One of the touchstones for GOP members has been the pledge to “pay as you go” — covering any increases in spending with corresponding cuts in spending or new revenue. The campaign season appears to have taken its toll on that pledge with tax cuts that can add nearly $1 trillion to the federal debt.
I am obviously more conservative on economic and tax issues than many on our blog. (It is probably the hold of the University of Chicago education in my impressionable youth). However, I remain alarmed by our continuing mounting debt at a time when countries around the world are facing defaults and crisis ager periods of rising state debt. We just discussed the deficit figures this week. I was a critic of Bush for his runaway spending, including the two wars, and I also believe that Obama has shown a lack of spending control (as has Congress). While debt is part of the reality of modern economics for any state, our debt is massive and we are spending an inordinate amount of every dollar to simply pay for that debt.
The economists differ on where the redline may be for debt as a percent of GDP. We are currently eleventh in that ratio. Japan is over 180 percent while Greece is just under 150 percent. Italy is in third place at 109 percent. We stand at around 61 percent of GDP. Some economists view 70 percent as the red line.
Despite this concern, the U.S. is actually paying less on its debt service due to the effort to keep interest rates low. We are paying about seven percent on that debt which is down from the 1990s due to the shifting interest rates. That leads some to argue that we can add even more debt to offer incentives for growth. I admit that I have long been a skeptic of government programs to jump start an economy of this size. What we saw under Bush and Obama in federal subsidies, bailouts, and “growth” programs seemed highly wasteful and often involved dubious accounting of the true costs.
Jeffrey Dorfman has an interesting article in Forbes rejecting the GDP ratio as a measure. He notes:
This also offers a better comparison because different countries have very different levels of taxation. A country with high taxes can afford more debt than a low tax country. Debt to GDP ignores this difference. Comparing debt to tax revenue reveals a much truer picture of the burden of each country’s debt on its government’s finances.
When I compute those figures, Japan is still #1, with a debt as a percentage of tax revenue of about 900 percent and Greece is still in second place at about 475 percent. The big change is the U.S. jumps up to third place, with a debt to income measure of 408 percent.
The most recent measures allows for some positive changes like $155 billion research and development tax credit and a $90 billion expansion of the child tax credit to higher-income families. However, in the past, the GOP has insisted on paying down or at least covering such costs so not to add to the national debt. The failure to do so was attacked by Minority Leader Nancy Pelosi as hypocritical. Pelosi was not championing the “pay-as-you-go” policy but noting that past Democratic measures have been opposed on the basis for that policy.
The fact that these measures involve tax cuts will likely insulate the members from a backlash on the campaign trail but the “pay-as-you-go” approach just seemed to morph into “spend-as-they-went” back home to campaign.