-A credit rating was that several lawmakers expressed skepticism about the serious consequences of a credit default -- a position put forth by some Republicans. Without specifically mentioning Republicans, S&P senior director Joydeep Mukherji said the stability and effectiveness of American political institutions were undermined by the fact that "people in the political arena were even talking about a potential default," Mukherji said. "That a country even has such voices, albeit a minority, is something notable," he added. "This kind of rhetoric is not common amongst AAA sovereigns."
Such voices are indeed uncommon—except among congressional Republicans.
And so it goes. There is every indication that 2015 could be a great year for the American economy. Robust economic growth, strong hiring, cheap energy and the prospect (finally) of rising wages augur well for real improvement in Americans' standard of living. Unless, of course, Republicans get in the way. But by threatening to block judicial and executive branch nominees, handcuffing the IRS, demanding make-believe budgets and risking the full faith and credit of the United States, the GOP appears dead set on doing just that